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RE: How the Steem Dollar Peg Works
Don't you have an error when state the price will the price on the day when the contract executes at the end of the week? The entire point of the 1 week delay is to force an average weighted price over the entire week, since the attacker can't likely sustain the attack for all 7 days.
Yes, his statement was a simplification. The price is not the price on that day, but the mean price over the period of a week as declared by the witnesses.
If there are rapid price fluctuations, it may or may not be in your best interest to convert your Steem Dollars (you might get an overly good deal or overly bad deal or even exchange). The point is that you can't predict what you'll get at the time you execute the contract. Over time, most likely you'll average an even exchange rate between SD and STEEM.
I wonder though if the constant high inflation of STEEM means that over time your exchange rate between SD and STEEM will actually be slightly biased towards discounted SD.
Slightly yes but not as much as the actual discount. This could be corrected for by a slight offsetting adjustment in the feed price, if that made the difference (but it doesn't).
Yeah, I guess it's pretty obvious that inflation wouldn't account for a 15% discount. So why aren't large players betting on the peg and buying up all the SBD at discount?