Speculation killed the STEEM DOLLAR Utility
Speculation is only really a bad thing when it comes at the expense of something good. Anyone who has been in the Crypto space longer than 5 minutes would see that there is speculation abound and a lot of “Hot Money” pumping and dumping all across the Crypto landscape.
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It’s probably not ideal, but on the plus side there are a lot of innovative projects that are now flush with cash because people are pouring money into speculative Crypro projects in the hope of backing “The next big thing”. While many of those investors will lose their money, on the coalface it means that project teams are flush with funds and able to pursue their stated innovation goals. This is good for True Crypto Enthusiasts.
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But when it comes to the STEEM DOLLAR, the recent speculation comes at the expense of something good. Despite what many people on this platform would claim, the STEEM DOLLAR was designed to be a peg to the US Dollar and provide stability. Here is a direct quote from the STEEM whitepaper :-
Merchants give users a way to quickly convert their cryptocurrency into tangible goods and services. Merchants need a currency pegged to their unit of account, normally dollars. Accepting a volatile currency introduces significant accounting overhead.
Merchants will accept any currency if it increases their sales. Having a large user base with a stable currency such as SBD lowers the barrier to entry for merchants. The presence of merchants improves the system by creating an off-ramp for users to exit the system without going to the trouble of using an exchange.
Please note the bolded parts. The intention here is clear. The STEEM DOLLAR is meant to be a stable currency so that merchants can adopt the platform and not be concerned about price volatility.
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*One of my personal favourites. I kept it on my office wall back when I worked 9-5 and managed a software development team
Now, don’t get me wrong, I am also an Author here on the STEEM platform and my post rewards are up significantly due to the recent price pump of the STEEM DOLLAR. As an Author I am happy with the price pump and you need to keep in mind that all the other Authors here who are justifying, explaining and promoting the STEEM DOLLAR pump have a vested interest in doing so.
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But the fact remains, the STEEM DOLLAR peg to the US Dollar is currently broken. It has become a Speculative Asset for whatever reason, therefore it’s real Utility as a stable cryptocurrency is gone. It is no longer attractive for Merchants to use and it is no longer attractive as a place to store Crypto wealth in a stable and safe place. So the speculative pump comes at the cost of this very important STEEM DOLLAR Utility.
Now before you come at me with your arguments to tear me down, answer me this simple question :-
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The answer is NOTHING. If you want to speculate on something then buy STEEM because at least STEEM can be converted to STEEM POWER and give you influence and voting power on the platform. STEEM DOLLARs give you NOTHING that STEEM can’t give you. You want 3 second block times? Free transactions? Use STEEM. So why would anyone in their right mind buy STEEM DOLLARs at this current inflated (and unstable) price?
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https://www.kickstarter.com
https://www.moneycrashers.com
https://www.evl.uic.edu
http://criticallegalthinking.com
http://spillwords.com
http://knowyourmeme.com
I think it has killed the unique utility, hard to argue with that - but the fact is the peg was always broken: when I joined, it was $1.70 and it took months to decline down to $1, settled around 90c and proceeded to flash crash into the mid 50s. It took another couple months to recover "stability" around $1, but there were always significant arbitrage and volatility opportunities.
I think the well being of authors should be the community's primary concern and I'm not too fazed about whether or not a vendor has to set up a bot to automatically set prices every 15m and offload their SBD at trex automatically (seriously if you can't manage that, you shouldn't be in e-business). Before the rally, only a select few were earning an income here; though the SBD rally hasn't done much to close the income gap between elite posters and your average blogger, at least your average blogger is now (more than) fairly compensated.
I'm extremely pleased the witnesses have shown the leadership and courage to do nothing on this issue. Taking a leaf from the BOJ and ECB playbooks and implementing negative interest rates would be akin to going full retard.
What amazes me, is that even with all of us dumping SBD, the external markets are just happily absorbing it -> there is substantial external demand for SBD. Like @Aggroed, I believe this phenomena should be left to market forces to decide, as IMO it is doing an incredible amount of good for the people who make the platform what it is. In fact, I'd go as far as to say the witnesses should intervene to the upside if SBD begins to approach $2.
Wealth and income equality is impossible, maintaining/raising the minimum wage is simple with negligible consequences. That's a thing of beauty right there.
PS - this is coming from someone who lost money accepting SBD deposits which were converted to USD via @SBBank. We made those losses back on a single update post advising of switch to USD denominated deposits.
It is clear to me that the peg was loose and would fluctuate with sentiment. I just never expected this kind of extreme. Nobody has yet given any rational reason for the pump and you can call me old school if you like, but I prefer markets to be rational.
It's got nothing to do with income inequality. It's about designing software for a purpose and then that purpose being compromised. None of the existing users (including the witnesses) particularly care because they are lining their pockets in the process.
Meanwhile merchants are not coming on board and Facebook is moving in to compete. But hey, lets make some hay while the sun is shining! :)
Reason A: You will need SBD to conduct an SMT ICO - controlling a large portion of the SBD supply could be a very wise business decision (which has already paid off).
Reason B: Some smart cookie in Korea worked out that SBD is an incredibly easy coin to pump due to relatively limited supply and made a very ballzy, successful trade. This manipulation then created an impressive looking chart and people, seeing the massive rally out of the historic range -> correction, are now betting on more upside based purely on technicals.
We can't have a discussion about the rewards system without discussing remuneration. Any attempt to lower SBD would be a direct attack on content creator remuneration (from people who earn a fuck ton of money witnessing).
Re: Honoring the whitepaper: all human constructs are fallible and rewards distribution was broken - the few people making a wage were arguably not the best content creators. They are marking even more now, but at least everyone else is doing really well too. Average Steemians were struggling for months out here when SBD and STEEM were sub $1. If a broken SBD peg means content creators actually getting paid, then IMO it is clearly the lesser of too evils vs not honouring (an arguably flawed) whitepaper to the tee.
What happens if the SBD returns to $1. All those content creators have been lured here and encouraged by a false economy? Do they then piss off? Are we going to be content to return to being paupers? Is a boom-bust scenario for authors here better than organic growth with a focus on content and community rather than profit? I'm just playing Devils Advocate here, but they are valid questions.
I was not aware that SBD was required to conduct an SMT ICO. That might be a valid reason for pumping the price. As for Reason 2, it is reliant on the Greater Fool Theory and I would even argue that such a scheme would only be perpetuated by a Bad Actor.
But anyway, I'm not saying it is all bad. I'm just saying it is irrational and is not all good either. There are a fair number of people in my comments who had no idea why or what purpose SBD has. Considering what has happened this last month who can blame them for the confusion!?
I just want to address the idea that Facebook is moving in to compete. Facebook is a publicly traded company and has fiduciary duties to it's stock holders, Steem blockchain isn't and does not. With that being said, it should be obvious that even IF Facebook implements some sort of system to reward it's users for activity, the amount of rewards will be negligible for the vast majority of it's users. It'll be akin to Youtube on it's reward platform, and will only really reward the HUGE names in content creation. Add to that the extremely centralized nature of it's platform, AND the mass censorship of it's base, it won't be as enticing as true blockchain alternatives, like Steem.
The average Joe doesn't care about crypto or decentralisation. Merchants care about reaching potential customers so they will go with whoever has the best "Network Effect". Facebook could implement a totally centralised crypto, may as well be "Funny Money" at this point and 99% of the world wouldn't care as long as they're getting paid. To them Blockchain and Decentralisation are just buzzwords.
Its a saddening and angering thought. My belief is that the masses have been systematically dumbed down not to care. Shame
Yet Facebook will still have the majority of users because people are zombies. Up to us to open their eyes to the Steem platform. In another note. I've been trolling twitter using #steem. Not random trolling, quality trolling. I am sure some new comers, even old, doesn't know that there is a blockchain with instant and free transactions.
The way I understand it is that the SBD is supposed to be worth at least $1 of Steem. Not pegged to one dollar.
With the current price of Steem and Value of the Steem dollar, this is essentially still true.
Even in the wallet it says, "STEEM DOLLARS
Tokens worth about $1.00 of STEEM" nothing about a USD peg.
Not to mention the higher the value of the SBD the better it is for content creators. I don't get how anyone can complain about this. It's serving it's purpose. It is worth about $1 of Steem. The actual rate is about 0.85 SBD per 1 Steem. But it's very close.
I agree that there is no issue - but your logic is fatally flawed - your argument only works if STEEM was pegged to one dollar.
SBD is currently worth about $8 worth of STEEM, not about $1 ...
Sorry I shouldn't smoke and think too much. :P Just realized how what I said was dumb.
But either way. I don't see how they can expect to keep a currency pegged to a dollar without centralizing the creation of it and by allowing it to be traded on external exchanges. If they didn't allow it to be traded somehow then perhaps the peg could've stuck. Otherwise the supply would have to be manipulated by someone.
Yeah the problem is, unlike most coins ... SBD actually has intrinsic value - it is always worth at least $1 USD ... IMO some whale saw that flaw on the asset and the limited supply as an attractive investment!
Wow this received a lot of upvotes quick. Haha
Did you read the whitepaper quote? The intention of the design is right there in black and white.
How about the part where I explain that Authors on the platform have a vested interest in promoting the SBD price pump?
Congrats on your upvotes. How about you throw me one? Perhaps journalistic integrity is not valued on this platform and I should only write about things that serve the vested interests.
Know them feels dude. Keep up the good work.
My upvote on your post isn't worth anything, but a healthy critique of any system is necessary and welcomed for the continued longevity of said system, so there. I'd hate to be labeled a FUDder on my first day using Steemit but you can search tether on medium or look at @bitfixed on twitter for a collection of articles and information on a couple of alarming problems with crypto that might have led to the price action that's been seen. In addition to huge levels of FOMO, in short, 7 of the top 10 exchanges use tether, the majority do not have true fiat pairing at all, USDT cannot even be used by US customers now because the creators of tether fear imminent US regulatory scrutiny (and have possibly already been targeted as canaries at one exchange have gone missing), and are speculated to be used in the pumping of various alt-coins and Bitcoin itself.
Not looking to hate on crypto itself or the technology, but I think that if the price were to crash then posts such as yours do a service to the community by reminding people what the original mission should be, and it was definitely not supposed to be any sort of scheme to get rich quick. Lasting change won't come from money changing hands rapidly enriching a few early adopters, it comes from long-term systemic changes in the way people view technologies, the impact of their uses and how they can participate in systems that are more beneficial to the whole instead of the few.
Thought I did upvote. Fixed.
But I don't see any mention of a USD peg in anything you quoted. It's still relatively stable as it's worth about $1 of Steem right now. A little more.
The only time it became unstable was when it jumped before the Steem price increased.
I really have no idea where the assumption of a USD peg comes from other than the fact it has a dollar sign in front of it. There is no mention of the USD anywhere.
"Merchants need a currency pegged to their unit of account, normally dollars."
OP seems to confuse 1 STEEM with $1 worth of STEEM ...
And to answer your question about what SBD does that Steem can't. It's infinite. It's the rewards distribution. Steem has a hard cap and SBD doesn't as far as I know.
That's about the only thing it does that Steem can't.
SBDs are just steem wrapped in a smart contract that converts each SBD to one US dollar worth of steem when ever the conversion function is invoked.
Steem Dollars are Steem presented in a different package. So they are not infinite. Furthermore, if at any point the issuing of steem dollars gets to more than 10% of the total supply the blockchain will automatically stop the "printing" of SBDs.
Although, technically the Steem's supply is not hard capped. The inflation rate is set to decline over time but never stop. So you can say that the creation of steem is "infinite" but the creation of steem dollars depends on the market price of steem. The higher the price of steem the higher the print rate of steem dollars with a cap of 10% of the total supply in USD terms.
Interesting. I was curious as to how that worked.
So the amount of SBD created is correlated to the price of Steem then and supply of Steem then? Essentially SBD created will never exceed 10% of Steem market cap is what you're saying? What would happen to rewards if that scenario ever did occur?
And I thought the declining inflation basically does give Steem a hard cap no? I've seen a few places that list a max supply for Steem. Now I'm wondering where they get that number? Which is roughly 250 mil.
That has happened before. The rewards are paid out in Steem instead of SBD.
^ this is a good comment
Thank you.
Steem Dollars also only have a circulating supply around 5 million right now while Steem has a supply of 250 million.
So Steem is way more valuable atleast in terms of market cap.
SBD, STEEM & BITCOIN has a equation, which determines value.
I was thinking about the this the other day and wondered why it hadn't addressed yet. Has @ned discussed this at any point? What can actually be done with out hurting the people invested in it?
It's hard to say. Any action is likely to have winners and losers. Ideally the market just wises up and it corrects naturally. There are actually design mechanisms in place for the witnesses to add bias to dis-incentivise holding SBD but they wont use it because existing users are making too much money off it and they rely on those users for votes.
Welcome to the new world, same as the old world :)
Great article. SBD didn't seem to serve a purpose, therefore I didn't really understand the difference between Steem and SBD. You just convert the SBD to Steem so you can either sell it on an exchange or convert to Steem Power. I didn't realize there had been merchants that accepted SBD.
What do we do with SBD now?
you find those who sell goods for it
there are a few small markets which accept it already
which places does this - haven't seen any as of yet?
here is one
https://www.peerhub.com/
Thanks. I don't think merchants are coming on board and nor will they. I once wrote about SBD being the ideal crypto for mainstream adoption HERE but none of that is really valid any more.
What to do with SBD? Sell it into this mania. Make your profit and put it in STEEM or another crypto IMHO.
Interesting read. What do you propose as the solution here though? The speculation is simply crazy right now...
~ Kevin
you bring it down to 1$ and you remove the option to self vote
The solution for the individual is to sell your SBD and buy STEEM or another crypto in my opinion.
Yeah, that's what I was reading / have been doing now. Seems to make the most sense and be in line with the mission of the platform.
I'm new to platform and have been watching SBD with confusion based on the whitepaper. You make some clarifying points, hopefully there is a way to redeem SBD and retether to USD
I'm quietly confident that once the mania subsides and investors realise there is no real benefit or utility left for the SBD then it will come back to earth. Might take years though.
A crazy notion, but I suppose it is completely in line with the mania surrounding this super-bull market. Hard to know when to pull your toes out of the pool and praise jah for the profits you've been gifted...
The "How the customer explained it" comic is GOLDEN.
This is a really great post. Thank you!
Thanks. I should really have explained that picture a bit. Probably only those with some knowledge of the software development process will actually get the joke :)
Interesting read, I never understood why there was SBD until I read this article. Would it have been possible to only allow the merchants to purchase SBD?
No, I don't think so. How would the blockchain know who was a merchant and who wasn't. Too hard to do it that way.
So wats is tje best use now....bettrr to convert sbd to sp? Talking of votality wen i joined 3 month ago sbd was realing at 1$ and now it stands around 8$ the pump is there...would appreciate if the best use comes in
buy stuff with it, don't hoard it like a stock
The solution for the individual is to sell your SBD and buy STEEM or another crypto in my opinion.
What your view in investing into steem power? And how does steem and steem power differ?