It is a well known fact that crypto-currencies like STEEM can have dramatic price fluctuations.
This makes it difficult to use as a marketplace currency, since the value of the coin keeps going up and down compared to the price of goods/services. Very few merchants would want to accept and hold a currency that can drop 90% in value overnight.
SBD is meant to provide the marketplace with a stable currency, despite what happens with the price of STEEM. Providing this stability comes at a cost though, and it is the STEEM/SP holders that must pay it.
In order to honor the intention of SBD being equal to "approximately one USD worth of STEEM", the blockchain must produce however much STEEM is necessary to equal ~$1 USD. (If the price of STEEM goes down, more STEEM coins need to be produced to pay back the same amount of SBD.)
- If STEEM coins are worth $1.00, then the blockchain would only need to produce 1 STEEM coin to pay back 1 SBD.
- If STEEM coins are worth $0.10, then the blockchain would need to produce 10 STEEM coins to pay back the same 1 SBD.
The Steem blockchain is intended to have a static rate of inflation, but due to the way that SBD is generated, it can end up being much higher than intended.
If the price of STEEM goes way up (like the July price spike) then the SBD rewards will go up as well..
- Assume at today's prices, the system will generate $10,000 SBD of author rewards.
- If the price of STEEM goes up 10x, then the system will generate $100,000 SBD of author rewards.
- If the price goes back down, the blockchain will need to pay back the $100,000 worth of SBD debt, but at 10x the cost.
There are some extra complications to consider as well:
- If the debt level is below 2%, the blockchain will pay users in SP/SBD.
- If the debt level is between 2% and 5%, the blockchain will pay users in a combination of SP/SBD and SP/STEEM.
- If the debt level exceeds 5%, the blockchain will pay users in SP/STEEM.
- If the debt level exceeds 10%, the blockchain will no longer honor the "1 SBD = approximately 1 USD worth of STEEM" agreement. (If this were to be happen, it would be really bad for SBD.)
Based on this, it is reasonable to suggest that we try to keep the SBD debt below 2%, but with fluctuating STEEM prices, this is very hard to manage!
I have a few potential solutions. Some of these may be really bad ideas though. (At this point I'm just brainstorming.)
- Just accept it and enjoy the ride.
- Give users the option to accept post payouts as 50% SP / 50% STEEM, regardless of the current debt level. This seems like a fairly easy change, and would reduce the amount of SBD that gets generated during price spikes.
- Witnesses can offer an extra incentive (via price the feed discount) for price conversions in rising price scenarios. This does come at a cost, but it may be cheaper than waiting to pay it back at lower STEEM prices.
- Abandon SBD altogether. This is a very drastic solution, and may be a really bad idea. It is something to consider though. BTC does not offer price stability, but it has still been widely adopted as an acceptable form of currency.