I am in favour of a pegged SBD asset and exploring alternative proposals for achieving this peg. I welcome your proposal for further discussion and it may be a solution but there are some risks and additional dependency on Witnesses which I think adds an extra burden on the system.

Existing Mechanism

My understanding of the current mechanism is

• Witnesses only need to intervene when the value of the SBD is below the 1 dollar peg. They intervene by increasing the interest rate payable for holding SBD.
• If SBD goes above the peg the market will (in theory) drive down the price of SBD as it makes rational sense that more SBD will be printed so that people active posting on Steem/it will choose the SBD option and increase the level of SBD in existence.
  By market law of supply and demand will drive down the price.

This second part of the stability mechanism is what is not working at the moment. In my view the reason this is not working is because the supply of SBD is so small at the moment. i.e. Liquidity is the issue.
The current design should work if there is better communication over the design as well as more liquidity in the market. The latter will come in time if nothing is done now. The former we can be proactive on.

the objective of SBDs is stability and without it they have no utility

I completely agree with this statement and if the decision is to not in any way maintain a peg, or seek to maintain a peg, or change the peg then SBD has no utility. If that is the case what is the point of it all and should it be removed from the protocol?

The proposal you have outlined carries with it some risks and puts more control in the hands of witnesses, in particular over what to do with the SBD. Burn it etc. Is this an extra burden that is being put on witnesses shoulders?

At the root of the issue here seems to me to be a lack of understanding of what SBD is in the community at large and what the long term goal for it is. I would like to see consensus achieved on what SBD is and what its purpose is before tackling the question of how to fix it.

• Is it a speculative asset?
• Is it a counterparty free pegged asset?
• Is it a mechanism for varying the amount of liquid rewards paid out via the reward pool?
• Is it a mechanism for inflating the Reward Pool (Dollar Value) on an ad hoc basis?
• Is it a tool for bringing in dollar investment from unknowing people on 3rd party exchanges?

Before we get answers to some of these questions and achieve consens on what it is intended for the path forward is not clear.

Just one last point I would like to add to the conversation

The reason is that any price of SBD above the $1 brings value into the ecosystem, without any direct cost

This is the view of the majority of people who I have seen discussing this on Steemit but I would make the case that there is a direct cost. The current lack of a peg allows people to extract a larger proportion of the dollar value of the post payouts in liquid assets immediately. i.e. the payout effectively is no longer 50:50. I see this lock in of value for a period as a huge asset to Steem and a major design strength. Of course if people power up their rewards it doesn't matter.