RE: Another Puzzle: Why is the blockchain's reported median price higher than the actual price of STEEM?

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RE: Another Puzzle: Why is the blockchain's reported median price higher than the actual price of STEEM?

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moecki (71)in #steem • 2 years ago (edited)

That is a very good question that I have always wanted to look into. So now is the chance ;-))

I can only reconstruct this as far as the chain calculates it. The code has already been discussed in your linked post.

The market cap of all SBD should not exceed 10 % of the combined market cap. Once this percentage is exceeded, the minimum price does not fall further. A further drop in the price would increase the total market cap and thus lead to the printing of more SBD.

price	virtual_supply	sbd_percent	print SBD
$0.22	487,000,000 STEEM	9.86 %	yes
$0.15	513,000,000 STEEM	9.36 %	yes

However, printing more SBD would again lead to an increase in the total market cap and so on.

It would be interesting to know why the value was set at 10% for the price limit. I have not found any information on this. At the introduction of HF 14, this 10 % has already been set.

It is only remarkable that with HF20 the threshold for the printing pause were adjusted to this limit. Before that, they were much lower. The increase was surely better for the users, but the debt rate rose faster this way (even if no one could really imagine it at the time). There was an extensive discussion on this.

Oh yes, the limitation of the median_price could also be related to the possibility of manipulation by the witnesses. I once read a thought on this, but I can't find it right now...

2 years ago in #steem by moecki (71)

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remlaps-lite (76) 2 years ago

Oh, that helps to jog my memory. Here was the post that started it all, Steem Dollar Stability Enhancements, and here are the HF14 release notes. And, yeah, it's there in the release notes, sort-of...

When Steem Dollars reach 10% of the market cap, the price feed will jump off the peg to keep Steem Dollars at 10% of the market cap and will return to the peg when the reported price feed goes below 10%. Witnesses should still report the real dollar value of Steem for their price feed. The median price feed is automatically capped regardless of what witnesses report. (emphasis added)

And now I see where this came from in the comments of the first post, Steem Dollars have Limits.

There are two extreme cases, black swans, that must be considered. In one extreme the price goes to 0, in the other extreme the price goes to infinity. It is in the interest of everyone involved that the value of a Steem Dollar never hits either extreme. This can be implemented in objective terms by setting hard limits on the exchange rate range that is allowed.

We can set a maximum and minimum Steem Dollar price as follows:

maximum price = SteemSupply / (10 * SteemDollarSupply)
minimum price = SteemSupply / (10000 * SteemDollarSupply)

With these rules in place, Steem Dollar holders are protected against US dollar hyperinflation and Steem holders are protected against US dollar “hyperdeflation”. The witnesses are trusted to publish a honest price feed relative to dollars at all times, but the blockchain will enforce these hard limits.

In other words, the market cap of all Steem Dollars will always be between 0.01% and 10% of the Steem market cap.

Not sure, but my guess is that those percentages were just someone's hunch for reasonable values to use. I wonder if they also implemented that 0.01% rule. I don't see that in the release notes, and I don't remember hearing about it, so maybe not.

P.S. That discussion is painful. Herding cats. ; -)

$0.08

2 votes

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moecki (71) 2 years ago

Thank you for the links. I need to read more from him.

I wonder if they also implemented that 0.01% rule.

I don't think this has been implemented. I haven't noticed that in the code either so far. Maybe there is still some information from Dan somewhere. The release notes only describe the minimum price.

But we may conclude that the limits were introduced with very good reasons. And all those who complain that no more SBD are printed should bear in mind that more is not always good!

BTW: At first I thought the idea of forced conversion was not so bad...

$0.07

4 votes