When SBD are converted the amount of STEEM in circulation reverts back to what it would be if SBD did not exist.

This isn't true. Not sure where you're getting this idea.

The amount of Steem created in SBD conversion is entirely related to the price feed at that time and has no connection to the price at time of SBD creation.

STEEM wraped in a smart contract.

It's not Steem wrapped in a smart contract, its' Virtual Steem in a smart contract. 1 Virtual Steem at payout (where it's locked behind SBD) can potentially become 2 Real Steem at conversion, or 10, 20 or 100. It entirely depends on the price feed.