What actually is SBD and how is it restricted???

mischaro (41)in #steem • 6 years ago

STEEM DOLLARS explained

At first we have to realize why have the creators of Steemit decided to make SBD.

The main reason is to ensure stability which helps people who want to preserve value on the steemit blockchain, yet still do not want to be "speculating" about the price of STEEM.

Limited conversions

Since SBD is somewhat stable and "STEEM is not" (not as stable as SBD) traders could take adantage of this and convert to SBDs when STEEM is high and the other way around. Because of this only conversion of SBD to STEEM is allowed.

SBD is a debt!

"If a token (STEEM) is viewed as ownership in the whole supply of tokens, then a token-convertible dollar (SBD) can be viewed as debt." SBD holders effectively lend the community the value of dollar by hoping that in the future someone will be willing to buy it from them for a dollar or exchange it for STEEM. If the debt-to-ownership ratio gets too high, the entire currency can become unstable. Debt-to-ownership ratio can change dramatically if the price of STEEM changes rapidly.

To prevent high debt-to-ownership ratio there is a maximum 10% debt (maximum 10% of SBDs of the total STEEM supply). If this was ever exceeded the blockchain will automatically reduce the amount of STEEM generated through conversions to a maximum of 10% of the market cap. This ensures that the blockchain will never have higher than a 10% debt-to-ownership ratio.

If SBD trades for less than 1$ USD ( high debt-to-ownership ratio) , you should be receiving more STEEM per SBD. This increases demand for SBD while also reducing the debt-to-ownership ratio and returning SBD to parity with USD.

In a market where debt still demands a premium, it is safe to say the market is willing to extend more credit than the debt the community is willing to take on. If this happens a SBD will be valued at more than $1.00 and there is little the community can do.