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Improve SBD to USD price peg #1839

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bitcoiners opened this Issue Dec 3, 2017 · 8 comments

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bitcoiners commented Dec 3, 2017

There are currently only about 3.5 million of SBD, so it does not take much money to pump price and break USD parity, as has been happening pretty regularly lately.
In order to improve SBD to USD price peg we could make it possible to create SBD at will, by putting up Steem as collateral, similar to how it is done in Bitshares when BitUSD is created.
This will help SBD keep price parity to USD as more will be created and sold if SBD gets more expensive that USD.

@bitcoiners bitcoiners changed the title from Improve SBD to USD price parity to Improve SBD to USD price peg Dec 4, 2017

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chenlocus Dec 7, 2017

This might be a short term surge of SBD, is it necessary to increase the supply of SBD at once? Why not wait for a period, e.g. if the SBD keeps on above 10% of USD for 1 month, then take actions?

chenlocus commented Dec 7, 2017

This might be a short term surge of SBD, is it necessary to increase the supply of SBD at once? Why not wait for a period, e.g. if the SBD keeps on above 10% of USD for 1 month, then take actions?

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joticajulian Dec 9, 2017

I think this would be good. because the SBD must be pegged to USD. In this moment there is a lot of volately.
In this post I talk about the same, a proposal for the SBD, we need that!!
https://steemit.com/utopian-io/@jga/steem-proposal-possibility-to-transform-from-steem-to-sbd-in-order-to-reduce-speculation

joticajulian commented Dec 9, 2017

I think this would be good. because the SBD must be pegged to USD. In this moment there is a lot of volately.
In this post I talk about the same, a proposal for the SBD, we need that!!
https://steemit.com/utopian-io/@jga/steem-proposal-possibility-to-transform-from-steem-to-sbd-in-order-to-reduce-speculation

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bitcoiners commented Dec 9, 2017

Here is another proposal on how to improve SBD to USD peg.
https://steemit.com/sbd/@timcliff/saving-sbd-proposal-to-restore-the-usd1-usd-usd1-sbd-peg

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iamsmooth Jan 10, 2018

Some of these proposals are controversial and there have been claims these proposed new mechanisms could be vulnerable to manipulation.

In addition we might consider changes to the passive elements of SBD creation that would help.

The basic idea being that a SBD shortage is what causes the peg to fail (by contrast, a SBD surplus is easily handled by the existing conversion mechansim), there are some more incremental ideas which can be used to improve the peg by increasing the supply of SBD in various ways:

  1. An an option for post payouts in 100% SBD (or 90% SBD, which could be favored because of the desire to retain a vested STEEM incentive component). When SBD is overvalued and in short supply authors will tend to choose this, increasing total SBD payouts.
  2. Pay out curation rewards in the same mix as the post, so when authors choose 50/50 (or the hypothetical 100%/90% SBD from #1 above) curators would receive the same mix, increasing SBD supply when needed.
  3. Pay out beneficiaries in the same mix as the post. Currently beneficiaries are always paid in 100% SP. As the beneficiaries feature has become more used, this has reduced the supply of SBD as an undesirable side effect. With increasing usage of the feature, this could get worse.
  4. Pay out witness rewards, or some portion thereof, in SBD. This has some logical basis in addition to being a means to improve the peg, and was proposed before independent of the peg question, since witnesses use rewards to pay for servers, etc. Locking it all up in SP doesn't really make sense.
  5. Remove the soft limit that reduces the SBD print rate when SBD/STEEM reaches 2-5% 'debt ratio'. This isn't an issue right now but has been in the past and could be in the future. With low priced STEEM, It is possible to have overvalued SBD while the blockchain starts printing less SBD and more STEEM, potentially making both problems worse. As a beneficial side effect, this eliminates the confusing occurrence for users of sometimes getting mixed payouts.

These likely would be less effective than reverse conversions but would certainly help and would have less risk of introducing unintended problems.

iamsmooth commented Jan 10, 2018

Some of these proposals are controversial and there have been claims these proposed new mechanisms could be vulnerable to manipulation.

In addition we might consider changes to the passive elements of SBD creation that would help.

The basic idea being that a SBD shortage is what causes the peg to fail (by contrast, a SBD surplus is easily handled by the existing conversion mechansim), there are some more incremental ideas which can be used to improve the peg by increasing the supply of SBD in various ways:

  1. An an option for post payouts in 100% SBD (or 90% SBD, which could be favored because of the desire to retain a vested STEEM incentive component). When SBD is overvalued and in short supply authors will tend to choose this, increasing total SBD payouts.
  2. Pay out curation rewards in the same mix as the post, so when authors choose 50/50 (or the hypothetical 100%/90% SBD from #1 above) curators would receive the same mix, increasing SBD supply when needed.
  3. Pay out beneficiaries in the same mix as the post. Currently beneficiaries are always paid in 100% SP. As the beneficiaries feature has become more used, this has reduced the supply of SBD as an undesirable side effect. With increasing usage of the feature, this could get worse.
  4. Pay out witness rewards, or some portion thereof, in SBD. This has some logical basis in addition to being a means to improve the peg, and was proposed before independent of the peg question, since witnesses use rewards to pay for servers, etc. Locking it all up in SP doesn't really make sense.
  5. Remove the soft limit that reduces the SBD print rate when SBD/STEEM reaches 2-5% 'debt ratio'. This isn't an issue right now but has been in the past and could be in the future. With low priced STEEM, It is possible to have overvalued SBD while the blockchain starts printing less SBD and more STEEM, potentially making both problems worse. As a beneficial side effect, this eliminates the confusing occurrence for users of sometimes getting mixed payouts.

These likely would be less effective than reverse conversions but would certainly help and would have less risk of introducing unintended problems.

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pfunks Jan 10, 2018

Any proposal that is seriously considered to increase SBD supply should keep in mind that debt ratio. While in the short term, adding network rules to change the balance of SP/SBD paid from posts or other emission channels would increase SBD supply and thus hopefully bring the market to where it is meant to be. However, in the long term, these network-level changes of Steem's constant token emission could have significant consequences for the SBD/STEEM debt ratio if another market downturn happens. If the ratio becomes too big, SBD emission would be reduced or eliminated again. This could create a situation where the downward pressure on the SBD market is very low and allow an above-peg pump even more easily.

Like @iamsmooth says in his 5th idea above, this could be solved by removing the limits of SBD emission if the debt ratio is high. I don't believe it's perfect but I do think the ratio has some merit in at least appearing to make Steem's economics more sound.

But the more direct and simple way of increasing SBD supply when the price is higher than intended, allowing STEEM->SBD conversions, has that same issue. A conversion solution as Tim Cliff proposed would only increase the SBD supply on a temporary basis, rather than increasing its emission at all times.

Increasing SBD's constant emission by way of curation rewards, witness rewards, or post SP/SBD ratios might help with the peg now, but it will be kicking a bigger problem down the road if the debt ratio isn't addressed in some way. I think direct conversions will create less SBD debt on the STEEM network, and will more directly serve the function of slapping the market value of SBD back to where it should be. If a new trader stumbles into something he/she doesn't understand and wastes their money pumping it, they will quickly learn not to again. I'm not sure if increasing the baseline of SBD emission will have the same effect.

pfunks commented Jan 10, 2018

Any proposal that is seriously considered to increase SBD supply should keep in mind that debt ratio. While in the short term, adding network rules to change the balance of SP/SBD paid from posts or other emission channels would increase SBD supply and thus hopefully bring the market to where it is meant to be. However, in the long term, these network-level changes of Steem's constant token emission could have significant consequences for the SBD/STEEM debt ratio if another market downturn happens. If the ratio becomes too big, SBD emission would be reduced or eliminated again. This could create a situation where the downward pressure on the SBD market is very low and allow an above-peg pump even more easily.

Like @iamsmooth says in his 5th idea above, this could be solved by removing the limits of SBD emission if the debt ratio is high. I don't believe it's perfect but I do think the ratio has some merit in at least appearing to make Steem's economics more sound.

But the more direct and simple way of increasing SBD supply when the price is higher than intended, allowing STEEM->SBD conversions, has that same issue. A conversion solution as Tim Cliff proposed would only increase the SBD supply on a temporary basis, rather than increasing its emission at all times.

Increasing SBD's constant emission by way of curation rewards, witness rewards, or post SP/SBD ratios might help with the peg now, but it will be kicking a bigger problem down the road if the debt ratio isn't addressed in some way. I think direct conversions will create less SBD debt on the STEEM network, and will more directly serve the function of slapping the market value of SBD back to where it should be. If a new trader stumbles into something he/she doesn't understand and wastes their money pumping it, they will quickly learn not to again. I'm not sure if increasing the baseline of SBD emission will have the same effect.

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pfunks Jan 10, 2018

And regarding allowing an author reward option to change the payout ratios of SP/SBD to include a 10/90% option or 100% SBD option: Doing that would harm what is part of the original magic formula of STEEM Power distribution. People contributing socially to the network earn a stake in it, and gain influence in it. This solidifies and turbocharges the network effects. This is a topic probably better suited for another place or thread, but I felt the need to bring it up outside of my above reply because of the idea's inclusion in smooth's post above.

pfunks commented Jan 10, 2018

And regarding allowing an author reward option to change the payout ratios of SP/SBD to include a 10/90% option or 100% SBD option: Doing that would harm what is part of the original magic formula of STEEM Power distribution. People contributing socially to the network earn a stake in it, and gain influence in it. This solidifies and turbocharges the network effects. This is a topic probably better suited for another place or thread, but I felt the need to bring it up outside of my above reply because of the idea's inclusion in smooth's post above.

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iamsmooth Jan 11, 2018

@pfunk, as timcliff discussed in his post on reverse conversions, the debt ratio is hard-capped at 10%. It doesn't matter how much SBD is created, the debt ratio will still never be more than 10%, because the backing of SBD is devalued in order to maintain that ratio.

Therefore, as long as that 10% hard cap rule is in place, we can essentially ignore the debt ratio as a limiting factor on SBD production. Indeed at the point where that cap is (hypothetically) ever hit, each incremental SBD has no incremental cost to stakeholders. Rather, the fixed 10%-of-market-cap backing is just being divided more thinly among SBDs (which is a matter for the SBD market to consider and digest). BTW, in contrast to timcliff's proposal, if reverse conversions were allowed, I would continue to allow them even above 10%, for similar reasons. If the market is still overvaluing SBD despite the (uncapped) ratio being above 10%, then stakeholders are being offered a 'free lunch' in the form of converters buying up STEEM and converting into SBD, without increasing the total portion of the money supply (10%) claimable by SBD holders! This can also help improve the "low STEEM price" component of the imbalance.

I also, though in passing, addressed the question of situations where there is more SBD in existence or being created than the market demands. This is easily handled by the existing forward conversion mechanism. This ends up having similar effects to the existing print-rate reduction (more of the emission ends up as STEEM than SBD) except: a) it doesn't require involving the reward recipients directly; and b) it is responsive to market conditions (more conversions will take place when SBD is undervalued than when it is overvalued), unlike the existing print rate reduction which is not only oblivious to market conditions but it can be operating counter to them.

A tremendous amount of confusion was introduced in 2016 due to the fact that Steem was new, was operating under the hyperinflationary model, had terrible market liquidity, and the SBD mechanism was poorly understood (for an example of the latter, SBD was undervalued for months before witnesses were even asked to consider adjusting parameters, which in hindsight wasn't even the right advice!). This resulted in a lot of stress and problems that aren't generalizable going forward, and some of the "solutions" introduced (such as the print rate limit) were panicky measures that don't hold up to more reasoned scrutiny.

Doing that would harm what is part of the original magic formula of STEEM Power distribution.

Why is that magic formula tied specifically to 50/50? Yes, I see this as a valid objection to 100% SBD. However, why are we wedded to 50/50? Why not 75/25 or 25/75 or 90/10?

I think direct conversions will create less SBD debt on the STEEM network, and will more directly serve the function of slapping the market value of SBD back to where it should be. If a new trader stumbles into something he/she doesn't understand and wastes their money pumping it, they will quickly learn not to again. I'm not sure if increasing the baseline of SBD emission will have the same effect.

I mostly agree with this (except maybe that part about creating more debt; I think any excess will be converted back into STEEM essentially at the same rate it is created). My proposals were an alternative and not meant specifically as opposition to the conversion idea. I do think that offering reverse conversion is a more radical and potentially risky idea. Increasing pre-programmed production rates is easier to reason about (which is good, since we already have it), including that any excess can be absorbed by forward conversions.

iamsmooth commented Jan 11, 2018

@pfunk, as timcliff discussed in his post on reverse conversions, the debt ratio is hard-capped at 10%. It doesn't matter how much SBD is created, the debt ratio will still never be more than 10%, because the backing of SBD is devalued in order to maintain that ratio.

Therefore, as long as that 10% hard cap rule is in place, we can essentially ignore the debt ratio as a limiting factor on SBD production. Indeed at the point where that cap is (hypothetically) ever hit, each incremental SBD has no incremental cost to stakeholders. Rather, the fixed 10%-of-market-cap backing is just being divided more thinly among SBDs (which is a matter for the SBD market to consider and digest). BTW, in contrast to timcliff's proposal, if reverse conversions were allowed, I would continue to allow them even above 10%, for similar reasons. If the market is still overvaluing SBD despite the (uncapped) ratio being above 10%, then stakeholders are being offered a 'free lunch' in the form of converters buying up STEEM and converting into SBD, without increasing the total portion of the money supply (10%) claimable by SBD holders! This can also help improve the "low STEEM price" component of the imbalance.

I also, though in passing, addressed the question of situations where there is more SBD in existence or being created than the market demands. This is easily handled by the existing forward conversion mechanism. This ends up having similar effects to the existing print-rate reduction (more of the emission ends up as STEEM than SBD) except: a) it doesn't require involving the reward recipients directly; and b) it is responsive to market conditions (more conversions will take place when SBD is undervalued than when it is overvalued), unlike the existing print rate reduction which is not only oblivious to market conditions but it can be operating counter to them.

A tremendous amount of confusion was introduced in 2016 due to the fact that Steem was new, was operating under the hyperinflationary model, had terrible market liquidity, and the SBD mechanism was poorly understood (for an example of the latter, SBD was undervalued for months before witnesses were even asked to consider adjusting parameters, which in hindsight wasn't even the right advice!). This resulted in a lot of stress and problems that aren't generalizable going forward, and some of the "solutions" introduced (such as the print rate limit) were panicky measures that don't hold up to more reasoned scrutiny.

Doing that would harm what is part of the original magic formula of STEEM Power distribution.

Why is that magic formula tied specifically to 50/50? Yes, I see this as a valid objection to 100% SBD. However, why are we wedded to 50/50? Why not 75/25 or 25/75 or 90/10?

I think direct conversions will create less SBD debt on the STEEM network, and will more directly serve the function of slapping the market value of SBD back to where it should be. If a new trader stumbles into something he/she doesn't understand and wastes their money pumping it, they will quickly learn not to again. I'm not sure if increasing the baseline of SBD emission will have the same effect.

I mostly agree with this (except maybe that part about creating more debt; I think any excess will be converted back into STEEM essentially at the same rate it is created). My proposals were an alternative and not meant specifically as opposition to the conversion idea. I do think that offering reverse conversion is a more radical and potentially risky idea. Increasing pre-programmed production rates is easier to reason about (which is good, since we already have it), including that any excess can be absorbed by forward conversions.

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iamsmooth Jan 22, 2018

3 from my list above is #2022

iamsmooth commented Jan 22, 2018

3 from my list above is #2022

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