https://steemd.com/witnesses

https://steemd.com/witnesses

What is the Price Feed?
You may have read that

1 SBD can be redeemed for about 1 USD worth of STEEM.

What is the "about" about? Two things.

The price is determined by the price feed. In short, Witnesses publish a feed price that reflects the market price of STEEM in USD, with the discretion to deviate from the market price as a monetary policy tool. The price actually used is determined by 21 witnesses and the median is used to insulate against outliers. You can see the feed prices here. If my reading is correct, it is still reflecting market price, without adjustment.
The redemption process (and payout conversions) averages the price feed over 3.5 days to stabilize the rate so that it does not fluctuate as wildly as the market might. This mechanism also allows time for witnesses to vote out malicious actors or adjust for bugs in the price feed.
So actually, I want to adjust this language to be unambiguous:

1 SBD can be redeemed for exactly 1 USD worth of STEEM as determined by witness price feed averaged over the next 3.5 days, with the payout being in 3.5 days in the future.

Price feeds and conversions
Say that the price feed is at 2$, and assume it stays stable for 3.5 days. If you use the conversion mechanism (Wallet, SBD -> "convert to STEEM" option) to convert 1 SBD, you will be getting 0.5 STEEM after 3.5 days (as noted, the delay is to prevent gaming fluctuations in the price feed).

After conversion (3.5 days later)

Your SBD wallet: -1 SBD
Your STEEM wallet: +0.5 STEEM
Total SBD Supply: -1 SBD
Total STEEM Supply: +0.5 STEEM
Note: You need to pay close attention to the relationship of the median price feed to the market rate of STEEM before you convert, and compare with the internal market, or else you may be losing a lot of value. And if volatility of STEEM is high, the conversion becomes unpredictable, even though there is some averaging to mitigate the unpredictability.

Price feeds and payout
Say the price feed is at 2$, and again assume that it is stable for 3.5 days. This means if you were supposed to receive 1 STEEM worth of SBD, you would be getting 2 SBD. This is why if you see the market rate of STEEM go up, the payout in SBD increases, and your votes are worth more.

Let's say that after a 50/50 reward split, the blockchain is about to pay out 1 STEEM worth of SBD and 1 STEEM worth of SP for your post.

After Payout:

Your SBD Wallet: +2 SBD
Your STEEM POWER Wallet: +1 SP
Total SBD Supply: +2 SBD
Total Steem Supply: +1 STEEM (in the form of SP)
Remember: 1 SBD to the blockchain = 1 USD. It does not use external market to value SBD.

Estimated Value of a Wallet
This was also a question asked, and based on the above, we can answer a simple question for how the number is calculated.

Estimated Value = (SBD Amount) + (Feed Price) * (STEEM + SP Amount)
Again, it does not use the external market to value SBD (though it possibly could).

Note: This is actually a guess, I did not inspect the code for how this value is computed. Appreciate it if someone could confirm this.

Effects of Price Feed Bias
First, to address a question: What do people mean when you hear "price feed bias"? You will see this listed on the Steemd witnesses page. This is just another way of saying that the given witness has adjusted its price higher or lower relative to the market rate. If you hover over the bias cell, or if you click into a given witness that has set a bias in steemd, you will see the price they have set on the feed.

If the feed price is over the market price of STEEM, then:

SBD will be converted for less than 1 USD [market] worth of STEEM. (e.g. SBD is less desirable with regard to conversions). To see this quickly, in the example above, supposing STEEM is 2 USD, and price feed is at 4 USD, 1 SBD will be exchanged for 0.25 STEEM rather than the 0.5 STEEM under normal conditions.
Payouts will be giving more SBD to users. This should be clear from the example above. If you were intended to receive 1 STEEM, it would be converted to 4 SBD if the price feed is at 4 USD rather than the 2 SBD earlier. More SBD is added to the supply than under normal market conditions.
The reverse happens when the feed price is under the market price of STEEM.

I do not believe this is happening right now (someone please verify), because the median feed price is still at market price, though there are witnesses that have discussed increasing their feed prices.

I will not go into monetary policy in this post, just what it means for users. (Monetary policy will involve a discussion about SBD as a debt instrument, stay tuned.)

Summary
It bears repeating, but: SBD is redeemable for 1 USD [price feed's] worth of STEEM. It is meant to be worth 1 USD. The market can trade such a token for however much it wants, but that does not change the fundamentals of the token. Do not HODL. It already has natural downwards price pressure by the virtue of printing SBD at payout time.

Now, I could be proven wrong if SBD has other properties. One that I am aware of is that SBD's can be redeemed in the post promotional section as a means to boost your post in the post promotion section. Suffices to say that this is not used a lot, so I don't think people are going nuts over this property. Let me know if you know of any others.

Finally, let me know if you have any questions or clarifications, and hope this was useful to some of you.