Let’s say we want a SBD hard peg with the USD. What would you say? At all costs? Should we put the full weight of STEEM behind the effort? What would that look like in real terms? How would we do it? Automatically convert SP to SBD at going market rates when the need arises? Let's look at a theoretical example.
Let’s say for argument’s sake that we agree to automatically and proportionately convert SP to SBD that is liquid and spendable without the need for a Power Down. Now let’s suppose that the price of SBD skyrockets and the mechanism takes affect and the automatic conversion of 10 million SP is enough to keep things in check and the SBD at $1.00USD. Great, we’d say. It’s working, right? But then the demand for SBD overwhelms supply again, and we need another 10 million SP, and again, and again, until we reach total supply of SP. Then what happens? The 9.5% built in inflation rate for SP (for now) would only be a drop in the bucket.
There is a finite supply of STEEM that would eventually run out completely, and if buyers continued to overwhelm sellers, the price of SBD would eventually skyrocket anyway from its artificially subsidized low rate.
Admittedly, that is a simplified and exaggerated hypothetical, but it serves its purpose of giving us a very intuitive and informative perspective without doing any math or getting into complicated details. Okay, and for those who say a less exaggerated plan might work better, like, say, just converting all rewards to SBD while the buyer/seller imbalance requires it? Why would we waste our time when once again the end result would be the same? Being smaller to begin with, the finite supply to try and balance buyers and sellers would simply be used up much sooner, and all for naught.
Finite supply versus unlimited supply is the key question. How can we possibly create a hard peg to the USD? We could do something close, within a closed system where supply and demand is better controlled, but, ultimately, we’d run into the same problem as people buy STEEM to be able to then buy SBD on the internal market, alas, again, until the finite supply is completely used up. The flip side is that STEEM would also skyrocket, but that in itself would cause more demand for SBD as a hedge against a correction. And the snowball would just keep growing until it smashes into reality. It’s just not possible to create a dollar peg with finite resources without great cost to the system. In fact, I submit that it would be ruinous.
The next question is if this is what Steemit, STEEM and SBD are actually all about to begin with. Are we here to peg to the USD? Or to replace it? What if the United States is hit with a severe spate of inflation, or even hyperinflation, and the USD goes into freefall? Would we want to try and peg to that? While the NZD, CAD, AUD, et al. all shoot through the roof, SBD would freefall with the USD (until the finite supply of collateral is completely used up, of course)? Wouldn’t it be much better to have a SBD at $100.00USD?
I’ve accused current SBD buyers of ignorance. Perhaps I’m the one guilty of ignorance. The SBD has a guaranteed minimum peg to the USD – you can’t lose if you’ve bought at $1.00 – and truly unlimited upside potential. The broad money supply of USD is over 10 trillion; SBD is just a little over 3.5 million. There’s no way on earth to keep a lid on SBD. It’s going higher. I just wish I had realized this when it was still at $1.00 as I think we might not ever see a $1.00 SBD ever again.
I’ll be looking to buy on a pullback.
Please leave your comments, input, questions, etc., below!
@cryptographic