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RE: Steemit For Investors #2 - How Steem Dollars Hold Their Peg to US Dollars - By Leon Fu Dot Com
Very clear explanation, this is one of the most confusing aspects when people ask "where does the money come from?". It definitely ties it all together, speculation from users, traders and investors is what drives the market and if you think about it that's exactly how it works with Facebook or Twitter.
As it is a very disruptive and untested model my doubts are mostly about how this all will play out. Will users trust the platform and keep SP or cash out inmediately? Will people flock to invest in it? And that's the beauty of it, we don't really know but seems like some will and some won't. The bottomline is that if it keeps gaining active and legitimate users, social media figures and even celebrities then Steem will definitely thrive.
In my view, the way SMD works is similar to the way Chicago Mercantile Exchange works. The CME trades futures contracts on commodities like live cattle, hogs, milk, orange juice, etc. If you buy futures contract for 100 heads of live cattle, is the exchange going to settle that contract by delivering actual live cattle to you? Of course not. No one is going to give you cattle for your cattle futures contract. They will settle the contract with the cash difference between the spot price of cattle and price of the contract. If you want real cattle, you'll have to get them at the ranch from a rancher, not at a futures exchange. Yet prices are set by the exchange, not by the rancher who has the actual cattle to deliver.
It is only a game of confidence. If enough ranchers lose faith in the CME, they won't accept the price on the exchange for their cattle, then the futures on that cattle become worthless. For SMD, it should work the same way. If people lose trust in the price feed providers of what a STEEM is actually worth, then SMD would also not be worth $1 if there is no one to sell it to for $1 worth of BTC.