a blog excellently titled "The Coming STEEM DOLLAR Purge : Why it Needs to Happen and How". He argued in that blog that his prediction of SBD collapsed has materialized and he predicted again that in future SBD will come back to 1 USD.Thanks to @buggedout who recently put
However, I don't think SBD came close to 1 USD not due to its design or oracle but for overall crypto bear market. In fact, it is tracking STEEM price since the last big pump (i.e. when SBD pumped beyond 15 USD). If SBD comes down to 1 USD, it will be due to STEEM's price come down to 1 USD or close to it, not due to its built-in mechanism or any oracle.
However, there is a way where SBD can be hard pegged to 1 USD by using reverse convert. There used to be convert option for SBD. When SBD trends below 1 USD, anyone could convert 1 SBD to 1 USD equivalent of STEEM. That option was kept disable to reduce confusion among new users.
Here is another excellent explanation from @buggedout about this bi-directional conversion:
The big question, and I mean HUGE question, is whether this is also the point where the SBD Peg is fixed to have Bi-Directional Conversions so that this problem does not repeat. That is ultimately going to be for the Witnesses to decide and I’m not particularly optimistic.
Thanks to @buggedout again for explaining how those extra SBD/STEEM can be created on blockchain without content reward or DPoS reward or witness reward by using bi-directional convert:
At the end of the day Blockchain technology is just a "Public Ledger" so when you convert from one to the other you are just creating one and destroying the other by changing numbers on the ledger. It's part of the code. Just like you create STEEM when you mine a block, you create STEEM (and destroy SBD) when you convert SBD to STEEM using the code.
Let's explain convert and reverse-convert option in laymen terms:
Covert process- if SBD is less than 1USD, it can be converted to 1USD equivalent of STEEM, conversely, if SBD is above 1 USD, then STEEM can be converted to USD equivalent of SBD (i.e. reverse-convert for SBD).
For example, if STEEM is $4, then when SBD is below $1, it can be converted to 0.25 STEEM while SBD is above $1, STEEM can be converted 4 SBD.
Another important question is how the automated SBD/STEEM creation/destruction are kept on par with fixed yearly inflation rate. If extra SBD/STEEM are created for conversion purpose by supply and demand, it can create a case where abundance of STEEM will be around to nullify SBD's high demand.
Though, it will definitely peg SBD to 1 USD but it can create a problem for STEEM's price. Since there is a big market demand for 1 USD pegged stable currency such as Tether, TrueUSD or NuBit (note- interesting NuBit recently crashed below 1 USD to 0.3 USD), big demand for SBD can be concurred.
If SBD want's shoot over USD and STEEM remained depressed, loads of STEEM will be needed to create to make SBD pegged. In return STEEM inflation will shoot up which can further depress STEEM's price. However, 1 USD pegged SBD will be helpful in future internal exchange for SMTs due to its stable value. But risk versus benefit should be carefully analyzed before any implementation.
However, STEEM supply is kept to a fixed rate (i.e. with 0.5% decreasing rate per year, currently at 9%). Is that emission/creation or burn/destruction of both STEEM and SBD due to conversion will be on per with inflation rate.
What happens to fixed inflation process if more STEEM/SBD are created on conversion process? Or, effects (e.g. slight increase or decrease) are negligible to fixed rate of inflation.
Currently, more liquid STEEM are created since SBD (i.e. 1USD pegged SBD) ratio of STEEM market supply crossed 2.5%, at 5% SBD production will be stopped.
It is an interesting scenario to opine that to keep SBD pegged to 1 USD whole ecosystem of STEEM blockchain can be affected. However, STEEM becomes very successful, i.e. STEEM reaches high price (e.g. say $10B market cap or $30-40 a STEEM), then SBD can be forced to peg 1 USD by applying bidirectional convert option.
I would like to here your opinion about STEEM's bidirectional convert option. What are the risks and benefits you think STEEM blockchain will face with this option.
Thanks for reading and happy steeming!
Nice Post! I’m on the Steem train.
Congratulations @crypto-futurist! You have completed some achievement on Steemit and have been rewarded with new badge(s) :
Click on the badge to view your Board of Honor.
If you no longer want to receive notifications, reply to this comment with the word
STOP