It isn't a price peg mechanism; it is to avoid the SBD debt ratio rising, potentially to be greater than the STEEM market cap.
So, what would happen if prices were x10 - STEEM at $2, SBD at $6?
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It isn't a price peg mechanism; it is to avoid the SBD debt ratio rising, potentially to be greater than the STEEM market cap.
So, what would happen if prices were x10 - STEEM at $2, SBD at $6?
??? It is a supply mechanism. When prices were x10 the mechanism stays the same. We would have a median of 4.015. Maybe I don't understand what you are trying to say.
The SBD debt ratio is capped @ 10% of steem market cap.
After the crypto crash the blockchain triggered the 10% SBD debt ratio Hair Cut Rule, the steem price crashed and the blockchain is now in a recovery period.
As you can see the blockchain creates an incentive to convert sbd to steem.
There is a bug that's the reason we are still printing 1% sbd... that's not a big deal, with every conversion the SBD debt will go down and so will the median. However, it takes time...
This way the steem price and the median will find each other again, and that would be the end of this Hair Cut recovery period and the SBD / 1 USD peg will be restored.
Of course when the steem price recovers, it has the same effect, market cap would rise, and the debt ratio would go down. Steem price and median will find each other, and from that point, the SBD Peg will be restored.
PS: Market Cap Debt Ratio @ 1 SBD = 1 USD was 18.xx % as you can see we are now down to @ 16.xx %.
We will be fine, tshtf in cryptoland, and we are recovering and we did survive. Hurray
In the comment thread of this post, some users mention that with sbd conversion inflation rises. I don't understand how they come to that. Maybe they mean, with each sbd conversion sbd is burned and extra steem is being printed. That's in my opinion not inflation, but dilution.
Inflation is a percentage of the Virtual Supply including steem and sbd. This inflation is fluctuating as sbd is being printed or burned but is in my opinion negligible.
After all who is going to pay down excess sbd debt? This designed way is the least of all evils. We are all in this together.
Maybe @smooth could acknowledge this inflation thing.
Your comments on this thread are correct including the part about the peg working to restore itself even if the STEEM price doesn't go up. @rycharde is incorrect, it does not take external action to restore the peg, only the passage of time (though perhaps a lot of time) and STEEM not continually declining to zero.
As far as the inflation or dilution, that happens when STEEM is created to fill the reward pool. Then it goes from the reward pool to payout, possibly being converted into SBD (which moves it, likely temporarily, to virtual supply as you stated). Conversion of SBD then moves it back to current supply.
People looking at conversions as inflation or dilution are focusing on the proximate cause but not the root cause (paying rewards).