Splinterlands' DEC At Peg?!

Good day Hiveians!

Join me in analyzing the crypto markets!

DEC has been on a roller coaster ride

In the 3 years+ it has been around the token itself evolved and has been anything at its intended peg at $0.001. But there are some actually very good reasons for that. For instance, the SPS airdrop contributed to the 1500%(!) rise in DEC over its peg as holding DEC gave SPS in the 1 year long airdrop. Almost exactly when this airdrop finished in summer of last year, DEC also was briefly at par, but then dipped significantly under its peg. But since then, there has been a gradual, but volatile rise in the price of DEC to $0.001. See for yourself:

But DEC also evolved as a token. It was not until last year that the team tried to actively pursue a way to actually give DEC a base value. As they pointed out this is actually much more difficult than to keep a lid on a token as one can simply introduce a burn mechanism to stabilize it (which they also did last year after DEC went under its peg). Their strategy was simple enough: give DEC its pegged value by selling Splinterlands assets at its intended value. We then saw the transition of almost all SPL assets to be priced in DEC. After now one year it seems that this is beginning to take fruition.

But having printed so much DEC in the years prior also means that DEC had to be burned and sinks would have to be built. The major one of course being LAND. With LAND 1.0 and the introduction of DEC-B we now have seen over 1 billion DEC being burned! There are still a couple of billion DEC remaining, but since the demand for LAND is there, it is easy to see it burned as well. This is overall fantastic news because we have a "flywheel effect" with the SPS >>> DEC burning mechanism.

SPS >>> DEC

The idea is that as soon as DEC goes above its peg again, it will be profitable to burn SPS for DEC. For example, when one burns 100 SPS, one gets about 2752 DEC at current prices. But if DEC is e.g. 10% above its peg 2752 DEC would actually be worth $3.02 instead of $2.75. So one can then sell DEC for SPS and buy back more than one would have burned. But the genius about this mechanism is that SPS actually gets burned/destroyed and one then buys back SPS from the market. In other words, the supply of SPS gets reduced and buying pressure is put on the market.

SPS in theory should go through the roof whenever this flywheel effect is in place and people can make an X amount of profit from each conversion. But this is also why DEC will never be above its peg for any longer periods. Keep in mind that DEC will have to be 2.5% above the peg to actually be profitable (as the conversion rate is not set at 1000 DEC, but at 975).

So why would DEC increase in value or break above its peg?

Simply put, it's going to be the demand from DEC. While we still have several billions of DEC on the market, this supply will run out rather fast with LAND 1.5 and 2.0. As it does and people buy more DEC it will break above its peg eventually and thereby triggering the flywheel effect.

Also, since DEC supply will eventually run out, the only way of getting DEC will be by burning SPS.

While it is currently unclear when this effect will get triggered (DEC is currently trading at 0.00956!) it will sooner or later put tremendous buying pressure on SPS, thereby pushing price upwards.

Check out the Love The Clouds Community if you share the love for clouds!