Hey Steemians!
So in case you're a slowpoke like me. STEEM BACKED DOLLAR PRICE HAS MOONED!
At it's peak, we've seen a Steem Backed Dollar worth almost $17 on the market! That's some insane "growth" considering the price of SBD have always hovered at $1.
But unlike other coins that has it's value put at the whim of the market, SBD is actually designed not to grow past $1. But even so, the market is the market is the market. Happy as I am, I am confused at the same time as i wonder "who dumps all those money into SBD? Don't they know how it's designed to worth $1 and trading it anywhere above $1 is not only foolish but goes against the way it's designed?"
And then i realize that the world doesn't revolve around Steem (though I can say my world does more and more with each passing day). Many people (including Steemians) do not understand the relation between Steem and Steem Backed Dollar, how it functions, and how to properly perceive it's value.
So here i am writing a quick guide and analogy of how it works. To answer the question:
What's Steem and Steem Dollar? Why are they 2 tokens on the steem blockchain? how do they work? And how to they relate to USD?
I'll try my best to make it as simple as possible for even the least technically inclined to understand.
Let me present you this analogy. To understand it, you have to take your imagination to the Early Days of America.
Remember your history lessons? Or for those who use the metric measurement system like normal people, have you read or watch any movies about America before the dissolution of Bretton Woods agreement?
Back then, Silver was the currency people use to trade and do business. And the Dollar was a certificate that can be exchanged with silver.
Imagine Steem as silver and SBD as Silver Backed Dollar (woah the acronym fits). Now the only price that matters is the price of silver, the perception of value of silver. Meaning how much bread you can buy with an ounce of silver and things like that.
But a silver backed dollar will always buy you a loaf of bread.
So we have 3 things to keep in mind for this analogy to work:
| Real Thing | Analogy | Explanation of analogy (parallel to he real thing) |
|---|---|---|
| Steem | Silver | rare shiny stuff that people likes and is a good "store of value" |
| SBD | Silver Backed Dollar | a certificate of ownership that we can exchange to get just enough silver(steem) to get a loaf of bread(USD) |
| USD | Loaf of Bread | everyday stuff we need to survive. |
So if the price of Silver is high, meaning if an ounce of silver can buy 10 loaves of bread, then 1 Silver backed dollar will worth 1/10th ounce of silver.
Because no matter how much bread you can buy with an ounce of silver, a silver backed dollar will always worth 1 loaf of bread.
| Price of Bread to silver | Price of Silver to SBD | Price of SBD to bread |
|---|---|---|
| 1 loaf for 1 ounce | 1 ounce to 1 dollar | 1 dollar |
| 2 loaf for 1 ounce | 0.5 ounce to 1 dollar | 1 dollar |
| 2.5 loaf for 1 ounce | 0.4 ounce to 1 dollar | 1 dollar |
| 1 loaf for 3 ounce | 3 ounce to 1 dollar | 1 dollar |
See that no matter what happens, one SBD will always worth 1 loaf of bread.
This is designed by the "Founding Fathers" to make sure that the changing price of silver doesn't affect the daily lives of the people. And since loaves of bread are what everybody need to survive (unless we can eat silver), the "Founding Father" sees it fit to peg the Dollar to a loaf of bread.
So there you have it. Thats the basics of how Steem and SBD works in relation to the USD. So if nothing else, always keep this in mind. 1 SBD = 1 Dollar. Anything more is overpriced and weird. DONT KEEP YOUR SBD LONG TERM!! Because speculating on the SBD is stupid. We all know where SBD will go if everything works out right. down to 1 dollar.
So to further relate to the analogy of the early day America. What happened for the last 2 weeks to the SBD is akin to this..
imagine of a bunch of Martians with either
a) too much money to spend
b) doesn't know a thing about economics
c) has a flawed math because they think 1+1=3
d) has a bigger agenda to pump and dump the intergalactic bread market
landed in America in their spaceship and announce "We are going to sell 13 loaves of bread for a Silver backed Dollar, because either we don't know or dot care that a silver backed dollar is designed to worth only a loaf of bread".
And of course the bread eating people, you and me, rejoice in the new found opportunity to get loads of bread for an SBD.
Know this, eventually the price of SBD will come down. it is designed to come down. this anomaly would not last forever as much as we all hope it does (maybe it will, finger's crossed).
So in the meantime, Drink, Steem and enjoy the rocket launch!!!
I'm @awesomianist
Stay Awesome!