I know that me bringing this up might seem like I'm some sort of traitor in the eyes of the little accounts, but in truth it's quite the opposite. In other words, the reasons why I've been thinking about how to make sure the SBD stays stable is because I believe that perfecting our stable currency is going to help with the valuation of STEEM in the long run. It could attract investment, and it could also work as a hedge for us, the stakeholders of the platform.

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I'm fully aware that @timcliff and @smooth have voiced their opinions on the matter, and of course there was even an initiative called @burnpost who's very existence came to be because the broken peg presents an obstacle for the long term health of the STEEM blockchain's economic structure.

The following idea is my humble attempt to share something that might work a little more efficiently than our current system. An idea that should, at least in theory, incentivize people to help maintain the pegged asset.

We can't deny that there is a need for a pegged currency in the markets and the sudden influx of solutions for this very problem are an indication that plenty of developers are attempting to bridge the gap between commerce and cryptos, paving a way for volatility to not scare business as it currently does.

A crucial difference here is that for this idea to work, the STEEM blockchain itself would have to stop doing payouts in SBDs. In other words, all post payouts would be given to authors in vested and liquid STEEM. The reasons as to why would become apparent as you continue to read on.

A short explanation of SBD

If you are familiar with how SBD works, then this part of this post is safe to skip. However, because I would love to get input from people, and I do want them to understand the current mechanics, I will do my best to explain how SBD works currently.

SBD or Steem Backed Dollars are simply explained as the STEEM's blockchain's stable token. In other words, the idea is that 1 SBD should, in theory, be equivalent to 1 USD. This of course is not always true, and sometimes it's lower or higher, but without getting too confusing, you should know that witnesses have some limited tooling to try to make this always be the case. The system I'm thinking of however is more about creating a set of incentives for the users of this blockchain to maintain the peg, not just the witnesses as we have it today.

The way this works now, at least In theory is that, if SBD is lower than 1 USD it's almost a no brainer to buy, as the adjustment of supply and demand would somewhat guarantee it returning to the 1 USD(granted the steem valuation can sustain the debt). However, as it works today, there is absolutely no way to bring it back down if it goes above 1 USD. This was primarily the reason why we had such a crazy pump at the beginning of this year, and why we are likely to have another one sometime in the future.

The easiest way to think of where SBD draws it's value, is to think of it as debt against STEEM. If you use the convert function of the blockchain, you are guaranteed 1 dollar's worth of STEEM. This means that if STEEM is 50 cents for example (the case right now) and you were to convert 1 SBD, you would gain 2 tokens three days later (conversion period).

Here is my idea...

Instant two way conversion with Smart contracts?

Of course this subtitle requires some explanation, and some logistics to be explained as well. However, I've been up for a few hours thinking of how this would pan out and I think I'm on to something. That being said, if there is some mistakes in my logic, please do not hesitate to point them out, as I don't take them personally.

For the sake of my explanation I'm going to pretend that the @null account can be programmed to serve these functions. I do know however that this is not the case, and I'm also aware of how it currently works (all tokens sent there get destroyed, it can be used to promote posts). But please, bear with me as I pretend it can work as a smartcontract account of sorts.

To break it down into digestible bites, I will simply run two scenarios and what I speculate would happen if the peg was broken for both cases. One, if the price of SBD is lower than dollar and Two, if it's higher than a dollar.

Scenario 1 - SBD is lower than a Dollar

This is pretty much how it works today, but with the three day delay. In other words, the change I'm talking about is very small, at least in this particular case. The idea would be that any SBD holder can automatically and almost instantly cash in the SBDs for 1 Dollar's worth of STEEM.

• I have 10 SBDs and STEEM is currently worth .50 cents.
• Through automatic conversion, I would now have 20 STEEM tokens.

This conversion has to be a function of the blockchain, not something done through the internal market. As I've said, this is currently how it works, but with the 3 day delay, but it would have to be as simple as me sending @null the funds and receiving the STEEM tokens seconds later.

The idea is that the SBD's don't change "hands" so to speak, they actually get destroyed when this happens, removing debt from the system. Imagine if you will, that I would send the 10 SBD to null, and null would send me back 20 STEEM tokens. Again, this is not the way things work, but I'm trying to help anyone reading this to visualize it.

In theory having automatic conversion of this sort, would mean that everyone would be motivated to buy SBD's the moment the fall under 1 USD. The incentive is the precise reason why SBD would not last long under 1 dollar, because the system always accepts SBDs as being worth 1 dollar.

We could assume, and we would probably be correct that many talented developers would program bots to arbitrage said system, thus it correcting back up to 1 USD very and I do mean very fast. (I would certainly be looking to get a team to build one of these bots myself)

As you can see, when users burn their tokens, it reduces the supply thus it increases the value of SBD back to it's 1 USD.

Scenario 2 - SBD is Higher than a dollar

Here is where it get's a little crazy, and I do apologize if I give anyone a headache. Truth is I've given myself one just now but I'm too excited not to continue writing this.

Assuming the account @null or the system has conversion in the opposite direction, instant conversion that is. Users would be incentivized to send @null or use the blockchain function to create more SBD's and get "easy money". Why easy money you ask? Because it's still going to pay out, meaning convert, assuming that SBD is worth 1 USD.

So for example, if SBD is worth $2 USD and I have 10 STEEM tokens that are currently worth 1 dollar each, just to make this simple to understand. If I was to destroy or lockup (I like destroy better) the STEEM tokens with this function(or sending them to @null) I would receive 10 SBD tokens. In other words, I sent 10 dollars worth of STEEM and received 20 USD back. Then logically I would sell the SBD in bittrex or any exchange that lists SBDs and thus make profit and drive the price back down.

In theory the sbd bull run would be very short lived, because again the arbitrage opportunity is too tasty to not program a bot to do the job. Also, you would be minting more SBDs on the bull run, as users are converting their STEEM for SBD, and thus adjusting the supply again. More tokens, lower the price.

Things I'm still working out

Of course everything I've written here is strictly theoretical and I'm not entirely sure of how difficult it would be to implement or if leadership would be interested in such a system. However, the more I think about it, this method seems to be more effective than just creating debt the way we have been so far.

In theory this would also scale nicely, as the correlation of existing STEEM and SBD would be balanced depending on the valuation of both tokens, at least it seems to compute in my head.

Now, It seems to me that this could work as a smart contract layer, but of this I'm not entirely sure. Meaning, that the protocol that would print or destroy SBD would be very much like a smart contract running on the STEEM blockchain.

I would love to hear your thoughts!

I think it's quite important we fix the peg if we ever want STEEM to be used as currency. I've taken the liberty to contact a Uber type company in spain and I'm getting ready to pitch them an idea. That being said, the fact that SBD could spin out of control makes me worry a bit, and before you ask, I fully intend to disclose all risks involved.

The talk at the moment is how to bring businesses to STEEM, and I think this part of the puzzle is somewhat fundamental. I mean just imagine the chaos: someone paying 1 SBD for a bottle water, and one week later seeing their SBD is worth 5 dollars more or the opposite, the price going down too. It's obvious we can't ever go mainstream like this.

If you read this far, as always thank you for loaning me some brain power.

Much love