Hello Cryptogee,

Thank you very much for the thorough reply. I did learn something new after all.

I already understand that the way SBD works is that it was supposed to be a fixed/pegged to the dollar currency worth $1USD or more. Whatever the price of Steem is, if you want to sell your SBDs you'll get an amount of Steem that makes up $1 USD or whatever the price of SBD is. Thus if $1 SBD = $1 USD and I want to sell it, if the Steem price is $0.50 then I'll get 2x Steem. If the Steam price is $2, I'll get 0.5 Steem.

I was not aware that there can't be more than 20-to-1 ration between SBD and Steem. If I understand correctly if the Steem price is $1, I can't have a SBD price of $20.01 or more.

Do you recall the article where you read this ratio limitation? URL? If it's not too technical I'd be happy to take a look.

And as you say "However the mechanism that determines all of this..." is what I'm interested in. What is the mechanism that determines the price/value of SBD? Is there some formula? Right now it's hoovering around $10 USD +/- $2. I'm just curious how did this number appear. Why didn't it stay at $1 USD.

Or maybe it's not that easy to peg your currency to the USD without having a significant reserve yourself. Say you're a central bank and you peg your currency to the USD/EUR. If your population sells too much of your local currency it floods the economy, so the central bank will buy all the excess currency to keep the 1-to-1 peg alive. Could it be that the small Steem economy won't be able to buy up all the excess steem if most of the users decide to sell it off?

It's easier if there is too much demand for your local currency/Steem in this case. Then you just print more to keep the 1-to-1 peg alive. Is the SBD inflation lower than the SBD demand and thus we have this $10USD = $1SBD situation? Maybe. Haven't seen a document yet describing exactly how SBD works, so these are my guesses.

-Ivan