Pegged on Steemit but freely exchanged on exchanges is what he's saying. That is how the arbitrage opportunity is artificially made. The intended effect of this non-exchange-based peg would be a lower bound, not a price ceiling.
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Correct, and without a ceiling, what is the point?! Also, it's not really even a lower bound, at least not a very firm one. If there is enough selling on exchanges to drive prices down, they will fall too on the internal market. The only saving grace would be to use the convert function in that case to ensure that $1 SBD stays worth $1 USD worth of steem.