The damage was done during the SBD pump which started over a year ago and massively inflated the SBD supply. It could all have been prevented with a simple fix of the SBD peg by enabling reverse conversions - we would have deterred all the speculators and idiot HODLers who were chanting "SBD to the moon!".
Every boom has a bust, but people were all too busy making out like pigs at the trough to care during the boom. This was the inevitable end game I've been writing about for almost a year.
Would a reverse conversion not simply create more supply of SBD which makes the peg even harder to hold when the crash eventually comes ? I thought the SBD print rate is set by the steem price rather than the SBD price so it was the STEEM pump which caused the over supply ?
Technically yes, the STEEM price caused an increase in SBD Supply. However it was the SBD pump which led to the conversion feature being disabled in the Steemit UI, it removed any chance of incentivising SBD conversions (which were happenning steadily pre-pump) and attracted the speculators and HODLers who saw an opportunity for profit. If we had reverse conversion we could have killed off the SBD pump before it got off the ground and the speculators and HODLers would have looked elsewhere (probably somewhere like Bitconnect LOL). We would never have had the demand to support a massive oversupply of SBDs that now poses an existential threat to the platform.
It is the same speculators and HODLers who are now dumping the oversupplied SBDs at sub $1 USD and bringing the excesses of the pumps crashing down.
If you look carefully at the justifications for the increased debt thresholds you'll see they are argueing for more supply of SBDs to meet demand as a way of dampening the price pumps. Reverse conversions could achieve that result in 3.5 days rather than allow for a 9-12 month pump and dump cycle to play out.
Yes. My concern with reverse conversions is that you would need to cap them also at the 10% debt ratio and then they would become less effective. But probably better than the alternative.
Maybe. But with a 10% cap it may still have capped out and allowed for a pump. Whether you get to the cap slowly or quickly could end up being the same outcome. When you consider that the reverse conversion approach is probably faster to enforce the peg vs. sustained printing, and likely results in greater stability between the two it is probably preferable, but it isn't entirely clear cut.
There is always variables and nothing is ever certain, but there is a case for applying some common sense and diligence to try and give the system some stability to prevent this sort of outcome.
It has been an entirely predictable bust and it's hard to argue that the HF20 printing threshold changes were not grossly irresponsible. If you go back and have a look at some of those old conversations with @dan years ago you'll see there was concern about how best to prevent this sort Black Swan event even back then. It's all recorded on the blockchain...
How do you explain blaming HF20 when the supply was already essentially just as high (and not being converted) long before HF20?
This makes no sense!
Let's look at this another way. Total STEEM inflation is about 8.5% per year. 75% of that is the reward pool, of which 75% goes to authors and 50% of that is SBD. If we printed flat out all the time, at a constant STEEM price, SBD would only increase its ratio by 2.39% per year. This is a very slow and entirely manageable rate. This rate played out continuously during Steem's entire 2.5 year history would only produce an ending SBD ratio of 5.98%! (These numbers, explain, by the way, why HF20 is irrelevant. After about three months, HF20 has contributed an additional 0.60% to the ratio. Again, not at all significant, especially when we consider that it may have been responsible for helping to bring the price down which then encourages conversions.)
In fact, the real issue here is not printing, it is price changes and lack of conversions due to SBD being overvalued that lead to the SBD ratio ever becoming high. Even before this week, the price has decreased from a high of about $6 to a recent range of 70-80c. That's a decrease of about 87.5%. That would, in the absence of conversions and NO new supply, take a 1% debt ratio all the way up to 8%, or alternately take a 2% ratio (the low end of the previous print slow-down range) up to 16% (of course impossible due to the 10% cap).
I agree with you that the old discussions bear relevance but they are almost entirely about the need for the 10% limit and the peg switch (from USD to STEEM), not print stopping. You can not use print stopping to significantly protect against a high ratio, it just doesn't numerically work (unless, perhaps, the stopping is at an extremely low ratio like 0.1%; in fact I once opened a github issue suggesting that the hard and soft limits were too close together, but after subsequent consideration I realized this is not a useful approach either).
With neither printing (i.e. once printing has slowed or stopped due to a limit), nor reverse conversions, the result is inevitably some sort of pump which stops conversions and forces a build-up of supply, at which point the system is inherently vulnerable to price declines. Much more vulnerable than it would ever be to 2.39% PER YEAR of printing.
IMO the way the system works now is about the best that can be expected. Substituting reverse conversions for printing would be okay, but also can't really leave a significant void (nor would a small void protect much against price changes, as above).
In short, common sense is not a substitute for analyzing something in detail. Once we do that we can easily see that print limits are just not helpful in solving this problem.
I don't blame HF20 exclusively. My comment was just that the HF20 changes were grossly irresponsible and lacking common sense. I maintain that it made the debt situation worse, even if only fractionally so. My point is that the people making these kinds of decisions need to be smarter and stop looking for band-aid solutions that don't actually fix anything.
We can talk about the technical aspects of this problem, but really this is about economics and market psychology. Why does Tether USDT seem to remain stable around $1? Nobody really knows if the money is actually there but for some reason or other the market has confidence in it's stability....thus it is stable. People don't buy Tether speculating that it will moon.
If we killed the SBD Pump with reverse conversions before it gets off the ground then we kill the demand for speculators and HODLers to even buy SBDs in the first place - Thus we don't get a debt build up and it stays as it was intended : As a stable currency used for commerce and off-ramping.
If I can use a crude analogy for implementing reverse conversions - You buy a gun so that you don't ever have to use it. It's a deterrent. I'm not saying we'll never have this sort of debt problem when we have a price decline but maybe the hangover would be milder and not so painful with less market demand for SBD debt. Offering the market a one-way peg creates an asymmetrical trade and it's just not smart.
Because it is possible to arbitrage by depositing and withdrawing USD (most of the time) and has no practical limits up or down in its capitalization. There is probably some actual backing in USD which enables the arbitrary, even if possibly all the USD isn't there. SBD doesn't work that way. The huge differences in the models carry certain tradeoffs.
I was in favor of this although there some details to work out and remaining questions. Including, which I have asked you elsewhere: What happens when you reverse convert up to the limit and the price is still pumped?
I don't agree with you that the print limit change was done carelessly, nor that it is grossly irresponsible. It was considered, analyzed and debated by many people literally for months. It has tradeoffs and isn't nearly as one sided as you claim. And as you have acknowledged, even if it had not been done, under the most favorable of assumptions (no credit for increased conversions attributed to the higher printing; almost certainly wrong) SBD would still be below par right now.
This is a fair point. It is one reason I don't view the 10% rule/limit as a 'failure'. By defining SBD as allowed to go under $1 in certain (reasonable IMO given the nature of backing by volatile STEEM) conditions, this removes the one-way nature of the trade and makes it possible for someone wanting to bet on a SBD pump by buying it at par to lose money sometimes without a catastrophic collapse. While at the same time maintaining reasonably low volatility (strictly lower than STEEM under all circumstances, usually much, much lower).
Reverse conversions with a cap would still create an asymmetric trade.
I understand that Tether utilises a different model. My point was that the market confidently values it at $1 and speculators are not buying it with an expectation of speculative gain. With a slight improvement in the SBD mechanism I think it could also deter a lot of the speculator demand which will give us more stability.
Regarding the cap, I'd question whether you'd want a cap. Yes it is possible that a big conversion could push the debt over 10% and affect all holders, but the converting party would be cutting their own throat in doing so. You could also apply a conversion penalty much like occurs in the other direction - For instance, at 11% Debt 1 SBD can only be converted to 90 cents worth of STEEM and it takes 1.10 cents worth of STEEM to convert to 1 SBD. This will not entirely kill a pump but it would seriously dampen it.
There are no absolutes here. No system is fool-proof and failures will still occur, but it is possible to make any system more robust, more stable against volatility and that should be the goal here. Any step in the right direction - no matter how small - is a help. Any step away - no matter how small (eg HF20) - is a hindrance.
Well not always. It still fluctuates in response to various factors including news/FUD (depending on who you believe) about Tether/Bitfinex, etc.
Sure, I agree with that.
You might be interested to learn that I proposed (among numerous others) exactly this variation, which I called a spread (though I generally envisioned it as somewhat less than 10%, in fact the amount doesn't change the concept). This was not something we were able to reach consensus to implement.
We'll have to agree to disagree, but I confess to being perplexed that you want to allow (possibly) unlimited reverse conversions of any amount at any time, but somehow find looser printing at a steady rate of about 0.19% per month to be harmful and dangerous.