You would lock Steem into a smart contract and pull SBD out of it.
You can't unlock the steem untill you pay back the SBD.
If the collateral of your Steem falls below how much SBD you borrowed, your collateral gets liquidated and whatever is leftover gets returned to you.
- Maker demands all loans be over-collateralized by at least 150%. I think Steem could go 125% or lower because we are a much faster chain.
- Maker uses a 13% penalty for defaulting on a loan to make it profitable for the community to buy the bad debt. I think Steem could get away with 5% considering how scalable our blockchain is and how many people would be willing to buy bad debt in this way. Probably even need to create a lottery for it.
- Maker acts as a lender of last resort. Inflation gets created to cover bad debt. We could make Steem the lender of last resort in this case. Bad debt that didn't get bought fast enough to be profitable would be purchased by Steem inflation.
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this sounds amazing but I guess we need a better smart contract possibility here on steem and that the SMT will be the ones to provide this. I am not that technical but do you actually know if it is possible to do this since the sandbox is out to test stuff with?
The term smart-contract is misleading.
For example, upvoting stuff is a smart-contract.
Steem can easily implement this technology without SMTs,
unless they want to make the lender of last resort its own token instead of Steem itself.