On March 10 2017, the price of STEEM was $0.069. This was the all time low. After the previous Bitcoin bull cycle was complete, money started pouring into altcoins from Bitcoin, which resulted in STEEM attaining the lofty all time high of $8.57 on January 3 2018. The price went up 124 fold!
The price of STEEM seems to be lingering between $0.22 and $0.25 at present. It touched the same level in December 2018. The price dropped by over 97%.
Why is STEEM this volatile? Some clues can be obtained by looking at the Market Info tab on SteemWorld. The current supply of STEEM is about 319 million and the current supply of SBD is about 8.1 million. Importantly, the SBD Debt Ratio is sitting at 9.811%. What is that? It is simply the ratio of the market caps (in dollar terms) of SBD and STEEM. The market cap of a currency is simply the number of units in circulation times the price per one unit.
SBD is a stablecoin that works essentially like a debt instrument. It is pegged to the US dollar and backed by STEEM. From the downside, SBD is supported by a mechanism called SBD conversion (to STEEM) whereby the blockchain converts one SBD to a number of STEEM worth approximately one US dollar, in which process the SBD gets burned and new STEEM gets minted. Why is the conversion process of particular note right now? That's because the SBD Debt Ratio is approaching 10%. That's when the conversion process no longer guarantees that one SBD converted will yield one USD worth of STEEM. That's also when new SBD stops being printed and given out as author rewards. (Part of author rewards begin to be given as liquid STEEM when the Debt Ratio exceeds 9%). Many Steemians who have had SBD have decided to begin conversion to STEEM in order to avoid the value of their SBD holdings collapse in case the price of STEEM sees any more downside price action and stops being able to back the value of SBD.
As a result of a lot of new STEEM being minted, the price of STEEM gets hammered even more when it gets very low like now. From the upside, the price of SBD is limited by every author choosing to get paid in partly SBD, which increases its supply particularly as the printing of new SBD only starts to slow down after the SBD Debt Ratio increases to 9% instead of 5% as was the case before Hard Fork 20 last October. What essentially happens is that the relative stability of SBD is attained at the cost of the increased volatility of STEEM. When all the excess SBD is burned, STEEM has an good chance of mooning again particularly with strong fundamentals like now.
Should SBD be done away with then? Not in my opinion. It's still a good place to park profits at after a bull run without having to leave the Steem platform. That's because SBD has a long-term tendency to return to the peg. Ground frost will drive a piglet home is an old Finnish saying that applies here. There are mechanisms in place to bring the price of SBD back to the peg no matter how wayward its price action may seem at times.
