RE: This Post Is A Non-Scientific Study - Are You Ready to Buy?
Thank you for the detailed explanation. I can see clearly what you are getting at now.
It increases above the current supply every day
From new emissions I'm assuming?
The sticking point for me is this.
In a scenario where the price of Steem goes low enough, and SBD is being converted, you could see more than 287 million Steem created via SBD conversions
Aren't these SBD conversions buying up existing steem?
And isn't the SBD used to buy the steem burned?
I get what you mean about the virtual steem being created from converting steem to SBD and the mismatch between issuance and current price but it still doesn't explain how this virtual steem can be valued without reference to the quantity of steem in circulation.
We have some weird economics going on here?
Edit: OK I get it now. Steem and SBD on the open market.
That SBD isn't burned.
That is not good at all. Damn!
Just noticed you are from the Isle of Man. Cool I'm in Cambridgeshire and collecting Brits. Do you know about the @steemclub-uk initiatives?
It's more like this:
There's a total amount of "Real Steem". That's Liquid Steem + Vested Steem combined. There is also Virtual Steem, which is the Steem behind SBD. The Real Steem normally increases in a predictable way. New Real Steem is added to the vesting fund and the reward pool every day, and given out to users. Every day there's a little more, but in a predictable fashion. However there's one more way that Real Steem is created, via the conversion of Virtual Steem (SBD). When convert_sbd is used, the network doesn't buy Steem that already exists, it creates it from Virtual Steem. The supply of Virtual Steem can change in a much less predictable way than Real Steem, because it's totally dependent on the price feed. If the price of Steem drops one day by 10%, the amount of Virtual Steem can increase by 10%, or vice versa.
Back when Steem was $9, each SBD had only 0.11 Virtual Steem behind it. At $1, each SBD represents 1 Virtual Steem. At $0.01, each SBD represents 100 Steem in theory. It's more complicated than that due to the limitations after SBD is more than 10% market cap, right now each SBD represents merely 2 Virtual Steem, even though there's 4 Steem to a dollar.
The predictable inflation for Real Steem potentially goes out the window if the price of Steem is low enough, because when that Virtual Steem which was created at only 0.2 Steem per SBD gets realized (ie. converted) at 2 Steem per SBD, that's ten times the inflation. We're currently being protected from it being converted at 4 Steem per SBD by the 10% rule, but the more conversions happen the more Steem is added to the market cap, the less protection that rule gives.
This is a sobering and very useful and helpful explanation @demotruk I'm pretty sure most steemians are unaware of this state of affairs?
Do you think it would it be possible to hardfork out of this current dire situation?
It's not necessarily a dire situation right now. It's a risk associated with the fact that Steem itself carries debt. Certainly the older Steem people who started with the white paper and also those who were around in late 2016 are aware of it, because it was a widespread concern back then as well.
Yes there are solutions that could be implemented via hardfork. It is unlikely to avoid violating the integrity of the social contract for SBD though.