Shouldn't the peg be maintained by the mechanics listed in the white paper?
The conversion function is clearly inadequate, especially when there is heavy sell pressure and limited demand. If the price of STEEM is almost always going to decline, the conversion function is only going to become viable if SBD is heavily undervalued by the market... This is a condition that hasn't been met, since the price of STEEM is dropping at a rate which exceeds the market's discount on SBD.
The other mechanism is the interest rate. The interest rate has literally never changed. I understand that this is up to the witnesses, but they seem to have little interest in increasing the interest rate, despite market conditions demanding it according to the white paper.
"The peg" isn't an actual thing if it requires market transactions like this. Then it's just a target price enforced by the most wealthy and influential actors...
Actually the mechanism in the white paper relies almost entirely on market participants to engage in trading in order to maintain a peg. (Steemit counts as a market participant, in fact currently they are almost by definition the largest market participant.) There is nothing in the white paper or in the software that directly trades on exchanges at all, so the only way exchange prices end up being close to $1 is if market participants trade in a manner to make that so.
Well, yes... That is true. Ultimately market participants trading SBD at around $1 is how the peg manifests. However, the white paper lays out incentives that are designed to influence the decision making of market participants and encourage them to price SBD near the target.
The most well known of those is the conversion. That provides significant risk of exploitation to traders pricing SBD too low through arbitrage. It influences the supply side, as it should prevent traders from being willing to sell SBD at heavy discounts... Furthermore, if SBD holders are willing to sell well below $1, buyers can confidently purchase it knowing that within a reasonable time frame they can attain nearly a full $1 of value (or even in an unfavorable market, more value than the seller was willing to take). That works on the demand side, by enticing buyers.
The conversion also can function to bolster price by decreasing the supply... Literally by removing the quantity of SBD in existence... but the same effect would be achieved by simply taking them off the market and hoarding them, and that seems like a much better option given the other mechanism designed to persuade traders to price Steem Dollars near $1.
That is the interest rate, which defaults to 10%. That is a very healthy return by almost any standards, given that the risk is essentially limited to catastrophic failure of the economic system. And in that case all this is a moot point, anyway.
Unlike Steem and Steem Power interest, Steem Dollar interest is not intended to debase the currency. It is designed to entice people to hold SBD. If everything is working as planned, it is reasonable to assume that at some point in the future Steem Dollars will be close to par, even if they are not currently... So it becomes much more attractive to wait and collect the passive income than take the loss by selling.
The interest rate should be responsive to market conditions, and it should be raised if the price of SBD remains depressed. That will further encourage holding instead of discounted selling. I'm not sure whether the strategy of raising the interest rate has been consciously abandoned, but I've seen little indication that it will be implemented. I'm not sure whether a 10% discount warrants such action, anyway.
But those are mechanisms designed to influence the decision making of market participants. Those mechanisms are the peg. Directly placing market orders... now that is something entirely different. That's market manipulation, which I can't imagine would be necessary or desirable if the peg as described in the white paper was functioning.
I don't know if the white paper says so but it is clear to me and Dan has also said that interest rate changes are a long-term factor and don't really have much influence on short term supply and demand. Given that SBD has been between -25% and +50% of par in the relatively recent past I don't think much can said about what the interest rate should be. That's just, like, my opinion of course.
As I said steemit is a market participant. I don't see how that is questionable. If they were push the price away from par, you would have a point about it being "manipulation", but they are doing exactly what rational market participants would do if they find SBD selling at a discount and believe that the pegging mechanism works over time: They are buying it.