The Myth of Peg

Peg is a mythical creature that floats on steem, causing confusion among those people who dare utter its name. Peg was born of a White Paper, and seems to have been sired by Semantix and Mathematica. Although a few writers have pointed out the total fabrication of Peg, the legend persists.

Mathematical ideas can be articulated into words, but those words are mere shadows; they are not the mathematics itself. One can thus twist such words to have meanings that are manifestly untrue if one steps into the Light of Algorithmus.

The hapless Peg has been blamed for diving way too low, as well as rising way too high, straying from its paddock. But that enclosure has no fences, no walls or even a roof - was just too easy to snap free of the synthetic chains.

Peg was given two tasks by its creator; two tasks that could never be achieved at the same time.

Peg soars above its peg

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Peg's most important task is to save the Steem system from a price collapse. This is stated in the White Paper, but almost as an after-thought following a meaningless ramble about Peg's other task, the task that launched the myth. There is an important transaction, the "conversion of SBD into STEEM", that gives a clue to Peg's real nature. That "conversion" assumes that 1 STEEM is worth 1 SBD at a fixed price of 1 USD. That's not a peg, that's a fixed conversion rate.

So, let's assume that SBD is actually worth $1 and STEEM is worth $0.40. If I convert 40 SBD, after 3.5 days I will get $40 worth of STEEM, or 100 STEEM coins.

If SBD drops and is worth $0.50, then I will still get $40 worth of STEEM, hence still 100 STEEM. Notice that, in this case, the SBD is only worth $20, so the conversion yields a profit.

However, if SBD rises to $4, then I will still get the same $40 worth of STEEM. This time, I have been foolish, and converted $160 of SBD into $40 of STEEM.

In reality, there are slight complications and one must keep an eye on the relative price of STEEM/SBD on the internal market compared to the blockchain STEEM price. As a simple, first order, understanding that example should be illuminating.

So where is Peg's peg?

It has evaporated into mere mythology. But myths are potent memes.

Going into how pending rewards are calculated is straying too far from the main point, suffice it to say that the number you see depends on many parameters, including external market prices and blockchain metrics. As Blurt has removed the secondary currency, it probably isn't so relevant either.

However, the myth that somehow Peg is a peg needs to be demolished as it keeps resurfacing as either an idea pro or anti having a peg. The currency pegs that exist in the world include mechanisms designed to push the value back within a range if it strays beyond it. There are no such mechanism for SBD, hence it isn't a peg to anything.

There are different actions that are profitable depending on the price of SBD, but those involve changes in money-flows that may, or may not, affect the price. As an example, once SBD printing stops, converting SBD into STEEM may be profitable but does not, in itself, drop the debt-ratio significantly. Instead, the faster method is to increase the price of the main currency, STEEM, if that is possible. This is important as, in early 2018, the Steem oligarchs were bored waiting for the debt-ratio to drop below 5% so they.... increased it to 10% instead! Arbitraging between the external and internal markets can also be profitable in such situations.

Note that the big fear in designing this is a collapse in the price of STEEM. This is because the Steem economy reacts to the prices of its currencies and if STEEM drops to a very low value, then the vote rewards can, in theory, turn to dust. SBD takes the strain of any serious price drop - it does so by adjusting its value, usually well-below $1. That is its function!

We are seeing now how even the mechanisms in place can be manipulated by a cartel of investors. Fun times!

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