RE: Saving SBD - Proposal to Restore the $1 USD / $1 SBD Peg
I support the idea, because it's important to preserve SBD as a pegged asset. I just have one minor point to make.
This process would destroy the STEEM tokens, and create new SBD tokens - in the exact same way that SBD is destroyed and STEEM is created when users convert SBD->STEEM today.
This process wouldn't destroy or burn the STEEM. It would move it from the balance of a user into the virtual supply. The virtual supply must always have enough STEEM to cover conversion of all the SBD in existence.
Even if the price of SBD declines as intended, it won't eliminate any of that STEEM. Future conversions back to STEEM will move the STEEM back into the total supply.
It's not the same as burning SBD through promoting posts, where the SBD is removed along with the appropriate amount of STEEM from the virtual supply. It's similar to conversions of SBD to STEEM, but while SBD conversions reduce volatility of supply, this proposal will introduce volatility.
It's a minor point, but an important one to consider when looking ahead. If the STEEM price declines after creating these SBD, it will increase the debt load and potentially also the liquid supply. This could hypothetically work to put further downward pressure on an already declining price.
It's still a good proposal, in my opinion. But we need to be aware of all the ramifications, so that we can respond proactively if need be.
But USD isn't an asset...
Why not find a way to burn them instead?
Thanks @bacchist! Appreciate the support of the idea, and the clarification. You are right about it converting the STEEM into 'virtual supply'.
Yes, this is the biggest concern against the proposal. One that is really only addressed in a serious way by the 10% debt limit. Pretty much any proposal that solves the high peg by increasing SBD production though (whether it be via reverse conversion or a premium price feed bias) is going to have the same effect. The main difference is that the reverse conversion process allows it to achieve the 'result' much faster.
Since you brought up the debt limit... maybe we can amend the proposal to remove the debt limit "haircut", since it will introduce a vulnerability where bad actors can single handedly drive up the debt limit. A bad actor could force a haircut, pulling the rug out from under SBD, buy them for cheap and then resell them after the market normalized.
The concern you brought up is valid, but there is also market manipulation that can be done without the limit in place. In my mind a bad actor could cause a lot more damage if they had the ability to create unlimited virtual STEEM, and then unlimited 'actual' STEEM in reverse.
The limit creates an existential/systemic vulnerability to market conditions already. I've posted about this in the past:
https://steemit.com/witness-category/@bacchist/witness-petition-do-not-abandon-the-peg
It has little benefit to offset the risk it represents. It is intended to mitigate the risk of a rising debt load that threatens to create destabilizing amounts of liquid STEEM. But in this case, the sickness isn't much worse than the cure.
You stated that your rationale for not using a positive bias to address the peg was that you wanted to preserve the "1 USD worth of STEEM" contract. Since the debt limit/haircut formally breaks that contract, you might want to consider whether that is something we can dispense of as well... or at least raise, to the point that it won't be an immediate concern as soon as SBD production halts at 5% debt load.
Moving it to even 15% or 20% will limit the vulnerability from bad actors if your proposal goes through, as well as allowing time for the throttling of SBD rewards to bring the debt load into a manageable range before the haircut.
I see your point. It is one of those things that has it's trade-offs. It just depends on which positives/negatives you weigh more heavily.
I do see the limit as different than a price feed premium, as it is coded in the blockchain - thus part of the 'contract'. The fact that it is not very well known/communicated is a different issue, but not one of violation IMO.
I am definitely open to discussion about the 'right' numbers. I suspect the ones we have today were largely arbitrary choices, and there may be better limits to have in place that would accomplish the same goal of mitigating risk without having as much of a negative side effect.
I do think though that wherever the limit is, there will be a natural tendency for the peg to get pushed down as the debt level reaches 50% of the limit (currently 5% debt) and definitely even more so when it reaches 100% of the limit (currently 10% debt).
To a large extent, regardless of where the limit is, I think the biggest risk in the whole thing is getting to 50% of that limit, and then seeing a 50% price drop in STEEM. Unfortunately wherever we place the limit, I think that risk will always be present so long as the limit is in place.
Likewise the ability of witnesses to feed any data they want as the alleged price is also coded into the blockchain. If stakeholders don't like it they can vote those witnesses out. So far we seem about evenly divided between voted witnesses using a premium (and doing so with at least some rational basis, not just feeding garbage or clearly-malicious values) and those not, so no clear stakeholder preference, but I'd still argue none of this violates the smart contract in the code.
Hi @smooth, glad you're back (heard you took a holiday)... I don't mean to chase you all round Steemit but I need you to check your Chat messages please. Thanks!!!
It is a valid point, and I know that you didn't mean it literally, but I think the idea that the witnesses can put in 'garbage' and cause the conversions to produce less than $1 USD worth of STEEM without getting voted out is a precedent I feel we should avoid. Not to say there aren't valid reasons for the 'garbage' but it does undermine trust in a part of the system that relies heavily on trust.
Maybe. When one considers "existential/systemic" vulnerabilities as @bacchist claims, there is a reasonable argument that should override other tradeoffs (at least others that do not also involve such systemic risks).
That being said, one can question whether his claim is correct. I have some similar concerns.
I see existential/systemic vulnerabilities if there is no debt limit :)
Potentially that argues to look for a way to wind down SBD altogether, and remove the threat. Or look for a third option. Dan's earlier proposal for forced liquidation has a lot going for it, but unfortunately creates serious ecosystem issues. So we need a fourth option I guess...
I should also point out that if this proposal goes through, the calculation should be independent of the haircut. IE, if the debt load surpasses 10% and SBD -> STEEM conversions produce less than $1 of STEEM, it should never cost less than $1 of STEEM to create 1 SBD. That would be a catastrophe.
Agree 100%
Agree on your entire comment, but just to clarify on this one point, this is simply leverage, and works in both directions (both up and down) and, in general, the leverage ratio is quite low (1.1x at the most). In fact I would argue that in most circumstances that low of a leverage ratio is reasonable to ignore. The extremely poor liquidity pre-HF16 might have been a circumstance where it wouldn't be, but even that I'm not sure about. A situation with bad liquidity and declining demand is probably just about as bad with 1x leverage as with 1.1x.