The booming demand for Dark Energy Crystal (DEC) has caused the DEC price to break its peg, and at the time of writing this post, it's currently trading at $1.21 for 1000 DEC.
It's not uncommon for the price to fluctuate above and below its peg, and the recent boom has been in line with all the new developments that the splinterlands game has undergone of late. And I foresee this demand not letting up with the Choas Legion and Land coming later this year. However, what impact does DEC trading above its peg have on players and splinternomics?
Monetary Policy...boring theory
First, let's get the boring theory out of the way. In traditional economics, the primary objective of monetary policy is to achieve and maintain price stability in the interest of sustainable and balanced economic development and growth. Achieving price stability in an economy reduces uncertainty and creates a favourable environment for growth and job creation.
DEC Monetary Policy
When DEC was first released on May 20th 2019, the intention was to have a 1000 DEC pegged to $1. Now to maintain stability and a somewhat deflationary stance, every day, 1m DEC is released into a pool that players can earn, and this pool amount is decreased every 30 days by 1%. According to my calculations, the current pool amount is 777k (June 2021).
Other mechanisms used to manage the DEC supply is through burning mechanisms:
DEC is burned and gone forever when potions, orbs and skins are bought.
DEC is created when monster and summoner cards are burned.
Splinterlands Hype
Since the turn of the year, splinterlands has been on a great run. New features, increased player signups, increased daily active players, more matches being played, Untamed packs selling out, and Land selling out. In my opinion, splinterlands has finally joined the crypto bull run of 20/21.
What has this resulted in? This increase in demand has resulted in the DEC price breaking its peg and introducing a lot of volatility. Great for players who grind hard daily to complete those quests with the current prices. But bad for card sellers/traders, as you get less DEC due to trading above its peg.
Revisit of DEC Monetary Policy?
The question, however, is how feasible is this from a long-term point of view? Based on my basic understanding of deflationary economics and monetary policies, with the Choas Legion release and Land functionality to be released, which may result in more players signing up, more players grinding daily and contesting for a shrinking DEC pool, increase demand for DEC due to new cards and rentals; I can only see the price of DEC continue to trade above its peg.
Should the splinterlands team revisit their initial DEC monetary policy? Well, I guess this question does depend on knowing how the functionality of Lands release will play out. However, if Lands doesn't touch DEC and its economics, then maybe the splinterlands team should look to revisit DEC monetary policy to either inflate the money supply on a short-term basis or removing the peg altogether and relook at the tokenomics.
Conclusion
Splinterlands is in a good space and, with its expanding growth, will continue to bring about unforeseen challenges. However, as long as the splinterlands maintains its collaboration and transparency with the community, it will continue to grow from strength to strength.
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Never knew DEC has a peg! First meme is duplicate