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RE: The Economics Behind the Steem Dollar Arbitrage..
I guess what i don;t get is how the same people buying and selling [ thus providing liquidity, as abit used to do ] can actually help if there's no infusion of NEW capital. But yeah, not a trader and was wondering this as well as Cg.
They can help raise the price of SBD to $1, but only by lowering the price of STEEM. That's the tradeoff - when you convert SBD to STEEM, the SBD is destroyed and new STEEM is created.
Hello @biophil. I know you know this, just talking through my thoughts. When SBD is at $1, the incentive to covert diminishes.
This activity does increase the amount of Steem in Circulation, but from the numbers I have seen, I Don't believe significant volume would need to trade to support $1 SBD...and thus, not that much Steem is created from this activity.
Probably should spend a little more time drilling down on the numbers to prove or disprove this..
Yeah, if the price feed tracked the real-world price perfectly, there would be no incentive to convert at $1. You're probably right that it wouldn't actually take much to push SBD up to $1, but I don't know this offhand. You could get a lower bound on how much Steem it would take by looking at all 3 order books: steem internal, bittrex SBD/BTC, and poloniex SBD/BTC. It's only a lower bound, because people have reserves that aren't currently sitting on the books.
One massive problem is the mismatch between the feed price and the real-world price when Steem is changing in value rapidly. Last week I put in conversion requests for a total of about 500 SBD. But because real-world Steem dropped so fast in the past couple days, the STEEM I got from the conversions is now worth less than $400. So I'm more than 20% in the hole on what should have been a sure bet, and that's going to dampen my enthusiasm to support the peg in the future.
I think that's why there are gigantic sell walls in the external market right now. If the SBD gets closer to dollar parity, it will be much easier to maintain.
From there, I suppose it will provide some more stability to the Steem price action... but thats just instinct and I haven't done any modeling to prove it.
We can chat :)