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RE: The Difference Between Selling vs. Converting Your Steem Dollars
Yeah, it's created as inflation, not extracted from the Vesting fund.
The reason it doesn't come from the vesting fund is so that liquid holders are also included in the "collateral". Otherwise there could be a "run on Steem Power" in a sharp price downturn. It is preferable that the risk is held by everyone.
So I've read different opinions about this... this comment by @sigmajin led me to believe otherwise... Obviously there is a right answer, I'm just not sure who's answer is right. So is this comment incorrect:
Full post
https://steemit.com/steem/@modprobe/how-the-steem-dollar-peg-works
@sigmajin is wrong. Otherwise there would be no difference between the Steem virtual supply (which includes the Steem that would be created if Steem Dollar contracts were all filled instantly) and the total supply.
Just to clarify then... of the 70% of STEEM's inflation that flows in through the rewards pool... roughly half of that remains virtual supply until the newly minted SBDs are are converted into STEEM. Is this correct?
ps. I had to write this comment twice cause the first time is disappeared... do you see it twice or only once? This has happen to me a couple times recently. Right now it shows up twice on my desktop but only once on my phone.
Yes.
This is why people talk about Steem Dollars posing a 'systemic risk'. In a bad enough downturn, the existence of Steem dollars could result in hyperinflation of Steem. It is a very unlikely scenario but possible, and some want rid of SBD simply to close that possibility.
Edit: I only saw your comment once. It's just a guess but Steemit.com nodes might be failing to propagate transactions to the network under heavy load. If that's the case, Steemit Inc simply need to spin up more instances, and maybe handle the error better.
Correct, although I am not sure that the inflation is actually tuned to account for the STEEM value on exchanges. So if I understand right: the STEEM you get from changing SBD is created by inflation, say that STEEM value goes really down and there are large hodlers of SBD, I don't see why there should be enough inflation to produce enough STEEM for them. So if you hodl SBD, STEEM price goes down, you are setting up the system for default, please let me know if I understood correctly. SBD are not a bad idea per se, but they should be emitted keeping in account how many of them are circulating (like government bonds)
The only way default could happen is a hard fork supported by consensus. Building default into the smart contract doesn't really make sense, a default is a violation of a contract (usually with mitigating circumstances).