SBD is currently trading for around $2.
Most people are aware by now that SBD has been consistently trading above $1. Way above $1 actually. Currently you can get about $2.04 worth of STEEM if you trade 1 SBD for STEEM on the internal market. You can get about $1.97 worth of BTC if you export 1 SBD to Poloniex and exchange it.
So why is this a problem?
If a shop owner wants to sell a shirt that costs $12 USD to make, and they want to make an $8 profit, they will want to to list their shirt for $20 SBD. If $20 is a fair market price for the shirt, and SBD is trading for $2 - then why would a customer pay $20 SBD for the shirt if they could go to an exchange and get $40 USD instead? The shop owner can either hope for a customer who is willing to pay $40 for their shirt, or lower the price to $10 SBD to equal $20 USD.
Say the shop owner is successful, and they sell 100 of their shirts in a month at $10 SBD. Then let's say that by the end of the month when they go to cash out, SBD is back to $1 USD. The shop owner would now have $1,000 SBD worth $1,000 USD. This is their payment for 100 shirts, which cost them $1,200 to make. Instead of making an $800 profit off the sale of 100 shirts, this owner just lost 200 bucks (and their time).
An alternative is for the shop owner to constantly monitor the price of SBD, and change the price of their shirts based on the current market price, as well as cash out any SBD as soon as payments are made. This is a lot of work for a shop owner though, and then they are spending their time dealing with currency fluctuations instead of selling shirts.
A robust STEEM/SBD marketplace is a key to mass adoption.
The STEEM/SBD ecosystem would benefit greatly by having hundreds/thousands of shops that accept STEEM or SBD as payment.
The fact that STEEM/SBD can actually be used for something is a major key towards mass adoption of the platform and currency. Users would have something tangible that they could do with their "magic internet money", besides just sending it to an exchange and cashing it out.
SBD was intended to be a stable currency.
Shop owners will have a much easier time selling their goods and services for STEEM/SBD if one of them is a stable currency. This was one of the main reasons to have SBD in addition to STEEM.
Having a stable SBD currency allow shops to accept it as payment without having to worry about drastically fluctuating prices. Then they can focus on selling more widgets to their customers (i.e. us).
Holding SBD at $1
The free market decides the price of STEEM, but SBD is supposed to be held at 'around $1'. There are various tools in the witnesses' tool-belt to aid with this, and the whitepaper has given guidance on how to use those tools. They are limited in what they allow witnesses to do though.
What we have found is that the tool-belt allows the witnesses to do a pretty decent job at pushing the price of SBD up when the peg starts to trend below $1, but it does not provide very good mechanisms to push SBD down when the peg starts to trend above $1.
Proposed Solution
A proposed solution to deal with the problem is to allow users to "reverse convert" STEEM to SBD. This would allow the user to take "approximately one dollar worth of STEEM" (based on the 3.5 day witness price feed average), and convert it into 1 SBD.
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.
How would this fix the peg?
If SBD was trading for above $2, users would be able to convert $1 worth of STEEM into 1 SBD, then sell it for $2. They would end up with an extra $1, and this will put downward pressure on the price of SBD.
This would continue until enough new SBD reaches the market to push the price back to $1 again. For as long as SBD remains above $1, users will continue to convert STEEM->SBD and push it down.
But what about the debt?
One big fear about this process is that too much SBD could be created. Users may continue converting STEEM into SBD until the level of SBD debt becomes too high.
With the current 10% debt limit that is in place, this should not be a major problem. This will likely serve as an upward bound on the amount of SBD created, although even if it does not - the blockchain's liability will be limited to 10% of the STEEM marketcap.
The way the blockchain rules are currently defined - if the SBD debt is above 10% of the STEEM marketcap, users will get "less than one dollar worth of STEEM" if they try to convert SBD back into STEEM. This would remain unchanged as part of the proposal.
What this means is that as the debt level approaches 10% of the STEEM marketcap, there will be additional risk for holding SBD, since users may not be able to get the dollar back if they try to convert back the other way.
If SBD is still trading above $1 at this point, then more users will likely sell their SBD to avoid the additional risk - putting more downward pressure on the price.
If users still want to buy/hold SBD at this point, and the price continues to trade above $1 (even after the 10% limit is reached), then they can continue to generate even more SBD, just with the added risk that they will no longer be able to convert it back to STEEM and still get $1 worth.
Added Benefits
In addition to pushing down the price of SBD, allowing users to convert SBD->STEEM would increase the demand for STEEM as well, because more users will be buying STEEM to convert and make money via conversion. This will put upward pressure on the price of STEEM if/when there is high demand for SBD.
Plus, in the process of doing this they will be destroying STEEM tokens, which will be decreasing the supply of STEEM! This is beneficial to STEEM/SP holders, as less supply means the existing tokens become worth more.
Will this work?
I have discussed with several other witnesses and community members, and everybody I have talked to seems to think that this is a good solution to the problem. At this point, this is just a proposal though. Nobody from Steemit, Inc. has commented on or endorsed the idea.
For now, I am just looking for feedback.
If the consensus seems to be that everyone thinks this is a good idea and nobody sees any major issues with it, then I will recommend that it be considered for a future hard-fork.
Thank you for reading
Thank you for taking the time to read and consider my proposal. If you have any thoughts for or against the idea, please share in the comments below!
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