Who is paying for your Author Rewards?
Where does the value of Author Rewards come from?
Normally the value of author rewards comes from the dilution of existing stakeholders. New steem is created as inflation, which dilutes the stake held by everyone else holding Steem. All-else-equal, a Steem holder is being diluted about 9% per year and a Steem Power holder is being diluted about 7% per year. This dilution pays for your author rewards among other things.
When the Steem Network creates an SBD, it backs it with $1 worth of "Virtual Steem". Virtual Steem doesn't yet exist in the sense that it's not finalized, how much will actually be created is an unknown until the 'convert' contract is executed on the SBD.
You also get 50% of the nominal reward in Steem Power, which is not virtual.
Things are a bit different right now
We are in an unusual situation today where dilution is not actually the main source of value from rewards. At time of writing this the price of SBD is $5.66, when it is intended to be stable around $1. This means for every 1 SBD you have, you can sell it for $5.66 and get that much purchasing power, but you're only being backed by $1 of Virtual Steem. That's only 18%, a little precarious if you ask me.
Conclusion
If you calculate the total backing of rewards by dilution, including the Steem Power part of the reward, only 30% of the dollar value of the reward is supported by dilution.
The other 70% is purely SBD speculators.
I did power up yesterday through the market as you suggested ;) wooo!!
@demotruk
With SBD this high is it sustainable ? One would have thought Steem would be the higher of the two. In your opinion will SBD trickle back to one usd as it is actualy worth only one usd or would it be able to be worth more than one usd as when ever I receive SBD i convert it into Steem should I or not ?
Never use the 'convert' option, always use the market.
The more we power up Steem and remove liquid Steem from the market, the sooner the peg will be enforced. Yes I do think the current price is unsustainable and it will return to $1 again with time.
@demotruk
Thank you I thought that would happen , Yes i do use the market get a bit of a deal now and again:), I do not think people will convert there SBD into Steem unless they are trying to build a long term portfolio . I am sure most people just send there SBD to exchanges to get pay out ...
Steem Power is what allows you to allocate newly created Steem Dollars. It is only natural that the value of Steem is increased by higher than normal SBD prices, since you're allocating more purchasing power. That purchasing power can be directed towards increasing your Steem Power further, creating a feedback loop (a bit like compounding interest).
I think this is a good idea, because this kind of thinking is lucky we make us, and take advantage of this time also we can actively think about the great opportunities ...
To be honest, I don't really understand the SBD speculators who are pushing the price of the asset so high. Of course, I don't mind the inflated rewards, but I still don't understand the motivation of the people paying for them.
It's a low liquidity crypto to speculate on. There are people speculating on completely dead projects simply because the token is on exchanges. The market is currently irrational and SBD prices are just a product of that, one which happens to benefit us.
I guess that irrational players in the crypto space are actually not a new thing. The only rational explanation I have for the high price of SBD is that some investors are only looking at the graphics and don't know or care that the natural value for the asset is much lower. They might also think that the since steemit.com and the Steem blockchain are booming projects the asset with the lower market cap is the one likely to moon or something. I honestly have trouble rationalizing it.
Option 3 I guess is for somebody who is getting huge author rewards to is pushing it up speculatively in order for them to keep getting highly inflated rewards but I doubt the math would actually work out on that one.
To my opinion, the current scenario where SBD finds itself at above 1$, is not healthy for this system as SBD is getting more attention from the community than the steem cryptocurrency itself. I think the whole arrangement should be shaken up to peg SBD at 1$ worth.
Thanks for this informative article.
@eurogee of @euronation community & The Host, Show Us Your Witnesses Weekly Contest
The high SBD price does at least allow us to direct more purchasing power to remove liquid Steem from the market, thus increasing the Steem price while also enforcing the peg.
Mehn @demotruk sir. It appears you hold PhD in workings of steem ecosystem. This response is a brilliant one. In my widest imagination, I have never reasoned it the way you just explained everything. Indeed, I have learnt something great today. Much respect.
@eurogee
So what do you think should be done about the situation because 1SBD is not $1, it is now $5.66, what happens in the future, is there any possibility for SBD to be stabilized to $1, I think about this sometimes but haven't got the answer yet, can anyone help?
The more money (especially SBD) is used to power up Steem, the sooner the peg will be fixed.
Ok, that's great. i want to use this medium to thank you for your upvote in my last post about my valentine steemit promotion.
This seems like a very intricately designed system. The developers of the steem playform did a good job here. The question of where my SBD earnings usually come from has persistently been of concern to me. Thank you @demotruk for taking out time to break this down.
thank you, your explanation of reward and steem is very useful for me, as well as questions from some other friends in your post become knowledge for me. of course I must continue to add insight about this platform, because I was doing steemit promotion for the people in Indonesia through local television station that I lead. I am sure steemit will grow and give positive energy for society.
thanku sir for info :}
Wow! This is deep and insightful. Thanks for sharing
NICE ONE. Thanks so much for this explanation.