RE: Should SBD Be a Pegged Asset? If So, When Should We Peg It?

[bryan-imhoff]

What are the risks of a reverse conversion if the SBD market cap does grow and take on a BitUSD or Tether type role?

I recall in the days when Steem was very low in value and dropping, no SBD were printed and burning of SBD was encouraged to keep the debt ratio under control which was always regarded to be a very small % of Steem market cap. What are the economics of having a large amount of debt hanging over the Steem asset?

In general though, I agree with the sentiment of defending the peg or eliminating SBD as having no purpose without a peg.

Comments

[smooth]

The expectation is that profitable conversions from STEEM to SBD would tend to increase the price of STEEM because people would buy up STEEM in order to convert, and in doing so reduce the supply of STEEM on the market. In the situation you describe (taking on Tether with its $1.6 billion market cap or even its lesser cousins) would be very strongly bullish for the price of STEEM (increasing its market cap and allowing it to support more SBD at the same ratio).

[bryan-imhoff]

So it would effectively work like SMTs in terms of economic impact on Steem, with all money passing through Steem.
Does the internal conversion process create a form of smart contract where the Steem is held for conversions back the other way, similar to OpenLedger assets on Bitshares? Or is Steem actually burned/lost in any way with redemptions later being filled with new Steem?

[smooth]

In a sense, SBD is a smart contract but it is hard coded (I guess in Bitshares that is the case as well). The STEEM that backs outstanding SBD is accounted for in the blockchain virtual_supply counter. When SBD is created (currently when posts are paid out, but if conversions could do so then via those as well), the STEEM is moved to virtual supply and when SBD is converted back to STEEM it moves back out of virtual supply and into total supply.

[lukestokes]

Yes, early on when the amount of SBD in existence (the debt) was too high, things had to adjust. Going the other direction, I don't see too much of a concern unless someone did a coordinated attack and tried to convert so much as to create too much debt right away. Again though, the 3.5 day conversion time and the high market cap may not make that much of a concern.