IMPORTANT!
I'm not a genius. I could have gotten a lot of things totally wrong here. Please read through the comments as well, if there are any, and I'll try to edit out mistakes I made in my thinking as soon as I stand corrected.
EDIT: All the whales I have encountered around Splinterlands are incredibly helpful and patient with newer players, and very supportive. I personally encountered the term "whales" in the financial world around big funds and other companies that manipulate markets to their favor, and I still read a few comments about that being the case in Splinterlands, too - that's where my interest for this topic came from, and my effort to dig at least a little deeper. Personally, I think that the SPL-Whales are actually trying to do their best to bring the game forward, and enhance the experience for everyone.
Prologue
With the announcement of Conclave Arcana and the rapid progress on Land Utility, the SPS token appreciated quickly, getting as high as 0,014$ per SPS. Now that the Pre-Sale has started, it's going down quickly again. This post will explore that a little, and please remember that I'm fairly new - it could be that I'm very wrong on what I'm writing here, but I've heard the concern from several sides now, and wanted to dive a little deeper. The question is:
Does the function of burning SPS for DEC allow manipulation by big money?
Observation
Before the start of the pre-sale, the price of SPS shot up. Now it's dropping like a stone as there is no more buying pressure. Everybody was buying SPS in order to burn it - not to swap for DEC on the secondary market, but to burn in-game and therefor create new DEC. The DEC provided by burning does not come from the secondary market, so it does not directly influence the price of DEC in $ or HIVE. There's a secondary effect, of course, which makes the price for DEC rise as well.
But the main fact is - the DEC that SPS is burned for is newly minted. It raises inflation on the DEC side, while de-flating the SPS side.
Can it be taken advantage of?
Yes. If they do, is another question - as a whale just told me today:
But it is possible to buy a ton of SPS and have the price go up. That will NOT affect the SPS price (if there's no selling pressure from another party), nor the DEC price directly.
The burning is based on market prices. If someone manages to buy enough to shoot the SPS price from 0.01 $ to 0.02 $, without affecting the DEC price (if it's around peg), then they'll get around double the DEC than before. So, if they bought some of the SPS at 0.01$, they will still get the DEC as if they're worth 0.02$.
What's the profit?
More DEC to use on markets - or just to hold in a sink like land and wait. When the price of SPS falls again, due to the lack of buying pressure, the DEC can be used to buy SPS again. But that is only the case if the DEC price doesn't move parallel to the SPS price.
Also, as in the pre-sale, a high SPS price and hence more DEC for burning allows everyone who burns SPS to get more packs, and with that have an advantage. But everyone else could do the same, burn their SPS and get the high amount of DEC.
What does DEC inflation cause?
First, the price falls, of course, and way under peg. In that case, less credits will be bought (credits and DEC have the same value if DEC is at peg), meaning less $ income for the Steemmonsters company. It will be cheaper to buy DEC directly with FIAT or other cryptos. But the company gets paid with DEC:
That is how they buy food, pay [for] stuff.
But if the DEC prices goes down because of an inflation caused by mass burning of SPS, they have less $ to pay for food and stuff - I doubt that Costco or Walmart or Aldi accept DEC as payment method (for now).
And credits?
Credits do not cause DEC inflation. The team has a certain amount of DEC stashed, and they buy more on the market to fund the credits/DEC swap. If you buy a card with credits, the seller does not receive credits directly from you - the credits go back to the company, and the company gives the equivalent of DEC to the seller. All 0.
Can DEC be deflated?
Not that much. There are a few mechanisms in place, like the burn-fee on on the marketplace for both buying/selling and renting - with the rent-price being up to 1 DEC/day as minimum, and with Survival-Mode pushing rentals, the burn rate there has probably gone up quite a bit.
There are sinks as well, like the whole Land-Expansion. In order to make money with Land, DEC has to be staked - without it, the land is useless. The DEC that can be traded in the resource-pools is player DEC, so it's not minted.
I remember that there was a DEC-Burning action once, before I started playing again, creating DEC-B. That's another option. Besides that, nothing comes to my mind. Anyone else knows more?
Conclusion
Okay, to be honest, I'm still wrapping my head around this one. First, it's not an easy arbitrage play that will bring the system to a collapse, or at least I hope so - I don't understand enough to really assess that, but maybe someone else can do that.
Second, if someone really pays that much money to burn so much SPS - it's also a good thing, as the SPS is burnt permanently. It's sent to a "null" account that nobody has the keys for, so nobody will ever be able to access that account. That deflation is good for the SPS price, as the bottom price will keep rising.
Third, the DEC inflation is not optimal. There are a few sinks DEC-Burn-mechanisms, and over time it might help, but I doubt that it would resist a sudden inflation.
Now, the answer to the question: Yes, it allows manipulation, but a lot of things would have to fall into place to make it worth it. And in the end, the manipulation would not be destructive, but maybe even constructive as it raises the floor price of SPS. If someone has all their money in DEC, okay, they would be negatively affected. But that's not a great strategy anyway, as SPS is the token that makes the Splinterlands go round.
Also, SPS burn is available to everyone. It's not like it's exclusive for whales. So in theory, everyone can profit from whale going crazy.
