A few recent posts have inspired me to look into some of the Steem Economics and at the same time the 2018 Historical Data around STEEM statistics from Coin Market Cap.
I’m hoping this post might be useful to visualise some of the trends/economics/stats around STEEM and SBD. Perhaps it will help with the collective understanding around the increased supply of STEEM in 2018.
The recent articles which have inspired me into writing on this topic include:
- The post from
here and some of the great comments he received from a number of witnesses including
and
.
- The post from
here on creating demand for the Steem token and stabilizing the STEEM price.
- Debate within the Steem Economics channel in the Discord Channel aligned with the programme of “State of Steem Forums” ( https://discordapp.com/invite/qHWWU3k ) hosted by
and with comments and debate from
.
Much of the debate encouraged me to learn more and to understand some of the trends in the SBD and Steem currency prices. This is not the finished article and I would be very happy for anyone more versed in Steem Economics to correct any errors.
This is an attempt to help relay some of the possible reasons why there is an increased supply of STEEM and why STEEM has deflated more so than Bitcoin.
The article will leave a few stones unturned as this is a large topic and it does not touch upon the fact that there is much more we can do as a community to increase the demand for STEEM and in return see some upward pressure on price. As you will see below the STEEM in supply has increased dramatically, and the Steem Blockchain Community will want demand to increase in Q1 of 2019 to match this increase in supply.
Please see below some graphs – I will make a short commentary on these below the graphs.
Immediately obvious facts:
- Steem has dropped approx. 25 places in the CoinMarket Cap rankings
- The mechanics and code are currently preventing the Blockchain from printing more SBD (explained below)
- Steem price has fallen approximately 90% in the year where as Bitcoin has only fallen approx. 70%
- Steem has experienced an increase in the Supply of STEEM which is significantly above the “prescribed inflation in the code” – most likely caused by SBD holders “converting” their SBDs to STEEM.
All these graphs above are supported by Data Tables shown here:
The calculation of the SBD Debt Ratio above is a little bit rough but useful for illustrative purposes in the narrative below.
Walking through these graphs:
Graph 1.1 above demonstrates that in the first half of 2018, STEEM was actually very close to breaking into the Top 20 of Crypto Currencies by Market Capitalisation – and now the rank has slipped such that STEEM is hovering around RANK 50.
Those in the know about the Steem Blockchain will understand many of the unique qualities and the need to showcase them, not least the speed of transactions, the fact that transactions are free and the fact that we have a hot bed of DApps being put to good use. It will only be a matter of time before confidence is restored and STEEM rises through the ranks again.
Graph 1.3 above demonstrates the fall in STEEM and SBD prices during 2018 – you will be familiar with the graphs, the sentiments and the feelings for the bear market.
Graph 3.1 above demonstrates how STEEM and SBD have performed relative to the movements in Bitcoin over the last 365 days – as you will have expected there is a very strong correlation. The fall in value in STEEM is massively correlated to overall sector/market factors and primarily the movement in Bitcoin.
However, as you can see from the table below (3.2) the fall in value of SBD and STEEM from 2017 is more dramatic than Bitcoin, falling circa 90% versus Bitcoin’s fall of circa 70%.
In the graph 3.1 below you can see a slight divergence in SBD and STEEM (in the last two months) and this shows that SBD has held its value better relative to Bitcoin- and you can put this down to some of the tools and techniques deployed by the Witnesses / and the code and mechanisms within the Steem Blockchain to protect the value of SBD when it falls below the equivalent value of $1 USD. There are also the market factors, the supply of SBD has been reduced significantly:
- SBD has stopped being “printed” as a result of the SBD Debt Ratio which prevents production and distribution of SBD from the “rewards (inflation) pool” when the debt ratio hits a certain threshold (currently 10% - and explained below). When the Debt Ratio is above 10% only STEEM and STEEM POWER are distributed.
- Some SBD holders have “converted” their SBD into STEEM. Meaning they have not just sold the SBD in the market, but they have actually used a little-known conversion mechanism which has effectively scrapped the SBD, reduced the supply of SBD and the individual has received STEEM instead and thereby increased the supply of STEEM.
If you look at the left-hand side of the dashboard above you can see the supply of STEEM, and the % in which it increases each month. In the first half of the year you can see the increases per month are relatively modest although sometimes more than the prescribed and coded level of inflation. Things change dramatically in the second half of the year, and particularly in the last quarter when the supply of STEEM increases dramatically. This is because some SBD holders have been “converting” their SBD into STEEM.
As you can see from the graph below (1.4) I have tried to illustrate graphically the “expected inflation” and the actual increase in supply in STEEM. The increased supply of STEEM is caused because of the quirk of having two highly linked currencies. Please see below.
Fundamentally the supply of STEEM is quite significantly above market and community expectations and this increase in supply could be one reason why the STEEM price has fallen by the larger percentage of 90% in 2018 compared to the fall in Bitcoin price of circa 70%.
If you look on the right-hand side of the dashboard above – look at the massive increase in SBD supply in the first half of the year. The % increases in SBD supply were huge. N o doubt there will have been a significant number of users and exchanges that built up reserves of SBD from the first half of the year and stored them.
You can see that once SBD started to be less than 1 USD in value (Aug 2018) some SBD hodlers have attempted to profit from the “conversion mechanics” within the Steem Blockchain – the mechanism attempts to always give the user 1 USD worth of STEEM for every SBD converted. This is most likely why we see the supply of SBD diminishing from mid-August – which was the first time this year that SBD fell below one USD in value.
You can imagine someone thinking: Damn, this SBD is only worth $0.70 USD – I think I will convert that to STEEM and because it is nicknamed the “Steem Backed Dollar” – I can exchange that for a whole $1 USD worth of STEEM. Well they will probably have been disappointed as it is not as simple as that because of something known as the “haircut rule”.
Perhaps one of the most peculiar aspects of the Steem Economics is the changeable mix in currencies from the rewards pool. Dependent upon the current SBD Debt Ratio, the rewards paid to contributors to the blockchain are paid in varying proportions of SBD and STEEM. This is best explained by one of the absolutely key witnesses we have on the platform 
Here is Tim’s post “SBD explained” which is an invaluable read and one which I would recommend you read for more advanced further reading. The most pertinent paragraph for my post today:
Under the new rules (post HF20), the print rates for rewards are:
- When the STEEM/SBD debt ratio is between 0% and 9%: 0% STEEM, 100% SBD.
- When the STEEM/SBD debt ratio is between 9% and 10%: linearly changes from 0% STEEM, 100% SBD to 100% STEEM, 0% SBD.
- When the STEEM/SBD debt ratio is greater than 10%: 100% STEEM, 0% SBD.
The Debt Ratio can be quite complicated and for the detailed reading – please follow Tim’s post which also explains the pre HF20 print rates.
You can see from the graph below 1.2 (which is just rough calculations for illustration purposes) the historical SBD Debt Ratio – this will explain why as soon as the “SBD Debt Ratio” moved above 10% in November, we stop seeing SBD being printed and distributed in the rewards. This throttled the supply of SBD.
You can see diagrammatically on this image below why the behaviour of SBD holders using the “SBD to STEEM conversion” could cause an increase in supply in STEEM.
I understand that because of the current SBD Debt Ratio there is no major /profit or gain to be made from using the SBD to STEEM conversion. Perhaps this is something I can research further, and I will be led by community feedback. You can understand more about this fairly complicated and advanced process and the “haircut rule” in this post here : How to convert SBD to STEEM using steemconnect again from the fountain of all knowledge Tim Cliff!
In my mind, every SBD token which is converted rather than sold right now is increasing the supply of liquid STEEM tokens on the market, and is putting downward pressure on the price of STEEM. Is it best that the SBD holders continue to HODL?
Well there is plenty more that could be talked about but I’m going to park this here for now.
This took quite a lot of time to pull together – so please let me know if this was useful.
Is there any interest in more “posts” similar to this?
e.g:
- Deeper dive and discovery into STEEM supply/ or SBD Debt Ratio
- Deeper dive into 2018 inflation and how to reset "market expectations"
- STEEM price performance versus other Crypto in 2018
- Discussions on ideas for increasing the Demand for STEEM
- Defeating FUD and building confidence in STEEM
- Steem user behaviour and how it might affect the price of STEEM