The purpose of the change was to allow for the creation of more SBD to hinder "pump" attempts that raise SBD beyond it's intended peg value of $1 USD. But it's important to note that the increase in potential SBD doesn't risk the sovereign debt problem that the US has: the STEEM blockchain is designed to linearly stop honoring the ability to convert the SBD to Steem at the rate of $1 worth of Steem when the debt ratio goes above 10%. Think of it like a built-in promise of the Steem blockchain to hyper-inflate SBD's value vs Steem during the period that "too much" SBD is in circulation.
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Hey, @blocktrades. I appreciate the response here.
I was aware of the failsafe for SBDs, so that's good to know that this isn't something that would somehow override it.
Okay, so allowing a higher percentage of debt essentially hinders pumps on SBD because the price drops with more SBD in circulation, so to speak? Or is it the opposite. This is where it gets a little murky for me. The whole idea of having a stable token that is still publicly traded and thus open to speculation.
The intent of SBD is not that it be 'open to speculation' other than speculation within a narrow range and relatively short time period due to liquidity considerations (with enough volume, a speculator can make a large amount of money betting that SBD at $0.99 will rise to $1.01 or vice versa). Instead of a speculatively determined price, increased demand for SBD should result in more SBD being circulated and decreased demand for SBD should result in less SBD being circulated, in both cases pushing the price back toward $1.
The current mechanism doesn't fully implement this but that is the intent, and the proposed change gets a bit closer while removing an odd quirk how the thresholds are currently set: between 5% and 10% there is literally nothing being done by the system to control or even influence either the supply or value of SBD (none of it being created nor destroyed, backing ratio not affected, etc.). No one really intended to create a market cap ratio 'window' for fully-free-floating SBD with no controls at all; it seems to have been an accident.
EDIT: @timcliff in his reply also noted some other perverse effects of the mechanism of shifting payouts from SBD to STEEM, which are good points too. By reducing size of the range where this occurs those effects are reduced, which is good. (I, and numerous other stakeholders and witnesses, would like to see more done, but this is a great start and kudos to @timcliff for getting it implemented and scheduled for the hard fork.)
Hey, @smooth. Thanks for this. I'm learning a lot from you all today. :)
Okay. So, a void or limbo area was created unintentionally between 5-10% so that whatever is suppose to happen (create or destroy SBD) happens. Sounds like a great idea to me. So, basically this was unknown until the current situation revealed it, then, if I'm understanding correctly.
Yes, that is one of the reasons I have supported this change. In his reply @timcliff noted some others. Generally speaking we want SBD to work better and add value ('value' here referring both to utility for users and capital attracted to the ecosystem i.e. higher STEEM price), and we believe this change helps do that.
This looks dangerous to me and I think the comparison to raising the US debt ceiling by @glenalbrethsen is a valid one. It was certainly the first thing to come to my mind when I saw it.
To me this is a bandaid solution and all we're doing here is kicking the can down the road. We are going to have an illusion of normalcy up until 9% and then at 10% we are suddenly not just getting a printing halt, but also a haircut on SBD conversions that I think could be potentially disastrous for confidence in SBD value being held at $1. What is being put in place here is a virtual cliff for the lemmings to throw themselves off.
I don't think the current 'void' between 5% and 10% serves any useful purpose and it is clearly destabilizing to remove all supply or price influences on SBD within some fairly arbitrary range.
Apart from that we could quibble about exactly how things should work, like maybe the ramp should start a bit lower than 9%. But overall I agree with @blocktrades that the real debt control and safely value comes from the 10% limit, not this one, and I also agree with @timcliff that printing STEEM instead of SBD* is not useful because it just serves (all else being equal) to drive the STEEM price down, when the STEEM price being weak is the main reason the limit has ever been hit (multiple times now).
After all, even with the current 2-5% there is nothing to prevent STEEM from dropping another 50% in value after the 5% is hit and then we are right at the 10% anyway. 50% is hardly even a big move in crypto terms (we've already seen STEEM lose 90%+ of its value two or three times). Hitting 10% and risking the haircut is always in the equation, regardless of the printing rules. SBD holders should be aware of it and consider it rather than assume it won't happen.
One last point. The haircut doesn't kick in instantly it gradually phases in. So at 10% there is no haircut. At 11% there is roughly a 10% haircut, etc. There will be plenty of opportunity to see this play out and I'm sure even before 10% is reached, as it is approached there I'm sure there will be posts warning about SBD potentially becoming less-than-fully backed, and people who don't want that will have the opportunity to sell or convert their SBD (which may itself help resolve the situation). There's nothing sudden about the transition.
* An alternate rule we might consider (but I'm sure very few people are interested because everyone wants their 'free money') would be to stop printing rewards altogether when the debt ratio gets too high (rather than switching from printing SBD to printing STEEM), as this could be taken as a sign that the market is not valuing STEEM enough for it to be a good idea to continue diluting it.
The gap between 5-10% is effective a buffer zone where there is no additional debt (SBD) taken on by the system, yet the convertability to $1 worth of STEEM is not yet threatened. To me it's a warning that not all is well with the supply of SBD.
Alternatively, lets say we run the debt level up to 9% and all the top witnesses claiming "All is fine - nothing to see here" as we keep printing SBD (adding debt) with reckless abandon. Then the STEEM price drops 10% overnite and we are suddenly in haircut territory. Then it drops another 20%.....not an abnormal short term price move....what are we converting SBDs at then? Very quickly we transition from mania to panic for those invested in the ecosystem.
THAT is a virtual cliff.
If PoW is implemented in the future like the article suggests then all of these issues will be solved...in my belief
Oh that's an awesome upgrade :D