SBD is a smart contract that "guarantees" that you can convert your Steem Dollars to 1USD worth of Steem. This mechanism is useful when the market price of the SBD goes below 1 USD. So if let's say that SBD is at 0.80 USD instead of selling it for BTC you can convert it to Steem and sell the Steem for BTC.
Converting to Steem reduces the supply of SBD and helps to bring the price up when the market value is below 1 USD,
However there is no mechanism to bring the peg down to one dollar. For this the supply of SBD needs to be increased. The only way to do that is to select the 50/50 option when doing a post and then selling the Steem Dollars.
oh wow! thats awesome. where does the contract get steem price?
The witnesses constantly publish the price feed of steem. The blockchain takes the median price to make the conversion.
Note: I used the word guarantees inside quotes because the conversion takes 3.5 day to execute. This is done to avoid market manipulation.
You can see the price feeds of the witnesses in https://steemd.com/witnesses.
Another way of maintaining the price is to encourage (or discourage) people to hold SBD instead of selling it by changing the interest paid for holding SBD. If the price of SBD is below 1 USD the witnesses can increase the APR. If people hold Steem Dollars to get the interest that reduces the supply and pushes the market price up.
The Steem witnesses publish a price feed; a moving median of those feeds is the contract's reference price. You can see each witness's feed here: https://steemdb.com/witnesses
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Successful Send of 501
Sending Account: biophil
Receiving Account: onthewayout
New sending account balance: 906896
New receiving account balance: 10496
Fee: 1
Steem trxid: 95d9b7c82dff951f77d3d8d27bfc3a3f4bda9b37
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This comment explained to me best the use of SBD and the purpose of its "peg". Thank you for that.
So it's a supplementary currency to that of Steem. But what is its purpose if you keep getting Steem anyway? So that if the whole market crashes, you could fight off the "inflation" and get the current $worth of Steem for half your earnings? I guess.
But I really don't see how people could expect it'd never go up.