RE: Witness Discussion – SBD price and reverse peg

[inquiringtimes]

Increasing the bias seems like a safer and more reasonable tool for trying to fix the peg than adding a reverse convert function. I need to come up with numbers on what kind of volume it would take to peg sbd, then again, we bring sbd to $1 that could cause a dump and bring us to a lower value than $1 for sbd.

Comments

[reggaemuffin]

Smooth weighted in on bias: https://steemit.com/witness-category/@reggaemuffin/witness-discussion-sbd-price-and-reverse-peg#@smooth/re-ats-david-re-reggaemuffin-witness-discussion-sbd-price-and-reverse-peg-20180124t044257100z

Basically it is a slow way and increases inflation, so not the best option.

[inquiringtimes]

ok, can you explain this?

"The proposal would be to add a second conversion, so $1 worth of STEEM can be converted into one SBD. So if STEEM is at $5, you can convert one STEEM into 5 SBD, regardless of SBD price.

We would add a small spread to it, so thet you can convert to $0.99 and $1.01, to prevent abuse through conversion. So through this measure, SBD will stay around $1 with up to 2% of difference."

I really don't understand what you mean by adding a spread, and how this reverse conversion would even help. Basically folk would be inflating sbd, and deflating steem. do we know how much liquid steem it would take to do this?

it'd be great to have a bigger article explaining exactly how this would work.

right now, we have mostly pros and cons, but the proposal itself could use some serious fleshing out, imo.

of course, as others have noted, a massive "correction" on sbd in 3.5 days is an unsettling thought.

[reggaemuffin]

We have one conversion and tge other one will work the same. It can only devalue sbd if it is above one dollar. And it burns steem, so should increase the steem price.

Also it takes weeks to get to a point of a hard fork. By then the market knows what will happen and should have already adapted.

Code wise the proposal clear. How I said it is exactly how it works. If you tell me your questions, I can answer them but the proposal is fleshed out in how it will work.

What will happen and when to do the fork, that are the big questions.

Edit: the spreadfee is just a safeguard should there be issues with users converting back and forth. The lower we have that, the tighter the spread.

[inquiringtimes]

the biggest part I don't understand is: a small spread that would prevent abuse of conversion.

the 3.5 day correction I referred to is the amount of time a conversion would take.

[reggaemuffin]

Basically you can buy sbd for 1.01 in steem and sell for 0.99. That way each back and forth conversion costs you 2 cent. So if there is a chance of you being able to abuse the conversion (which we don't think there is) you have to make 2% profit to break even.

And yes, 3.5 days for the conversion.

[smooth]

1. 'A spread' means that it would take slightly more than $1 worth of STEEM to convert into 1 SBD and it would take slightly more than 1 SBD to convert into $1 worth of STEEM. The purpose is to guard against certainly (hypothetical) forms of abuse (or just useless but wasteful spam) converting back and forth without any build-in cost. There are still some inherent costs so it isn't clear this is needed.
2. The way the mechanism works is you gather up some amount of STEEM (in general, by buying it), and then request that the blockchain convert that into 1 SBD for each dollar worth of STEEM, using a median price over the next 3.5 days (this 3.5 day averaging period guards against obvious forms of manipulation where someone briefly props up the price to get more SBD).
3. On the matter of massive correction, one idea that has been proposed in this thread is to phase it in over a period of time. If that were done, the peg cap would start high (say $10) and gradually drop until it reached $1. That might avoid a crash, but on the other hand, the market might still crash quickly if it sees the improved peg coming. It is hard to say. My personal preference would be to wait until SBD has naturally returned closer to $1 and then implement these improvements to avoid future de-pegging, rather than directly forcing the market down now. However, that does have costs in potentially missed opportunities. We know that stable coins are a rapidly growing product area in the cryptocurrency marketplace. We already have most of what it needed to offer a very competitive product and potentially grow Steem (and the value of STEEM/SP) a lot, but that absolutely won't happen without these improvements.

[inquiringtimes]

I believe that, in such a rapidly changing market, taking plenty of time to consider and learn how the markets behave is the best bet. I'm grateful to know that most of the witnesses are cautious and slow in making major decisions like this.

Thank you for the more detailed explanation.