Lower debt ratio with conversion of SBD?
Yesterday the question came up in the witness channel whether the conversion of SBD using the blockchain conversion operation can have a positive impact on the debt ratio and thus also on the printing of SBD.
I found this question totally interesting. But could it really be? My thoughts were pretty unsorted at first. Then I did a calculation that produced a logical result, but left me with no inner peace. I just thought: This can't be right! It didn't make any sense at all. So I checked the whole thing again and finally came to a (preliminary?) result.
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What happens when converting SBD to STEEM?
Trading on internal market
SBD can be swapped in STEEM via the internal market. The operation limit_order_create_operation
is available for this purpose. This is done at the internal market price. Currently you can get about 3.4 STEEM for 1 SBD. You can therefore "convert" 100,000 SBD into around 340,000 STEEM. The account balance changes for the user. But nothing changes for the blockchain, because SBD and STEEM are still available in the same number. They have only changed hands.
But this should only be mentioned for the sake of completeness. The following is about the second option:
Converting
Converting via the convert_operation
is a different matter. On the one hand, it is only possible to convert SBD to STEEM and not vice versa. On the other hand, this is not done at the current market price, but at the median price set by the witnesses. Although this is based on the market price, it cannot fall below a certain price. This is the minimum price, which is explained further below. Another difference is that the conversion is only executed 3.5 days later at the price valid at that time and can no longer be stopped.
The conversion takes place at the median price, which is currently $0.26190. So you get around 381.825 STEEM for the 100,000 SBD. Here, too, the user will later only have STEEM in their account instead of SBD. For the blockchain, the supply of STEEM and SBD is now changing:
current_supply = current_supply + 381,825 // STEEM supply
current_sbd_supply = current_sbd_supply - 100,000 / SBD supply
The virtual supply does not change because the STEEM amount is added first and then the SBD amount multiplied by the median price is deducted.
How does the debt ratio change with the conversion?
Calculation
SBD is a kind of promissory note for STEEM. As the blockchain always considers 1 SBD to be $1 internally, it is guaranteed that a user will receive STEEM worth $1 for 1 SBD. The debt ratio is therefore the ratio between SBD market capitalisation and STEEM market capitalisation (from the virtual supply). Details can be found, for example, here.
The main influencing variables are therefore virtual_supply
, current_sbd_supply
and the median price:
debt ratio = current_sbd_supply / median price / virtual_supply
First insights
As we have seen above, the following changes:
current_supply:
+381,825current_sbd_supply
: -100,000
This applies to the debt rate:
A lower SBD supply leads to a lower debt rate with the constant median price and virtual supply.
Before conversion:
current_sbd_supply
= 14,061,878.005 SBDvirtual_supply
= 536,909,000.042 STEEM- 14,061,878.005 SBD / 0.2619 SBD/STEEM / 536,909,000.042 STEEM = 0.1000 = 10.00%
After conversion:
current_sbd_supply
= 13,961,878.005 SBD (-100,000)virtual_supply
= 536,909,000.042 STEEM- 13,961,878.005 SBD / 0.2619 SBD/STEEM / 536,909,000.042 STEEM = 0.09929 = 9.93%
Cool, apparently we can reduce the debt ratio by converting SBD to STEEM... so all we have to do is convert enough SBD and SBD will be printed again! Can that be???
First doubts
The intermediate result seems unlikely to me, as it would then be possible for individual (larger) amounts to influence these key aspects. Of course, the witnesses can also effect such changes by making adjustments to the price feed, but not individual users.
So what have I overlooked? The median price, which I had assumed to be constant, is recognisable as another influencing factor. Is that correct? Normally yes, as the witnesses indirectly determine the median with the price feed. This will not change directly as a result of a conversion. But in particularly low market phases (such as currently and whenever the debt ratio is too high), in which the median price is determined by the haircut price, we cannot assume the median price to be constant.
Calculating the haircut price
The haircut price is basically an artificial median price that is calculated in order not to fall below a certain price limit. Explanation: Tim Cliff - SBD explained.
So if the real price is too low, the median price is no longer determined by the price reported by the witnesses, but by the blockchain. We therefore call it the minimum price.
The haircut price is calculated exclusively from current_sbd_supply
and current_supply
:
min price = 9 * current_sbd_supply / current_supply
Above we have seen that the SBD supply and STEEM supply change during the conversion. If these values also have an influence on the calculation of the minimum price, we need to recalculate it:
Before conversion:
current_sbd_supply
= 14,061,878.005 SBDcurrent_supply
= 483,218,100.038 STEEM- 9 * 14,061,878.005 SBD / 483,218,100.038 STEEM = 0.2619 SBD/STEEM
This is the price we used above to calculate the debt ratio.
After conversion:
current_sbd_supply
= 13,961,878.005 SBD (-100,000)current_supply
= 483,599,925.038 STEEM (+381,825)- 9 * 13,961,878.005 SBD / 483,599,925.038 STEEM = 0.25983 SBD/STEEM
Aha, there we have confirmation. After the conversion, the minimum price is reduced. What happens now if we use this new minimum price, which is now the median price, in the calculation of the debt ratio?
Correct calculation
We now calculate the debt ratio using this correct information:
current_sbd_supply
= 13,961,878.005 SBD (-100,000)virtual_supply
= 536,909,000.042 STEEMmedian_price
= 0.25983 SBD/STEEM (new)- 13,961,878.005 SBD / 0.25983 SBD/STEEM / 537,334,083.808 STEEM = 0,1000 = 10,00%
Result
The conversion of SBD to STEEM - regardless of the size - with normal amounts does not change the debt ratio.
If we want to draw something positive from this, it would be that the minimum price has fallen. SBD printing starts a little earlier in a rising market.
I think this result makes a lot more sense, doesn't it? Have I missed something? Is it perhaps only a preliminary result?
Update 1:
@remlaps rightly pointed out that I cannot draw conclusions from one case. Therefore, it must be noted that the conversion has no influence if normal amounts are converted. This is no longer true for unusually high amounts. For details, please read the comments.
@danmaruschak noted that I wrote the wrong amount for virtual_supply in the final "correct" calculation. I changed this.
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I am interested in the Steem Economy, but my knowledge is so limited that I struggle to understand even half of what is written. My difficulty was mainly related to the term debt ratio, which led me to try to learn the term on the internet, but even though I have a little picture of the term now, I still can't place it in this discussion, meaning I don't know how to adapt the general term of debt ratio in the specific case of Steem Economy. But in general, I know what you're saying, @moecki.
Another thing is that I don't understand what Converting via the convert_operation is, can it be done by anyone, or only some people with certain clearance (e.g. Witnesses)?
Thank you for writing this. Maybe I will come back with another question later.
0.00 SBD,
21.08 STEEM,
21.08 SP
A few months ago @remlaps wrote a post that tried to explain the relationship between Steem price and SBDs, you might find that helpful.
It can be done by anyone, but it's not featured as an option in the default Steemit wallet because if the prices of Steem and SBDs are higher or lower than certain amounts (as they have been for several years) the results can be confusing to people that don't know how the formulas work.
0.00 SBD,
0.00 STEEM,
19.73 SP
Thanks for answering, @danmaruschak, especially for searching back to 3 months to get me the link. So if it's not featured in the default Steemit wallet, where do one can do that? Don't worry I wouldn't want to touch the formulas. 😆 Just curious.
0.00 SBD,
0.03 STEEM,
0.03 SP
The easiest way is probably steemworld.org, if you go to https://steemworld.org/@aneukpineung78 and go to the "balances" tab there's a "Convert SBD" button over on the bottom right.
Ah. And yes, there's so many button on SteemWorld, and I never even tried them. I see the mentioned button but it seems to be inactive at the moment.
0.00 SBD,
0.03 STEEM,
0.03 SP
My guess would be that you have 0 SBD to convert to the site disables the button, but an account that has SBD would have that option (it's what I've been using to initiate my convert operations).
0.00 SBD,
0.00 STEEM,
0.42 SP
Thanks for explaining. Makes sense.
Danmaruschak has already answered your question correctly. If you need any further information, feel free to ask.
Yes, and I asked him another question.
No time to look right now, but this can't be right. If someone managed to convert 100% of SBDs to STEEM, the debt ratio would be 0.
Conversion leaves the virtual_supply the same, grows the current_supply, and shrinks the current_sbd_supply, so all else being equal the debt ratio would shrink. However, there are downstream effects on the price of STEEM, so all else is not equal. Still, there must be some scenarios where the debt ratio would decrease.
Update: Not sure when I'll have time to look at this more carefully, but here's my current theory. When the debt ratio is >= 10%, it's always exactly 10%. That's what the haircut threshold accomplishes. So, as long as the STEEM price is below the haircut threshold, converting SBDs won't reduce the debt ratio. Instead -- as you noted -- it merely lowers the haircut price. However, once the STEEM price breaks above the haircut threshold it should(?) be possible to reduce the debt ratio by converting SBDs. (just a theory... I haven't run any numbers.)
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I didn't follow the train of logic exactly so I'm not sure what isn't adding up, but I'm pretty sure that people using the conversion operation is exactly the thing that's supposed to reduce SBD supply and cause SBD rewards to be printed again.
Reading a little more carefully, in the final "correct" calculation, did you use the new haircut price in the virtual supply, @moecki?
It isn't the size of the account but the amount of SBD converted that can make big shifts. I imagine the original intention was that lots of individuals would be doing the conversions rather than giant individual accounts doing huge conversions.
0.00 SBD,
0.00 STEEM,
11.10 SP
Used, but not written down. Thanks for the note.
Also correct. The amount would be decisive. As we have now found out, there is actually an amount from which the debt ratio changes.
0.00 SBD,
0.23 STEEM,
0.23 SP
Das ist wieder die Ecke, wo ich maximal die Hälfte verstehe von dem, was Du schreibst, aber... Hat Dein Beitrag bzw. die Witness-Diskussion was damit zu tun, daß jetzt wieder SBD ausgegeben werden, obwohl nach allem was ich weiß, nichts dergleichen erwartbar war??
0.00 SBD,
0.64 STEEM,
0.64 SP
Es hat damit was zu tun, allerdings ist das nur eine temporäre Randerscheinung. Ich kann das (noch) nicht ganz nachvollziehen, warum es so lange dauert, bis die Print Rate wieder auf 0 geht. Ich hatte das erwartet, allerdings hätte ich höchstens mit einem Block gerechnet. Es dauert aber offensichtlich länger...
0.00 SBD,
0.10 STEEM,
0.10 SP
I think this research (not sure that's the best word to describe your article though) made my brain tick faster than the effect from the big mug of espresso I'm having right now :))) Thanks for that! :)
Here comes one question.
What are the reasons that feature being removed from the official Steemit wallet frontend? https://steemitwallet.com/ Or it wasn't available there at all? Trying to think logically if a feature is good for the platform, it would've been made available to all the "ordinary" users?
0.00 SBD,
0.55 STEEM,
0.55 SP
It used to be an option. I don't know exactly why it was taken away, but my assumption is that it was because at the prices Steem and SBDs have been trading at over the past few years using a convert operation would be a money-losing thing to do. Now that conditions are changing slightly that might not be the case, but some formulas are involved so people who don't understand them should probably still be cautious about using this feature of the chain.
0.00 SBD,
0.00 STEEM,
0.50 SP
This is my understanding, too. Many people were confusing the "convert" option with market exchanges, and they were accidentally destroying value by converting at $1 when they could have traded at much higher values. I believe Steemit took the convert option away in order to protect against that sort of mistake.
I agree. This should probably be considered an "advanced" capability. 😉 Given that it uses a median value over the upcoming 31/2 days, it is inherently unpredictable.
0.00 SBD,
1.02 STEEM,
1.02 SP
Thinking more of it, "convert" has a bit of a gambling side, as, for instance, let's assume STEEM price goes down for 4 consecutive days and then the median price will be higher than the current value. The conversion would result is less STEEM per 1 SBD if compared to a spot trading at that same moment.
However, I have to admit I don't have any slightest idea how the witnesses define STEEM price :)
0.00 SBD,
0.29 STEEM,
0.29 SP
I am almost certain the feature was there back in 2018 ;) Also, I think there was a warning, something like "use Convert only if SBD < $1.00"
I see "Convert" just as a tool. Some loose their life savings over night by margin trading and still, it is out there, available to everyone.
The more features, the more people would be interested to join/stay. Imagine if any of the biggest crypto exchanges decides to have spot trading only and strip away all other methods of trading. Many will move right away to the competitors I guess. ;)
Thank you! :-)
Unfortunately, I can't tell you that either. I don't know if it was ever available there. If we follow the FAQ, users should obviously be protected from it ;-D
Strange...
Strange indeed, and I have a feeling the feature was there back in 2018.
I may be wrong though.
The way I interpret the FAQ, as the median price is somewhat controlled by the witnesses, those in charge of the official frontend didn't want that feature available to everyone. I am not certain about that but it also looks like limiting the witnesses influence over the price and letting more the trades to weight on it. Probably more than one reason for removing it.
I'll have to check if other frontends still have the convert feature available.
Hi @moecki
I wonder about the value of SBD. I was always in the understanding it remained 1$ (old info somehow saved in my head) but I noticed as I asked Bitvavo to add new assets not only Steem but also SBD is mentioned. I clicked both options After reading you I wonder what happens with the value of my bought SBD in the case I can buy it at Bitvavo. In your scenario, to keep the printing possible I will lose a high percentage of my investment or do I understand it wrong?
BTW Bitvavo is silent.
0.00 SBD,
0.00 STEEM,
1.10 SP
Die Blockchain setzt den Wert des SBD immer mit $1 an. Auf den Märkten sieht das natürlich anders aus.
Like any coin on the stock exchange, their value can fluctuate or even lose value completely. You need to know that. If you have bought SBD on the exchange or the internal market and could only sell it there at a loss (because the price is too low), you can always convert the SBD into STEEM via the blockchain.
No, we don't want to ensure that SBDs are printed again at all costs. I just wanted to show - and record - what happens when converting to STEEM. This method was also very rarely used in the past. Only since December 2024 have higher transactions been recognisable.
The price is essentially determined by the market. Unfortunately, the market is also very limited due to the trading restrictions. For this reason, we cannot currently assume a healthy market, meaning that all activities at the moment are rather exceptional.
0.00 SBD,
3.01 STEEM,
3.01 SP
Thanks for your reply and explaining. Any idea how much SBD was stolen last year? I also like to know why SBD is not protected unlike the savings and SP. Any idea?
0.00 SBD,
0.00 STEEM,
0.60 SP
No, this can't be read from the blockchain data. It is only transferred from one account to another. The data doesn't show whether the recipient is a fraudster.
Firstly, the coins are protected by keeping the keys secret. If nobody but the owner knows the keys, the coins cannot be transferred.
SBDs are similar to STEEMs. The owner can keep them liquid or transfer them to the savings (SBD and STEEM). What would be the alternative to liquid SBD/STEEM? A transfer that takes a day or even longer? Every system architecture has to find a compromise between security and usability. I think there are already a few more securities on the Steem than on other chains (recovery).
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0.00 SBD,
0.25 STEEM,
0.25 SP
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0.00 SBD,
0.25 STEEM,
0.25 SP
When I read few days ago this I remembered the feature is accessible from upvu.org wallet
I ordered convert with small amount of SBD, here the result
Took 3.5 days as said.
3.277 SBD to 16.205 STEEM makes 1 SBD = 4.945 STEEM for that period.
I think there is no big difference from trading on steemit market.
Not sure if upvu.org is still maintained or developed, the "UPVU Dashboard" feature does not work, loading forever.
Ich verstehe nichts. Sprechen Sie Englisch?
Nicht so gut wie Kauderwelsch...