I've spent awhile crawling through the white paper and the many many steem posts about how Steem actually works. I am developing a good picture, but I have some questions that the community can likely answer.
In the whitepaper, it states "For every SMD Steem creates, $19.00 of STEEM is also created and converted to SP." (pg 13) My current understanding is that half of contribution rewards are given as SMD and 10% of all new inflation goes to rewards. This could explain the above ratio: 5% of new STEEM is given as SMD, valued at current market prices. But then where does SMD interest fit in?
When the whitepaper talks about doubling supply every year, does that include the value of STEEM held in SMD? It surely must include the STEEM that has been powered up.
How does the Feed Rate work? The whitepaper says "this change is effective destruction ("burning") of STEEM when the value of STEEM is increasing..." (pg 35) Conceptually, this makes sense - if 1 SMD is worth 1 USD worth of STEEM, then when the USD price doubles, 1 SMD is worth half as much STEEM, so the supply of STEEM redeemable for SMD halves. But is anything 'burned' or destroyed? Later, the paper says "SMD operates...may result in large-scale creation or destruction of STEEM through feed rate following." (pg 36) This seems to imply actual creation or destruction. Or are they simply referring to the impact of redeeming SMDs for STEEM: if the price goes up, fewer STEEM are created for 1 SMD, so it's like 'potential STEEM' held as SMD gets destroyed when it's converted to actual STEEM?
Just to confirm, STEEM are not actually created by the blockchain: all rewards are given as SP or SMD, even if they are denominated in STEEM. (btw, having STEEM as a separate medium of exchange but also a unit of account is confusing) Each block, new SP and SMD are created. These can be converted to STEEM, but there are only ever more liquid STEEM if SMD holders convert or SP holders power down. Is this right?
Thanks!
PS: If anyone could point to references or quotes in their responses, it'd be awesome. I've seen a lot of attempted explanations that don't cite claims, which makes it very confusing for people who need proof.