RE: No-Brainer SBD Potato Top Up Proposal

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Maybe I'm missing something, but by converting the SBD to STEEM aren't you just inflating the STEEM supply which should (in theory) decrease the price to counteract the decrease in SBD supply?

Wouldn't it be better to burn the SBD instead?



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Burning SBD is too slow at the available funding rates, even if this proposal was fully funded, only 25K SBD would be burned which won’t make a dent.

By cycling the funds through conversion and market buy action, the same funds can used to reduce SBD through conversion every 3.5 days and have a proper impact on SBD supply reduction.

Remember the STEEM marcap is roughly 7 times larger than the SBD marcap so the impact on Steem should theoretically be 7 times less.

This is all done incrementally so the Steem market should be able to absorb it and it can be throttled/stopped at any time should it affect the Steem price too much.

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(Edited)

"Too slow" is a bit subjective but it is certainly the case that paying out SBD from the DAO and then burning them can't possibly do anything to reduce the supply of SBD that is already in circulation, since it uses newly-created SBD from the DAO. All this does, in effect, is reduce the inflation allocated to the DAO.

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(Edited)

The inflation comes from the processes that create the SBD in the first place, which is either funding the DAO or paying post rewards (when the ratio is low enough). Converting SBD to STEEM doesn't create inflation, it just changes it from one form (claim on STEEM) to another (actual STEEM). The inflation is already there, inherent in the very concept of funding things out of thin air.

If you don't like inflation then get rid of the latter (although it probably can't be completely eliminated since some witness pay probably has to come out of thin air, but it could be a lot smaller).

(FWIW I know you are in favor of this to a certain extent. I'm just commenting on the mechanisms. As long as SBD is created, via inflation in this case, it also has to be destroyed unless the STEEM value grows even faster, which arguably may happen long term–that is the premise behind inflationary rewards allegedly being a good idea–but certainly does not and happen and has not happened consistently.)

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I think Matt may have mean’t increasing the supply of Steem on the market and placing selling pressure on the STEEM price as a result. I fully agree with you that the STEEM inflation was already there, however it was locked up in SBD and not in circulation.

Long-term we may have to consider whether current inflation sources are warranted, but imo we still some ways away from being at that stage.

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Yes I understand the point. But my point is that even SBD that is removed from supply is also reducing an overhang to the STEEM market, so there is a clear offsetting benefit. For every 1 STEEM added to circulating supply, there is 1 STEEM removed from the potential supply of SBD that could be converted. SBD isn't really "locked" (except the small portion within the DAO), it is available to be converted at any time.

The 'debt' analogy isn't perfect but it works to some extent. When you pay off debt, your financial situation improves because you have less debt, even if you have to use up some of your cash/assets to do it. Unless you started out insolvent, the more debt you pay off the lower your debt ratio becomes. It is the literal inverse of taking out more debt to buy assets.

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Fully agree that reducing debt is a financially healthy concept. We are on the same page.

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I understand how the inflation works, I just mean that converting the SBD to STEEM adds more liquid STEEM to the system which may be sold and reduce the market price of STEEM thereby nullifying any increase in the SBD market price from the reduced supply.

So I don't really think this whole conversion scheme really works and the only way to really make an impact would be to burn the SBD.

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(Edited)

Mathematically what you wrote in the first paragraph simply doesn't work out. An informal proof: The supply of SBD has to decrease faster than the market price of STEEM, in part because if the price of STEEM did decline, the conversion rate would also decline (you get less value in STEEM for each unit of SBD; the haircut rule). Eventually, if SBD keeps getting converted, this has to result in reaching a state where all of the SBD is used up, and there is no SBD in circulation. (Of course sbdpotato would likely stop first, because SBD reaches $1, but that's okay, it means the amount of liquid STEEM added to circulation is less than it would be in the limit.)

In reality I'm pretty sure that there are multiple factors influencing the STEEM price and it isn't guaranteed to decline just because SBD is converted, as loosely assumed in the above example. It is absolutely possible for the price of STEEM to go up even as SBD is being converted, which would make the conversions even more effective. But even in the worst case, it does have to work.

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Ok that makes sense...I didn't really think about it too deeply. I like the SBD potato idea, but I don't like taking funds from the Steem DAO to do it since I think there's a better chance of getting SBD to $1 by using those funds to help build good projects that encourage people to buy/hold STEEM.

In any event, I have another idea to help get the price of SBD up that I think might make more of an impact.

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(Edited)

Definitely room for different ideas and approaches, and nothing wrong with disagreeing on a particular usage of DAO funds, that's sort of the whole idea of the DAO. I'm not personally sure it is the best possible use for DAO funds, but currently a lot of DAO funds are unused, the idea here is for a good portion of the funds to eventually be returned, and increasing the value of SBD actually increases the market value of the DAO treasury (so more funds available to fund the sorts of good projects you describe). So I personally see it as a reasonable use at this time. If there were more immediate contention for DAO funding then I might feel differently.

So I support your disagreement, even if we disagree. ;)

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The DAO funds are largely unused at the moment so I don’t think it is a bad use case for them especially since they will be sent back after. At anytime should the DAO start to look short on funds I would be happy to send it back sooner. Also remember Steemit promised to donate some funds to the dao which is yet to be done.

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