Law of Supply and Demand Definition and Explanation OR Why the @sbdpotato experiment just won't work
Related Article and Relevant Article
OK, this one goes to those involved on the discussions related to the @sbdpotato project. Just as a way to try to keep the discussion going (It's an interesting one, and i think an important topic to be discussed), i am going to tag here whoever i had interactions related to this subject.
So, please, @acidyo, @smooth, @cardboard, @justineh, @epic-fail, @lordbutterfly, @steevc, @thecriptodrive, let's keep this talk going.
(And BTW, please don't mind if i get exalted on some writings. It's just the way a write when is something i get interested in, and it's nothing personal. If i somehow offended any of you, please accept my apologies)
I think that, altough there is probably good intentions behind all of this, i don't think this was actually thought through.
To me, the whole concept is ignoring well proven economic laws, and it's effects could be even more damaging to the Steem ecosystem than it seems at first.
The first problem i already discussed somewhere is that this project is trying to create an fake demand.
The main idea that i bring from this article i linked is this (about the law of demand):
The amount of a good that buyers purchase at a higher price is less because as the price of a good goes up, so does the opportunity cost of buying that good. As a result, people will naturally avoid buying a product that will force them to forgo the consumption of something else they value more.
The basic reason people aren't buying SBD is that right now, the price is too high.
Yes. Your read it right. It is too high.
The point is, SBD don't have enough value when compared with any other similar assets.
Some examples:
- If you buy STEEM, you get value of your increased influence on the STEEM blockchain
- If you buy EOS, you get value on being able to do more free transactions on the EOS blockchain
- If you buy BTC, you get value because you can use it to buy a lot of different stuff
- If you buy ETH, you can pay to do transaction on the Etheretum network
- If you buy BAT, you can use it to pay for directed ads to those that use Brave browser.
In the end, all this "idea" of @sbdpotato is null, because it is trying to virtually increase the demand of something that doesn't have any demand.
On the other side of the Supply and Demand law, we have this:
But unlike the law of demand, the supply relationship shows an upward slope. This means that the higher the price, the higher the quantity supplied. Producers supply more at a higher price because selling a higher quantity at a higher price increases revenue.
If, eventually, the "experiment" have some actual effect on the price, before it goes back to 1 USD, two factors will take place:
1 - The debt ratio will decrease, therefore, more SBD will be printed as programmed by the blockchain and enter the system again.
2 - A lot of people that is holding SBD will start to sell it, because it will be an opportunity to reduce losses, and in some cases, realize profits.
The result of this is that the supply will increase again, forcing the SBD price to go down again.
This is the economics 101 i wrote about somewhere on the comments.
In the end, artificially decreasing supply on the market won't have any long term effect, because the majority of people in the world won't see a good reason to spend money on SBD, and will be more willing to spend it on other similar asset that have more actual value.
As a closure, here is another quote from the article:
Factors Affecting Demand
The number of available substitutes, consumer preferences, and the shifts in the price of complementary products affect demand. For example, if the price of video game consoles drops, the demand for games for that console may increase as more people buy the console and want games for it.
My opinion here is that @sbdpotato and everyone supporting it is directing energy (and money) to something that won't work.
Unless the end game here is to make just a long term pump and dump scheme. But that is another topic i will talk about in the future.
According to the Bible, How should a Christian deal with peer pressure?
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I'm not so sure I agree with this post, SBD was supposed to be pegged 1:1 to the USD, if it isn't it looks broken and looks bad for Steem, it's in the whitepaper. If we aren't going to fix it we might as well get rid of it. Historically the Steem price follows SBD and the idea is that the Steem price will follow any uptick in the SBD price and improve the ratio even further.
The peg breaks when the market cap of SBD exceeds 10% of the total market cap of STEEM. It's the fault of the low price of STEEM.
Yes, it's kind of like this.
The basic concept here is that the amount of SBD in circulation must be able to pay 10% of the value of circulating STEEM. If the system detects that this is not possible, the system stops printing sbd until the market self-correct due to changes in supply/demand ratio.
Hey, nice to see you joined the discussion!
So, here is something I think it is already part of Steemit culture for a long time:
The sbd peg doesn't work as the majority of us think it does.
I will write something more detailed about it soon, but I still have to do some research to be sure what I am talking about, but basically is this:
What most of us think:
Sbd is supposed to be have a pegged value of 1 USD.
How it actually works:
Sbd is supposed to have that same value of 1 USD in STEEM
Yes, it might sound like the same thing, and it took me a while to properly understand this.
Atm, on the internal market, 1 sbd is worth 5.115 STEEM Wich is actually .63 USD.
.63 USD can buy 1.015 SBD.
This kind of show that the peg is working as intended, because the amount of of STEEM you can buy with the equivalent value in SBD is pretty close.
Like I said, I still need to do some deeper research about this matter, and will write a more detailed article about this.
In the end, it's all some kind of Mandela effect, because most of us never actually understood how the sbd peg is supposed to work.
The thing is 1 USD should be able to buy you 1 SBD, currently SBD is selling for less than it should. and can't function as a stablecoin for hedging and merchant purposes, essentially useless and might as well just have STEEM as the only currency then unless we intend to fix the SBD.
I will write a more detailed article about this, but this is a misconception about sbd that is taken as true.
Sbd can't be fixed at 1 USD, because this not how the system work.
It is impossible to fix it, because there is no financial backing for it.
Sbd doesnt work as usdt, dai, sai, paxo, or any other stable coin.
The problem here is what is understood as stable.
In sbd, the stability is about the lower volatility, not about the price in itself. The 1 sbd=1 USD is the target, and if the right tools are used, sbd price will float around 1 USD.
There is a missing component here that is a paremeter that is supposed to be set by the witness: Interest rates.
Directly from the white paper:
"Interest
SBD pays holders interest. The interest rate is set by the same people who publish the price feed(aka witness) so that it
can adapt to changing market conditions"
And
"If the debt-to-ownership ratio is low and SBD is trading for less than $1.00, then the interest rate should
be increased. This will encourage more people to hold their SBD and support the price.'
'If SBD trades for less than $1.00 USD and the debt-to-ownership ratio is high, then the feeds should be
adjusted upward give more STEEM per SBD. This will increase demand for SBD while also reducing the
debt-to-ownership ratio and returning SBD to parity with USD.'
See, there is already a mechanism on the blockchain to fix the peg.
But where is the direct conversion button? Hidden. Where is the information about how many steem can I get from conversion? Only witness know.
In three years that I am using steem, I don't remember any discussion being brought up about adjusting internal interest rates. It have always been zero.
So, this initiative is nothing more than direct market manipulation, and use of the reward pool for something that wasn't intended to.
So, your premise is essentially because something isn't working according to the whitepaper that it reflects poorly on our chain.
I don't think that necessarily follows but there are more pressing matters than the broken peg. People engaging in meaningful curation less is one such thing.
After all, the white paper suggests voting should be an evaluation of a network contribution. What stands at odds w meaningful curation?
What activities are you currently engaged in that detract from meaningful curation? Selling votes for one which MB still does engage in... although I am glad y'all have made strides to prevent the votes from being abused.
Even so, the case can be made that vote selling undermines the very effort you are engaged in to increase Steem's demand. I've bought more Steem than I ever had once I was filled w hope from the #newsteem spirit and many repenting from selling votes. Not sure if it lasted considering such services still exist. Web based promotion would be such an easy transition with the right ppl so I don't know why we haven't ceased from reward pool based promotion. I digress but my point stands about being consistent.
I think it's inconsistent to make a general white paper appeal while one is engaging in activity contrary to it (irrespective of what Ned's former assent to the practice). If you want to make an appeal, it ought to be more specific as to why failure in this particular aspect of the WP is detrimental.
Otherwise, it seems rather arbitrary. So, why precisely does the peg being broken reduce demand for our native token. That's the question I hope to understand.
Historically SBD pumps are followed by a rise in the Steem price, that's the goal here. Also Minnowbooster earns maybe 5 SBD per day on vote selling currently and is hardly worth noting, we will be phasing down the minnowbooster vote selling services but we can't shut them down that easily without first migrating the lease market fully over to dlease which we are in the process of doing. Minnowbooster is a monolithic codebase and not easy to just remove one part, dlease is microservices based and much more flexible, we are going that route for all our projects.
Thanks for explaining and glad to hear about phasing out the bid bot service. That's the sort of thing that gives me confidence in our chain. 💪
From what I can see there is just not much interest in SBD, even within the Steem community. Lowering the supply does not help if nobody is buying. So having these junk posts on trending is not doing much good really. I suggested adding some content such as suggestions of cool posts that need support. That could happen with some collaboration.
Indeed. That is the whole point. Since there is no real reason to buy sbd since the transactions related to any steemit projects I have seen also accept STEEM.
A good example here is the steem-engine token market.
The token market is something that would create a perfect opportunity to give a usefulness to sbd, since all tokens there could be paired with sbd. But for some reason, it's creators decided to make a new token for that or allow STEEM to be used as a trade instrument.
It's a huge missed opportunity.
I agree with this 100%. There's no reason to want SBD as there is no use for it. Pricing tokens on Steem Engine in Steem is bizarre, as it can fluctuate thousands of percent. So it's hard not to see your Steem entry price for a steem engine token as a massive hit if you believe that Steem can be back up at the $8 mark again. I reluctantly purchased a steem engine token, but had the opportunity to sell it to someone who had a better use for it. While I received enough to buy another token to continue my project, I prefer to hold on to that Steem on the hope that one day it will be back at a $1 or even $10.
The whole idea of a stable dollar peg is to avoid situations like this. There's no confidence in sinking Steem into things if the value could fluctuate either way by thousands of percent. Steem Engine tokens and Spinterlands etc should be using SBD as the currency of exchange.
Scrap sbd, its a great idea but it wont make it as a stable coin
Because it was never supposed to be a stable coin.
Think of it as a currency in a country named STEEM.
This country have it's own currency, and as any other currency, it have a value related to other countries currencies.
Of course it was intended to be a stablecoin. STEEM is the native currency of Steem. SBD is a stablecoin the purpose of which is to be stable enough to facilitate merchant adoption.
yes, stable, but not as a USD stable coin.
It's stability is related to STEEM, not USD.
Totally wrong.
SBD is pegged to the US dollar. When you convert one SBD, you get exactly 1 USD worth of STEEM (when the debt ratio is below 10%). That is the way in which its value is backed by STEEM. From the upside, the peg is supposed to work by increasing supply when the price of STEEM increases.
For now, I can't bring new arguments on this part of the discussion, because I still need to research a bit more about it.
All my above arguments are based on what I remember. I will go back to this point probably on the next article.
It's a worthless initiative.
It doesn't solve the issue it claims to solve and it's not even a decent revenue maker for BuildTeam.
It does work as a medium to spend your VP on which earns you 50% (in theory) as curation. 😉
Might as well vote for myself.
Why not right?
After all thostalks years ago about reward pool rape, why don't we start to do it in a way that looks like it is for the good of steem?
Minnowbooster does vote @sbdpotato posts and gets some curation out of it, the main idea however is to fix the SBD peg and the theory is Steem will rise with it, which means less Steem needed to pay for BuildTeam infra costs which are paid in USD, BuildTeam and every other business and individual on Steem will benefit in the longrun. That's the hypothesis anyway.
This is where you go wrong. When the debt ratio starts decreasing and goes back under 10% while the price of SBD is under 1 USD, it does get printed (in smaller than normal quantities while the debt ratio is over 9%) but it can also be converted into STEEM, which removes it from circulation. The current plight of SBD is only the result of the recent very low price of STEEM. What will send the debt ratio tumbling back to sub-10% levels is a higher price of STEEM.
When the price of STEEM recovers, the price of SBD is forced to remain over 1 USD because of the conversion mechanism.
That said, I'm not convinced @sbdpotato is a good idea. That's because inflating the value of SBD will only increase the debt ratio. A higher price of STEEM alone can make the peg work again.
I am still going to dig a bit deeper on this to try to understand better and come up with a way to make it easier to understand.
But from what I know so far, the debt ratio is a relation between steem total value x sbd total value (circulating), and a change on any of the assets value will have an influence over the debt ratio, so I was talking only about one side of the equation, Wich is related to what @sbdpotato is trying to achieve.
Yes you are right about this part.
But about the conversion of sbd to Steem there is 2 different things:
1 - trading sbd x steem on the market doesn't take sbd out of circulation. It only exchanges the ownership.
2 - there is a conversion function somewhere on the blockchain destroy the sbd, removing it from circulation, but I think that very few people know about it and/or use it.
But that doesn't actually matter, because the supposed effect of price increase due to low supply won't have a real effect, because the market will adjust it self, and a downward pressure will start to build, because there is no real reason to own sbd.
I'm talking about the conversion function, of course. And those in possession of the largest amounts of SBD do know about it.
I disagree on there being a reason to own SBD. While imperfect, SBD has many times lower volatility than STEEM. That is the reason SPS funding is paid out in SBD. STEEM is so unstable you can't base real world projects on pay in STEEM.
I could say that lower volatility is a feature, not a function of SBD. And this the main reason SBD exist, and not only STEEM.
The issue here is that the majority of the community see sbd the wrong way, because there isn't a good and clean explanation about the blockchain economic model.
And this is where there is a lot of missed opportunity being missed to add value to the system as a whole, and project/experiments based on wrong premisses, like @sbdpotato keep appearing.
Damn, I even think that Steemit inc. don't actually understand what sbd function should be in the network. Maybe they didn't fully understood the white paper.
My hope here is that those with bigger influence around here understand what I am trying to say, and we start having a culture shift.
I think it's clear Steemit, Inc intended SBD to serve as a stablecoin to enable merchants to set up shop on Steem more easily. Most of the time it has worked reasonably well.
@sbdpotato is a good project, the only flaw of which is in my opinion the fact that the creators of potato posts should set up more placeholder comments to help distribute the rewards so as to keep the posts out of Trending. There is nothing else wrong with the project.
"There is nothing else wrong with the project."
The whole project is wrong. It won't achieve what is intends to, it's directing funds(rewards) to something that is totally useless and no necessary, and if it eventually succeeds, it will make the SBD market looks like a really elaborated pump n dump scheme.
Steemit doesn't have a exactly good image when seen by outsiders, so this can be damaging Steemit reputation more than helping.
Also, this make direct big STEEM stakes to "mine" curation rewards with very little effort, wich disincentivizes them to look for other ways to have investment returns.
Burning SBD is not useless and unnecessary at least if you think SBD shouldn't exist.
Non sequitur.
The posts in Trending? I agree. That's why they started to post more frequently so as to keep the rewards per post smaller.
An internal stablecoin that works better helps everyone. SBD needs stability for SPS funding to work better.
Let me phrase it another way:
Reducing supply is useless if there is no demand.
Sbd have a reason to exist, and I don't think it should cease to be exist, they the community use it is wrong.
Proper arguments still on the works. For now it's just a feeling based of past knowledge.
It's not only about trending page. It's how the blockchain ecosystem as a whole (and this includes trending, market prices and movements, and projects built using the blockchain)
If a usd stable coin on the blockchain is really needed, why not implement one that actually works as a usd stable coin? SBD isn't designed for it. It have stability properties, but not USD equivalence stability.
Let me repeat one thing: SBD was designed to be a stablecoin. It does not work well enough but that does not negate the fact that the original intent behind its introduction was precisely that. Its very name suggests that: Steem Backed Dollar. It's supposed to represent the US dollar on STEEM and be backed by STEEM to keep its value. The downside peg has, in fact, worked pretty well considering the abysmal depths STEEM has descended into.
There is demand for SBD. It's useful for anyone who wants to use a currency much more stable than STEEM.
A currency for what? There doesn't seem to be a lot you can buy with SBD.
Steem.DAO pays for doing projects in SBD. The platform pays for useful work in SBD. Why SBD and not STEEM? Because STEEM is too volatile a unit to pay for work, while SBD is much less volatile. If you ask for 100 SBD a day in your proposal and get it, you can expect those 100 SBD to be worth at least somewhat close to 100 USD for the duration of a small project whereas STEEM can crash or moon at any time.
As I said, there's not a lot you can use SBD for.
I bet you will find many more people willing to accept SBD than STEEM in return for goods or services on Steem. Why? Because of the greater stability of SBD.
Amazing article, great work with this one!
Dear @phgnomo
Based on my understanding - this project would increase selling pressure on STEEM. Correct?
I've been thinking about it and I realized that project.hope is kind of having similar result. After all our entire core team (5 venezuelans) are selling whatever STEEM they receive from our project for their work.
Am I right?
Also correct me if I'm wrong - is steemit inc. selling still 800k steem monthly? comparing to those numbers - it's hard to say that @sbdpotato could actually affect price of steem.
Let me know if I'm wrong.
Yours, Piotr
That depends a bit on how the sell is happening.
In the sbdpotato case, they sell steem on a daily basis as a taker (accepting the highest priced buy order), therefore they are actively pushing STEEM price down everyday.
If project hope does the same they are also an active downward force.
The 800k from steem Inc probably aren't sold immediately, and they putting sell orders, acting more as a liquidity provider (I hope they are doing this. Wasn't able to check it yet.)
But in the end is more about volume in on direction or another. Unless there is a movement to give people reason to buy STEEM more than people are selling, the price will be pushed down.
Also there is always steem entering the system due to inflation, so the sell pressure is a constant.
What is needed is good reasons for people to buy STEEM.