Have you noticed lately that SBD price has gone totally berserk on HitBTC exchange?
The reason is the small amount of SBD that is on that exchange has been stuck there for 5 months. No SBD can go in or out of HitBTC. That has provided us a glimpse of what is expected to happen when the Liquid STEEM supply gets very low. Since the SBD supply on HitBTC is very low and no new SBD can enter their micro economy, people buy it up and demand goes wild along with price. Just a few days ago, the price of SBD got as high as $140. That is insane! Think of this anomaly as an experiment to test what is expected to happen in the future if the conditions allow.
Can the same thing happen to STEEM on a giant scale?
It is very possible.
It will take a while for this to happen and require many people to buy up the supply of STEEM to store away in SP. But lets entertain this concept. We just barely hit a million accounts. In the grand scheme of things, we are barely scratching the surface of social media users. 1 Million accounts is nothing. If we grow to the size of Reddit, then we would need to have well over 1,000 times the accounts than we have today. That is over a Billion!
Right now with 1 Million accounts, the need for STEEM has consumed 71% of the currency in the form of SP. Why are so many people buying up STEEM and converting it to SP? Because it makes a great return on investment even when the market is flat. While other cryptocurrency investors are sitting on their thumbs waiting for the market to turn around, STEEM owners are making money many different ways on Steemit, Dlive, Dtube, Busy, MinnowBooster, etc. Imagine how much STEEM would be consumed when there are a Billion accounts. There just wouldn't be enough STEEM to go around even at really high prices.
This would cause massive demand for a limited a very limited supply of STEEM. When this happens, the scenario that played out on HitBTC could very well become a reality for STEEM currency.
What is the difference between STEEM and Liquid STEEM.
Liquid STEEM is something that is available right now. Either someone has it or it is being produced and distributed to creators, curators, stakeholders, and witnesses. This liquid STEEM can be sold at any moment. That is why it is liquid. STEEM that is not liquid is stored in the form of SP. To get the STEEM back out of SP, one must initiate a "Power Down". That power down process takes 13 weeks to fully pay out into Liquid STEEM. While the STEEM is locked away in SP, it is not available to sell, thus it is not Liquid. Remember that 71% of the total STEEM supply is locked away in SP. That leaves only 29% STEEM left to buy. However, not all of it is for sale. Much of that is in people's wallets. It is only available when they want to trade it for something. Lets examine what is happening to STEEM:
I collected this data and charted what is happening to STEEM Supply. You can see that the total supply increases as it is printed (Blue Line). Even though the amount of Liquid STEEM is going up slightly (Orange Line), the overall trend is that the supply of Liquid STEEM is going down (Dotted Line). People are buying STEEM and converting to SP faster than it can be printed.
Why do I love SBD so much?
To get to the point of my article, the STEEM supply could become so limited that the price can go through the roof and cause volatility. That would be a problem as a stable currency is needed for an economy. This is why I love SBD and think it is so important to STEEM. In the future there will be more SBD supply available and price will start to follow the peg mechanisms. With huge numbers of users and large SBD supply, SBD will be a very stable currency holding itself very nicely against the dollar. Not only will SBD be very stable, but it could be traded like Tether or TUSD. Creators of STEEM had the foresight of currency economics to know that there must be 2 currencies for an economy.
Here is how the economics works on SBD.
Getting paid in the quantity of SBD actually floods the market with the currency. This increases supply and price falls. Once the price of SBD drops below a US dollar, Steemians switch to the 100% SP reward system and supply of new SBD drops causing a shortage and price goes up. This is the just one mechanism that fixes the price to the US Dollar. It is really amazing how popular SBD remains as the evidence of price continues to stay well above the peg.