Well the super short version is: a SD is a smart contract representing $1 of debt from the Steem blockchain at large to the holder of the SD. That contract can be sold, in which case it's worth about a dollar, since it represents $1 worth of steem at some point in the future; or it can be executed. If it's executed, the blockchain locks it up for a week, then prints $1 worth of new steem at the end of the week and gives it to the SD holder, and destroys the SD.
The one-week delay is necessary to prevent market manipulation: a whale could dump funds on the markets skewing the price, then execute the contract at a biased price. To prevent this, the week-long delay is used to raise the bar; the attacker would have to maintain a manipulated price for half of that week (or so, I don't know the exact timeframe) to affect the price his contract executes at.
Did you mention the interest rate?
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@bacchist Wait, what? SBD pays interest directly? This is something I didn't know. Can you please link the source? I don't recall that being in the whitepaper anywhere and if I missed it then I have been making some really bad financial decisions (been converting SBD to bitUSD taking a slight loss).
I will upvote that information!
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@bacchist Wow I just re-read the paper and you're right. It's right there! Upvoted you, also just became your 100th follower. Thanks for that bit of information!
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It is in the whitepaper. Now itis monthly 1% and the interest paid in every 30 days. As I know the witnesses vote for the interest rate.
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It is certainly in the white paper. It is also in the white paper that the interest rate should be raised if the market is valuing SBD below $1 USD and the debt-to-ownership ratio isn't too high. And interest payments should be discontinued if the market is valuing SBD above $1 USD.
Unfortunately (in my opinion) the interest rate has not been responding to the market undervaluing SBD... I don't think it has ever changed from the 10% apr that it has always been. It's an important part of the peg that should be functioning and should also be promoted more than it currently is, so that it has an actual effect on the market rather than being some obscure thing as it currently is.
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Yes, I am curious about the interest rate as well as the price feeds and how that all operatess.
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No I didn't. Good point. :) Steem pays interest on SBD to encourage people to hold it rather than convert it to STEEM immediately. This is because the chain wants to avoid inflating STEEM for as long as possible, as conversions are paid out of inflation.
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Thanks. So much of the web has switched to video these days. I prefer plain text. Or, if you must do video, for those who won't read, at least a full transcript.
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What's a whale btw?
Is "Steem" mined like Bitcoin, with a mathematical limit to how much Steem can be mined?
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A whale = an account holder who has a very large amount of some asset, enough so that selling it all at once could significantly impact market prices.
There is a mining process analogous to how Bitcoin is mined, but unlike Bitcoin there is no upper limit to the amount of Steem that can be created. You should read the whitepaper; it covers this topic in great detail.
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How does the blockchain now what $1 of steem is?
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