Very good explanation on the over-supply side. The big question is what enforcing the peg will have on the STEEM price. The supply of SBD is dependant on the STEEM price, so high STEEM price = high SBD supply. The only way to reduce supply is to bring STEEM down, or burn SBD (intervention).
STEEM also seems to gravitate towards SBD, so will the peg on SBD indirectly result in a pegged STEEM as well?
I wish I had all the answers. My gut tells me that this doesn't get resolved until SBD hits $1 and we have some mass-redemption of the over-supply to STEEM. But there are other ways to skin the cat.
I don't know about the STEEM gravity thing. I think that is more about general sentiment than anything else so I understand why they might move together.
Not quite. Conversions reduce the supply of SBD without burning or any explicit policy intervention. See the chart above that shows how, under normal conditions, when the demand for SBD is not changing much, the supply of SBD is quite stable ('net' fluctuates above and below zero, but has an average close to zero over time), with conversions roughly matching new creation. That is to be expected as long as SBD remains near $1 and does not 'detach' (as it has).
Agreed, but right now there is no conversion. We can only reduce supply by STEEM going down, or the burn like you have been experimenting with.
This is exactly why we need a more robust peg.
There is conversion from SBD to STEEM (reducing supply of SBD). It isn't visible in the web UI but it is still usable via CLI or API.
What is lacking is the ability to convert from STEEM to SBD (increasing supply of SBD). The only way to increase supply of SBD now is to wait.