About 3 months ago I wrote about The Coming STEEM DOLLAR Purge and here we are finally knocking on the door with SBD breaking down to 1.01 USD this week. This is what I would call the first "bounce" off the key $1 level that is supposed to be the level it is pegged at. The Purge has not yet begun, but I think we are very close now and while it may look ugly when it happens, I am happy it’s happening sooner rather than later – before things get worse. But before you lynch me for saying so, please let me explain.
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The way the STEEM blockchain works is complicated and I will assume that you, the reader, have some basic knowledge of the functions for STEEM, SBD and STEEM POWER. The important thing I want to talk about here is the print rate for SBD. All Authors understand that they get “Post Rewards” in various forms for their contribution of content to the platform, however, what is generally poorly understood is how those post rewards are calculated and how their makeup might change according to the calculated “Debt Level” of the STEEM platform.
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This Debt Level is basically a function of the SBD Circulating Supply divided by the STEEM Market Capitalisation. The Blockchain treats SBD as if it is worth $1 USD regardless of what it might be trading at on the open market, which is why we don’t use the SBD Market Capitalisation to calculate debt. Anyway, there are a couple of set thresholds that I have highlighted as zones on the chart below to be aware of and I’ll briefly outline them below :-
When the debt level is under 2% then 100% of the liquid post rewards are given to the user in the form of SBD. This is a healthy state and basically the system is saying that the debt level is so low that there is no problem issuing more debt in the form of more SBDs.
Once the debt level gets above 2% the system starts to reduce the amount of debt (SBDs) being printed and it starts rewarding authors with some liquid STEEM instead. It is a gradual reduction up until the debt level hits 5%.
Once the debt level gets to 5% the printing of new SBDs completely stops and ALL liquid post rewards are granted in the form of liquid STEEM.
Once the debt level gets to 10% then the convertibility of SBD into $1 USD worth of STEEM is compromised. At this point the system will only convert to a fraction of $1 USD worth of STEEM as the debt level is too high and a “Haircut” is applied to SBD conversions.
You can see from the above chart that the system had a fairly healthy debt level for most of the last year. Back in November we had the SBD begin its pump and the converting of SBD back to STEEM pretty much ceased at this point. If you want to read more about this please read my post from 5 months ago titled STEEM DOLLAR Will Fall To $1 USD : Here’s Why as it explains the SBD Conversion / Destruction blockchain functionality and the massive inflation of the SBD Circulating Supply. You can see on the above chart there was initially no problem as the price of STEEM itself was ALSO pumping and so the debt level actually dropped. However, now that the STEEM Price has been dropping that extra Circulating Supply of SBDs is now coming home to roost and it’s going to give us a hangover.
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We first broke through the 2% barrier in March this year, when we started seeing liquid STEEM rewards and more recently in May and June we have broken this level in earnest. It looks like we are actually very close to the SBD Printing Halt and I personally think this is potentially disastrous for the STEEM Platform. If this happens then all those authors who have been cheerleading the high SBD price will quickly realise how foolish they have been because they won’t be getting any more of them.
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If the Purge I have predicted then begins and we get Arbitrage selling of STEEM that even further depresses the STEEM price we might even threaten to break into the SBD Haircut zone. If that happens suddenly the confidence in SBD could evaporate as users realise that SBD is no longer going to be supported at $1 USD. At this point I think we’re in a pretty broken state and the Purge just got a whole lot uglier.
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As gloomy as this all sounds, I am hopeful that we will see the Purge occur very soon and that the SBD Circulating Supply will start to drop to return us to a healthier debt level. It is a critical time for the platform and while I am taking a break from STEEM myself I will be keeping an eye on this debt level and hoping (against all the odds) that the Top Witnesses will have the courage and foresight to enable reverse conversions. I believe this is what is needed to permanently fix the SBD peg, give us a proper Stable Coin and prevent this sort of existential threat from happening again.
Images and Credits
http://www.slashfilm.com
http://boldafrica.com.ng
http://www.alphamalenation.com
https://www.tigerdroppings.com
https://www.poetrysoup.com
https://coinmarketcap.com