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RE: Witness SBD pegging policy update
Economic principles always perplex me. Wouldn't increased interest rate on SBD further encourage users to hold it (for stable rewards, rather than decreasing reward value from holding steem/vests) resulting in further reduced demand for the $1 worth of steem per SBD? You will have to excuse my ignorance in these areas, as this question is likely one which appears dumb to those with a better command of these principles.
The use cases for a stable value token and a highly speculative token such as STEEM are going to be very different. This is a bit like asking whether a lower price for bicycles would reduce demand for airplanes. In some extreme theoretical sense, it might, but not very meaningfully.
I may still have misunderstood your question in which case please let me know. I'm happy to try to explain things to the best of my ability.
Maybe I have misunderstood the post from the outset, your intention is to further incentivise people to hold SBD by increasing interest rewards from 10 to 15% correct (when I originally read it I thought it was the opposite, which is why I was confused)?
Assuming that is what you want then increasing the interest for holding makes sense. However by what mechanism other than an increase in steems market cap can the burden of SBD debt be reduced, and is a further increase in interest reward sustainable? Also why is an interest reward necessary, should not protection from asset volatility be reason enough for people to want to hold SBD, especially in a down market?
I still think there are some fundamental flaws in my understanding of the economics of all of this. No worries if you've no time to answer my questions. I understand you are busy! Thanks for getting me to think more about this. I will likely spend some more time reading and thinking about it in the coming weeks.
I'm not really trying to force any particular behavior here, I'm more trying to keep SBD from becoming (more than it already is) a hot potato. As distressed debt that carries the real possibility of principal losses, a significantly higher interest rate is necessary to make it a viable holding. 15% may well not be high enough, but I'm taking a somewhat gradual approach. If I still see signs that it is being sold for lower and lower prices, I will propose further increases.
As for the mechanism for reducing debt, that comes (and is already coming) from conversions, where SBD holders request to be paid in STEEM, which destroys the SBD, retiring the debt. This happens for several reasons:
All of these are supported by witnesses including a discount in their price feeds, which gives more slightly more STEEM for each SBD converted, as well as the price of SBD not being too high. Recently the discount factor has been about 9% and prior to recent weakness, price had been in the range of 92-96. Personally I feel that a discount factor of about 12-14% with a price of 95-101 is preferable (while offering the same conversion gross margin), but some witnesses have wanted to be more cautious about the size of the discount.
Interesting, thank you for taking the time to explain your thoughts to me! I appreciate it smooth. I think I understand this a bit better now, or at least I feel a bit more comfortable.