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RE: How to fix Steem Inflation? - RESCUE PLAN
Can you please explain the main difference between "Bitcoin Backed Steem" and "Steem Backed Dollars"? Is all we are doing pegging to BTC instead of USD, or is there more to it than that?
Example:
For example 50% reserve ratio. Jonny buys 1 BBS with Steem, smart contract gets executed, 0.5 BTC is bought on market and locked away, Jonny gets 1 BBS and 0.5 BTC is locked away maintaining it's value. This would back Steems value since it adds liquidity and demand to Steem, while it also creates a token that is tredeable and really backed.
When Jonny Sells it, he gets back 1 BTC, thought only 0.5 BTC is available, so it would create some inflation to maintain the peg, but nowhere near what SBD creates.
Thought it could be 75% , 90% or even 100% reserve, whatever the devs are comfortable with, but 0% reserve (currently) is the worst choice of all.
For the 50% that is actually backed by BTC, it seems like the user is essentially owning BTC but just calling it something different.
For the 50% that is not actually backed by BTC, it has the same problem as the current SBD model. If the user wants to "cash out" their BBS the blockchain is going to need to produce enough STEEM to buy those BTC. If the price of STEEM compared to BTC has gone way down (similar to what has happened today), it will still need to hyper-inflate in order to generate the amount of STEEM it needs to buy up the remaining 1/2 of BTC.
The main two differences seem to be that:
Half of the "cash out" is basically done ahead of time
The other half is pegged to BTC instead of USD
Well no it's not like BTC because our "BBS" asset would not be tradeable, but with Steem, so it would be a smart contract on this blockchain, that would swap BTC-BBS-STEEM in trio.
The ratio can be debated, but this would be much better than what it is today. Sure a 50% backing is still inflationary, but much better than 0% backing. It's not enough if you peg it, you need to back it in order to maintain the peg. And you cant use dollar, because that would essentially make Steemit a money transmitter and fall into the regulation dungeon, with KYC you name it. So we can only use cryptocurrencies that are not regulated. Bitcoin is the perfect reserve currency IMO.
Well yes the same restrictions could apply, if the reserves are shrinking, some limited capital control can be done to created, or perhaps positive rewards like increasing STEEM POWER long term interest rate
We could also reform STEEM POWER, in such way that longer interest rates could be bigger than short term interest rates. So for example those that hold SP for X period without power down, get bonus interest.
A lot of the monetary policies can be reformed to incentivize holding and dis-incentivize selling, even positively without imposing capital controls. Again I am not in favor of capital controls those should be reserved for worst case scenarios.
But playing around with the interest rates could incentivize people, I guess I have to write a new article about it, you gave me a few more new ideas.
So holding a reserve is definitely an interesting idea. (Like Fort Knox holds a reserve of US gold.) You are right that it would most likely need to be in BTC instead of USD because of the regulations. With today's market conditions, the 50% that is held as 'reserve' would help to combat the inflation. The flip side though is that if the BTC goes way down or STEEM goes way up, then the money that had been put into the reserve would essentially be lost/wasted (or at least significantly reduced). I would argue that it is essentially a hedge, and would more or less have the inverse effect of the 'non-reserve backed debt' portion of the coin.