RE: STEEM DOLLAR Will Fall To $1 USD : Here’s Why
The issue is not whether it can sustain its high value "forever" but for how long. It has already been high, and volatile, for two months. The last time it de-pegged (spring 2017), it took about 3-4 months to fully return to $1. During these periods its utility as a stable value token is destroyed. Businesses that started to bloom around Steem making use of SBD had to abandon their plans and pivot or shut down. The interest in improving the peg mechanism (which in relying solely on accumulation of massive supplies of SBD to limit price gains has only a very weak, and very slow, response to demand spikes) is directed at avoiding continuing to have these incidents (even if each is temporary), which disrupt several important functions of the blockchain and greatly reduce the potential value-add of SBD to the platform.
Personally I am not looking for faster timing of the drop, I don't care about the short term movements. What I am interested in is improving the mechanism going forward so that SBD (and by extension the entire Steem blockchain) becomes more useful and valuable.
Ah you are saying that relying solely on the print functionality is not enough to prevent further demand spike incidents.
My theory on this is that in the mature state, the print rate would just be so high that a demand spike could not last for so long, and we are anyway better at propping up the value when SBD is below 1 USD. Likely we will be loosening these parameters to accommodate such spikes. Is this too naive?
Also, I would be interested in your response to the @twodollars abuse scenario here. Is there a potential problem with reverse conversions?
This is absolutely possible. But it won't be the case for a long, long time, if ever. Your model depends on the natural supply rate always being higher than any current rate of demand to increase holdings of SBD (with the difference made up using SBD-to-STEEM conversions). Without knowing the behavior of future demand, which is impossible, it is also impossible to predetermine a rate of supply such that we can be confident that the supply rate is always going to be higher than demand rate. Even if we could, given the existing design constraints such as an already-determined total inflation rate, it is difficult to envision how we could raise the SBD creation rate enough to chang this unless that creation comes with an associated destruction/conversion of STEEM.
Regarding the abuse scenario I don't have time to work through his scenario in detail but I have considered many and nearly all if not all rely on being able to predict the price or assuming the ability to unilaterally move the price without losing money doing so. (Both being assumptions I consider questionable at best.) While I don't think anyone really believes that these conversion mechanisms are completely impervious to abuse, most of us do believe that abuses are limited and that allowing SBD itself to be subject to rampant manipulation allows even more damaging outcomes, including loss of utility of SBD as a stable value token and the associated opportunity costs that arise because of uses that will never happen.
Ah okay. Thanks again for your reply!
I want the peg as the end state, but didn't think this reverse conversion would work.
The cited abuse path does make the assumptions you stated, so it is likely something you been have already thought about. And it sounds like you have measured the risk of this to some extent and the spread at least could mitigate this. Hell even a large spread would still make me want to do the reverse conversion in the beginning anyway if I had spare steem.
To be honest, if there are enough risk mitigation factors and fail-safes in place, I would not be opposed to this procedure, as a peg is a completely sensible thing to have.
However, do you think it makes sense to see how the market reacts to the current rate of printing? Because it does seem to be a relatively new phenomenon. (Although I suspect your position here is that this is already too long, the two months)
Not only the two months so far now, but this is the second occurrence of largely the same phenomenon. It happened last spring as well, and took about four months to resolve. So over the past 12 months, the peg has been working only 6 of those months. To me it is clear by now that this is not only not working well, but imposing real costs on Steem in terms of both distortion of the intended incentives (curation, vesting, self-voting) as well as missed opportunities to attract business and capital with a working stable value token.
Thanks for jumping in here @smooth with some thoughtful comments. This is a great little thread of discussion right here. I just need someone with more voting power than me to bump the original comment to the top for me.