STEEM on Borrowed Time

Let's be honest:

We all thought Steem was going to crash to zero within months of the hostile takeover, and we were all wrong. Never underestimate the lengths at which billionaires are willing to go to save face. After all reputation equates to real value, especially within crypto circles. While Justin Sun has the power to crash Steem to zero at any time he opts not to for various reasons. These reasons are largely the same reasons that prevented Steemit Inc. from crashing the price to zero even though it was well within their power: there's simply more to lose than there is to gain.

At the same time we know that Steem is essentially doomed to fail eventually. The ship has been cast adrift. None of the witnesses actually do anything for the chain. There have been no updates and we have no reason to believe that there ever will be. The emissions via reward-pool are being funneled into the pockets of a few users, and we have all the reason to believe that these users have every intention of milking the platform dry.

https://twitter.com/ausbitbank/status/1711080859678437557

node .\fuckstinc.js
Coingecko Steem price: $0.179
Steem median price: $0.252
Steem cap: $124781266.89075601
SBD cap: $12485142.112
SBD Percentage of cap: 10.006%
SBD Haircut price: $0.2521

This is a script that @ausbitbank ran the other day.

It connects to a Steem node and spits out some basic information about the chain.
This data is nothing short but completely damning for the Steem blockchain.

When we look at the price history of SBD we can see that it has been trading well above the peg ever since the 2021 bull market began. UpBit whales and market makers have been manipulating the price to absurd valuations ever since that time. It's been damn near 3 years now and SBD still trades above $2 a coin. The long term affects of these manipulations can not be avoided, and sooner or later the chickens come home to roost.

When SBD trades higher than $1: two things happen.

1. Blog posts make a lot more money.
2. Debt never gets destroyed

Why do posts make more money?

Well they make more money because the network has to assume that our debt is pegged to $1. When it is not pegged to $1 the entire system gets thrown off. If I have a post that earned "$100" I'm going to get "$25" worth of debt as a reward. If debt is worth $4 a coin all of a sudden my $100 post is actually paying out $225 in total ($50 to curators, $25 in HP, and $100 in debt).

This is very bad on a network like Steem because the vast majority of rewards are trickling in to a very small number of users. Doesn't take a math wiz to see that something like this is very much centralizing the chain or creating downward pressure in the market. Seeing as the market isn't moving down we have to assume centralization.

Why does debt not get destroyed?

The ability to convert debt back into $1 worth of Steem will never be used if the debt is worth more than $1. That's just common sense math and incentives at play. That means for the past 3 years Steem has done nothing but print debt without ever dialing it back. This would be fine if the actual demand of debt was higher than the current supply, but we very much have to assume that this is not the case. The broken peg is the result of manipulation perpetrated by a very small handful of users. The second the music stops it all comes crumbling down.

Ticking time bomb

Even more interesting is that we already somewhat know what's going to happen due to our community's experience with the 2018 bear market. This was a situation in which the SBD that was printed higher than the peg only lasted 8 months. Compare that to the current 3 years above the peg. What happened back then? The downward pressure from the debt was so devastating that it had a negative affect on the market for the entire year of 2019.

If we extrapolate that situation to the one we currently see now it stands to reason that once SBD starts to death-spiral it will basically never end and likely even kill the network through extreme demoralization alone. The platform is already derelict and devoid of any real development. It's only a matter of time before the ship starts sinking and the rats begin to abandon it to avoid drowning outright.

node .\fuckstinc.js
Coingecko Steem price: $0.179
Steem median price: $0.252
Steem cap: $124781266.89075601
SBD cap: $12485142.112
SBD Percentage of cap: 10.006%
SBD Haircut price: $0.2521

Revisiting the data

Not only is the network already at the 10% haircut (we increased ours to 30%) but also the price feed is lying about median_price. This is a triple-whammy of unsustainability.

1. Inflated Steem price feed
2. Already at debt limit
3. SBD trading for $2 on UpBit.

Not only does an inflated price_feed of Steem lower the conversion peg to the downside, but it also causes more debt to get printed than should ever exist. If the network believes Steem has a higher market value then it does it has to print that much more debt in order to compensate for 50/50 blog-post payouts.

This is easy to understand if we take it to an extreme: imagine the witnesses jacked up the feed to a $100 Steem valuation. Now trending tab posts are paying out $200,000 instead of $500, and 50,000 SBD would have to be printed just to pay off a single post.

If we look at UpBit volume the wash trading is a thing of legend. Yesterday the 24/h volume was $7M. Today it's $3M. The total market cap is $27M which makes these numbers incredibly suspect. On top of that, being at the haircut limit while also trading over x2 above the peg is the absolute worst scenario possible. The metrics for the network couldn't look any worse than they do now.

Assuming a price feed of 25 cents per Steem: that means a user would be able to trade 1 SBD for around 4 Steem. Except 4 Steem is only worth 70 cents. So it's not even possible to convert into the $1 peg. Exchange SBD sits above $2 while actual convertible SBD is below 70 cents. Mathematically we have to assume that this chasm is going to push down the peg even further. By the time exchange SBD and conversion-pegged SBD reach equilibrium I would expect SBD to be trading under 40 cents. Yikes.

Eventually the SBD market makers are going to realize that whatever scam they were running can no longer possibly generate a profit. They'll be forced to dump everything for whatever they can get and move on to the next manipulation. Considering the current environment I highly doubt Steem can survive such an event, even with a billionaire vulture capitalist pulling strings in the background.

We also have to wonder if the SEC will move in on Sun or Steemit Inc directly and legally force them to put an end to the network in one fell swoop. A single poorly timed lawsuit could send the entire platform to zero at any time. Not a great place to be. The ninjamine is a permanent looming threat to the entire network, which is exactly why we quarantined ours to the dev fund.

Conclusion

I used to root for Steem's destruction but I haven't felt this way for a very long time. The opposite of hate is indifference. It's water under the bridge at this point, although I bet the Freechain documentary will definitely stir up some of those old hard-feelings from years past. Regardless of all that: these numbers don't lie. Hive may have very little to gain from Steem's destruction at this point, but Steem is doomed either way.

Tick tock.