Let's Talk About the DEC Peg

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Exciting times in Splinterlands. Did you see that jump in DEC yesterday?

We all knew the SPS announcement was coming and still so many people were selling off DEC even just a few days ago and then even selling into this move higher.

I saw so many people taking about how they were taken by surprise by DEC's move. I'm just surprised it took so long for this to happen since again, we knew this was coming and usually markets buy in anticipation.

Here's a spoiler: it's not done yet. It may take a breather but DEC is going back to peg. That's another 35% upside.

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Let's talk about the peg

If you've read any of my stuff on the old peg, you know my stance was that it wasn't a real peg.

I find it very entertaining because when I say this, even though The price of DEC hasn't been at its "peg" in over a year people come out of the woodwork to argue the peg is real.

Without getting too much into it, my argument with the old system was that the algorithm was not a peg to any particular price but was just trying to find an equilibrium at any price.

The psychological peg

The only thing that pegged the price to $1/1000 dec was the idea that there was a peg. This caused people to trade DEC as if the peg was real, selling if it got above the "peg" and buying if it went below. This made it self-fulfilling psychological peg.

This only works when demand is fairly stable. When demand goes up to the point people ignore that little profit incentive, we get DEC at 15x it's "peg". When supply and demand push prices of a coin up and down without limit, it was never a stable coin or a peg. It's just a coin like any other.

The "product backed peg" is also not real

Screen Shot 20220821 at 7.19.52 PM.png

Likewise, the idea of a product backed stable coin is also not real.

Many people are pointing to oil and the US dollar as an example of this working but this is a bad analogy.

Oil is priced in dollars but dollars are not pegged to oil. A certain amount of USD will always buy you a certain amount of oil. If that were the case you couldn't call the US dollar a fiat currency.

You can either peg the price of a pack to a certain amount of DEC or you can peg the price of a pack to a certain amount of USD. You can't do both.

Again, they are falling into the trap of believing that just saying something has a certain value gives it that value. This product backing is a psychological peg to the USD and not a real one.

This should be obvious by now to everyone since this product backed peg is already in place and it isn't working. The market just repriced packs lower and DEC followed.

Repricing packs

There's a lot of CL cards out there, they are priced so cheaply that its hard to get more than $2 of value out of a pack on average and therefore the perceived value of packs dropped. Pegging DEC to an asset that was falling against the USD didn't help DEC hold to its USD peg. Call me shocked.

You could make a pretty solid argument that pegging a product no one was willing to pay $4 for to DEC helped push DEC further away from its peg instead of closer to it. And if they don't change the structure of their pack offerings going forward, the biggest driver of DEC going down against the peg will continue to be its peg to packs.

But that's another post.

Still, the new peg is mostly real

Going forward there's two reasons the peg will be something to take more seriously.

The first is its inability to go over the peg by more than a percent or so.

With the ability to burn $1 worth of SPS for 975 DEC, it means if anyone puts in an order to buy DEC above the peg by more than a percent or two, a bot is going to fill the order and then go burn the SPS to replenish their DEC, pocketing the difference. DEC can't go above peg anymore by more than about 1%. It's impossible.

This already happens on hive engine on tokens that have robust liquity pools. If you put in an order for a token on HE and there's a better price available in the LP, a bot will instantly fill your order and then replenish themselves with the LP, pocketing the difference.

But what about the downside?

Well, as we already talked about, the product backing method isn't going to support it. Yabapmatt has said it will as long as there is demand for Splinterlands products but but demand isn't binary. It's not just off and on. Just because people are playing Splinterlands doesn't mean they are willing to buy packs as certain price. Just like now they might be willing to buy packs for $2.50 that they aren't willing to buy at $4 and in that case, the peg breaks if that's all you're relying on to hold it.

However, this thankfully isn't all that's being relied on.

The supply constraint on DEC is what's going to hold DEC at peg most of the time.

As you may know, 80% of the DEC supply comes from in game rewards. The other 20% comes from LP rewards. The LP rewards will still be there and that means there will be new DEC minted still but that's just not enough to run the game.

The game is going to start running out of DEC as more is burned from things like guild upgrades. This is where as long as people are still playing Splinterlands, DEC will have demand beyond what the game produces.

That shortage should always be nipping at DEC's heels.

Since all DEC minted now to shore up the constant shortage is manually done by the market with no incentive to mint more than what is absolutely necessary, the supply of DEC should almost always be perfectly matched to the demand for DEC.

The only times this won't be the case will be when some big seller gets very impatient and sells a boatload all at once. This shouldn't happen often but it should get bought back up very quickly when it does.

The other time is right after major events that temporarily inflate the supply of DEC like a pack sale or something. If there's a bunch of SPS burned to satisfy a very temporary demand increase, we may have a short time after demand normalizes when we have a lower priced DEC due to oversupply. Remember, the price can't go up so any correction would causes it to drop below its peg.

These events should be rare enough though that when they happen, there should be plenty of bots and traders ready to quickly buy the excess and get it back up to peg pretty quickly. Arbitrage.

So my plan for DEC going forward is simple: Arbitrage

For now I'm holding about 2.5 million DEC plus whatever I get from rentals until we get back to peg. I'll sell once we get there and keep a buy order at 5% and 10% below peg to catch any weird shocks.

I fully expect as long as the game is healthy for them quickly to get bought back up for quick profits.

Screen Shot 20220821 at 9.22.29 PM.png

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!MEME
!LOL

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Thanks!

!LOLZ
!WINE

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Before all the influx of new players, I always used DEC as a stablecoin when markets were dropping. It worked really well. I believe that now with the new mechanismes in play and with the supply decline linked to switching reward pool to sps, we will have our stablecoin back!


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That's a really good point and great benefit. It will be really nice to have a real stable coin with a lot of liquidity. Even HBD kind of sucks as a stable coin.

Thanks for the curate!

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I'm hopeful about the new changes.
I really believe it will be beneficial in the long run for the entire game ecosystem!
Thanks for sharing.

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Agreed. I think the new changes are setting the game up for amazing success. Thanks for the curate!

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!PGM

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(Edited)

PIZZA! PIZZA!

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In one of my publications I painted a scenario where as DEC becomes scarcer and the price rises, chaos legion packs pack rise and that leads to a concurrent rise in the price of individual monsters of the Chaos Legion collection.

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Interesting thoughts.

One thing I started writing about here but took it out is that when DEC drops so low below peg there's a huge incentive to sell cards. You get more DEC which will eventually head back up. So with DEC running higher, a lot of people will probably remove their cards from the market who were just arbitraging the peg.

I know I sold a few cards for that reason that I will be buying back soon for far less DEC than I sold them for, even though the USD value of the cards is higher now than when I sold them.

That should be enough to buoy card values. And today I've already seen about a 5% increase in my deck value from when I posted this yesterday.

That said, a few days ago I opened a pack and got 20 cents worth of value out of it and decided I wouldn't be opening anymore packs for a while.

So I think what happens from here is fewer packs get opened since they are more expensive now and cards are cheap. That lower pack opening rate and the rise in DEC cause CL cards to rise in value until it justifies the packs again. Then we should be able to ride out the last few million packs smoothly.

So many moving parts though. GOing to be interesting to watch it play out.

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Thanks for sharing!
It's a very interesting point to think about.
I'm able to grab 1.8M of DEC when Splinterlands released the post about the DEC peg mechanism with DEC price ~ $0.0006
It's an easy move for everyone :)

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Congrats on getting in so cheap. It really is such an easy trade for everyone.

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Definitely wish i bought that dip with the strong hand. Still, my small pile sits, nice to see a pump. Youre the man birdman.

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Yeah it was nice to see my card values took a jump up today based on this DEC pump. Hive has so many competing areas to pull your attention. I would never have gotten around to buying the dip. I was just trying not to spend it all. I'm sure I still spent 1 million DEC in the last month on cards though. DOH!

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Amazing post, super insightful!

I wish I collected more DEC up during the lows but I'm happy with the amount I hold, saved myself a few dollars in the long run. 😅

I love your idea behind the arbitrage, can see that working incredibly well with your holding amount & the constant ups and downs of an every-day crypto market, good luck!

Also amazing deck value, a sight to behold

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Thanks!

I wish I hadn't spent so much DEC but here we are !LOL

Yeah I throw that in my posts just to show I have some skin in the game but that used to be $200k in card value so its painful for me to see it there. Hoping for some kind of recovery soon. With all the great stuff happening, it's possible!

!PGM

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It will be nice to see DEC values rise. They should hopefully pull cards prices up a little bit and with SPS rewards for battles and brawls it is a nice change for all of the players.

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Agreed. With all those SPS rewards in champion, they might actually convince some people to head up there now.

Are there really under 50 players in champion right now?

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Are there really under 50 players in champion right now?

That can't be right surely?

I used to be a champion player but find it very hard to climb the ranks for the past few seasons.
Struggling to get out of gold now.

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I was just looking at the leaderboard. There's like 48 players on it for wild and none for modern. I have to look at the rewards numbers again in champion but between the chests and the battle rewards I think its 10s of thousands of dollars in SPS alone being paid out to just a few players.

I've never wanted to learn how to compete at that level but I've heard the archmage bots might be good enough. It's tempting. !LOLZ

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Exactly... I sold 4m dec last month... happy days.. I do not know what went through my head! Anyways still kicking in SPL and hey what a nice article! snagged a couple of smart thoughts!

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Ouch. I've been struggling for the last month to not just keep spending it cheap CL cards. A lot of DEC was spent but I think the cards I bought should go up as much as DEC and then some.

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hahah your not alone! I bought 10k Pelacor M! Keep up! I hope that there are few of us that buy up these cards. You know what that will lead too 😎🤠

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haha that's so many pelacor M! Right now vouchers have my attention. I think RW gets announced this week with a 500k pack presale each needing vouchers. I don't expect $20 vouchers like we had for CL again but right now they are 43 cents. I could see them getting to a couple bucks. Especially if a spike in SPS causes a run on nodes. So I picked up 3000 more vouchers yesterday.

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(Edited)

Hahah I know - too many!

wow nice, 3000!! Whale pick-up! I am glad that you are bullish on Vouchers - I am too! That is why I bought 2 nodes a couple of months ago. Getting like 13 vouchers a day🤠

I hope your predictions are right and they might as well be. I have a feeling that this time vouchers will count even more than what they did last year with the presale of CL. I have payed a lot of attention to what they say about vouchers in Town halls and it is exclusively positive. I am a bit shocked about the price still being so low. But again, I think that people are forgetting about the vouchers which is kind of weird, it is a "robin hood token" - knocking back whales. They should be priced higher tbh.

Your 3000 voucher investment is a smart move mate! I will step by again when RW presale launches and I hope I can congratulate you on your investment!

thumbs up and the best of luck! Exciting times in Splinterlands!

  • oh I had to add this:

Aggy thinks at least 20% of the RW packs will require vouchers

600,000 packs requires vouchers 🤓

cheers,

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