In other words, every single SBD token that is in existence right now is reducing the supply of liquid STEEM tokens on the market, which is helping to increase the price of STEEM.
So, SBD distracts traders from trading STEEM. By having that, SBD becomes an easier target for speculation and market manipulation because of its smaller market capital ($16.5 million), thereby breaking its peg. Which is exactly what happened twice, during the mega pump months ago and last year. Unfortunately, witnesses didn't use the tools at hand (except a few, including myself, thus no impact at all) and they decided to let things run their course, i.e. having a broken peg lasting for months. In those situations, the recurrent question was, if the peg cannot be maintained, do we still want to keep SBD? The debate was heated...
Another point is, while people were excited and trading SBD during the pump, nothing much was happening to STEEM's price, it remained relatively stable, then slowly caught up with an uptrend and a pump of its own. I think that happened because the crypto market was bullish and had nothing to do with SBD. All the altcoins were going up anyways.
Fast forward to the recent prices. The whole crypto market is down, SBD and STEEM are no exceptions. However, SBD's price is higher than STEEM! Maybe because people are trading more STEEM since rewards aren't paying them SBD anymore?
It's hard to determine the real reasons behind market behavior, it's highly unpredictable and doesn't necessarily follow the theories we like to believe. I remain skeptical how a $16.5 million market cap (SBD) would influence a $275 million market cap (STEEM).
We'll see what happens if/when reverse conversion is implemented. Until then, I'm not sure SBD will hold its PEG all the time, which defeats its purpose.
P.S. Forgot to thank you for writing this post, it's very informative and clears a lot of things.
If you are saying that people buying SBD takes away demand from people buying STEEM, I would say there is really no evidence to support that. In fact, during times when SBD was pumping, a lot of users were turning around and buying more STEEM with it.
Highly speculative. A lot more plausible theory is that SBD has a relatively safe floor around $1.
A lot of your theory seems to be based on the idea that traders are making an either-or choice between SBD and STEEM, and demand for one reduces demand for the other. I disagree with the premise, but it is not really something either one of us will be able to substantiate.
I would go so far as to say that without reverse conversions (or some other mechanism to support the peg in the other direction) that the peg will not hold. It is not implemented in a way that will provide a stable value token.
Despite not living up to it’s original purpose though, there are still other benefits to keeping it around (even as-is) such as the ones highlighted in the post (leverage and effectively HODLing).
Honestly that makes no sense.
The two have very different properties and appeal to different markets. This is a bit like saying carrying toothbrushes in your store distracts people from buying sunscreen. They're hardly related at all.
Actually you seem to suggest this in the rest of your comment, so mostly I guess I'm not getting your core message.
EDIT: I see now you were quoting from @timcliff. I don't think what he wrote was equivalent at all to how you paraphrased it. You are describing two different effects.
There is a learning process here. We're all approaching this for the first time. In my top level comment I've noted that the issue with not using the tools may have started earlier, when the SBD supply was allowed to collapse to unhealthy levels rather than supporting it with a bit of interest. That by its nature (small supply, slow print rate) facilitates pumps; once the pump happens it is too late to go back and "undestroy" the supply. I agree the system is still deficient without reverse conversion or something like it though. (Which implies we ought to be looking at introducing a bit of interest soon.)
Maybe I didn't clarify what I meant with "SBD distracts traders from trading STEEM". It's because of the liquidity of rewards paid in SBD. Users could exchange it readily instead of having to wait for power downs. When the pump was happening lots of users were cashing out their SBD to pay their bills, instead of buying STEEM. I know that because many of them have msg'd me complaining how things are dire for them nowadays since SBD is back to ~$1.
I'm reasonably certain that a lot of people cash out whatever they receive, be it SBD or STEEM. If they are writing you about their lives being dire then clearly they are using rewards as a form of income to support their living expenses (which implies "cashing out").
Indeed, Steemit has become a source of income for people in Africa, Venezuela and other economically stricken countries. No wonder we see a lot of undesirable methods (spam, scams) probably driven by exasperation to earn a buck 😥