As I understand it, what it does is increase the total pool of steem issued in the whole system when it is shrinking against the Steem token (Steem price going up). When the new SBD is made it is bound to different amounts of steem and upon transfer interest payments are calculated. I am pretty sure this is a feedback loop that will drive the price always downwards because it swells the supply as much as demand rises for it, so prices just don't go upwards very much, because this requires the supply to be reduced in one side and not the other (which has the same effect, one increases, it goes down against the other all else being equal).
Dan even said quite early on in a post someone linked me to that hyperinflation of the USD versus the hyperinflation of Steem were the two most likely black swans and the latter was more likely, as a result of a failure in some aspect of Steem Backed Dollars and their effect on the supply of Steem.
I just want to see no mandatory issue of this contract and the ability to unwind it (presumably at some price spread that pays the network admin cost of the contract.
It is not a token, it is a transferrable contract, just like the real Greenback. It has an additional administrative cost and burden upon the system. I just think that 5.25% is way too much and people would not want that much organically and, furthermore, it is a perfect payment instrument for businesses who trade in USD.
Therefore such a contract would probably also be nice to have in other pegs as well if a feed is created of sufficient size and trustworthiness. A redemption business could emerge from this. It should not be a store of value, it is a derivative, and therefore in fact more risky. The way it's configured it affects the total money supply and yes the same thing exists in the greater global financial market and by all accounts the debts tied up in derivatives dwarf the economy like the sun to sputnik.
I just think that it should have a interest charge on it not an interest payment. The point of it is you can do something now, and get paid in a couple of months, and against the currency you do most of your work with suppliers... It's a bit like a futures contract really. I think I said that before. This more clearly highlights the fact that it should not be considered anything other than a stable accounting instrument for businesses working in the currency the peg is on, while allowing liquidity INTO Steem, and Steem Power, which should be where all the interest payments are going, IF you are talking about getting the people to stay inside the network, then Steem Power is the place you want. I.E., Steem does not devalue so much that nobody runs the witness because it is an unbearable cost versus the benefit.
It was made more liquid, and it does get interest, but it should get more. This also would have a deflationary effect as well as an effect of promoting the more patient holders to more power within the system over time, versus those who are partying on it. Paying interest on a debt instrument that affects the supply of the underlying instrument, it should be obvious where the money will end up, as the game plays out. Too much and the base cannot grow, always being pushed down by the debt. Dan also talked about the idea of a debt ceiling with this.
In my opinion it is the most beautiful demonstration, with very clear outcomes, of the result of allowing too much debt into a system. The real value is destroyed, and it is out of proportion with the amount of the debt. This burden should also be on the bearer, not the rest of us, and bearing it being a profitable exercise is completely wrong.