I wanted to chime in on the Steem Dollar discussion because so few seem to grasp the full economic picture. This post is for educational purposes only and is not an attempt to sway the discussion in either direction or to indicate my preferences. I believe that everyone should be operating from an accurate as possible understanding.
Law of Conservation of Risk
At any given moment in time risk can never be created nor destroyed, only transferred. In this case, the risk we are referring to is the volatility of cryptocurrency. This volatility is rooted in changing market perceptions which in turn impact the supply and demand.
In order to create a price-stable currency, such as the Steem Dollar, you must transfer risks from one group of people to another. The Steem Dollar transfers its volatility to STEEM. This means that the profits from holding STEEM increase when STEEM is growing and the losses increase when STEEM is falling.
There is an even trade between STEEM holders and Steem Dollar holders. When STEEM grows value is transferred to STEEM, when STEEM falls, value is transferred to Steem Dollars.
Impact of Interest
Normally people have to pay interest in order to borrow money. This means that there is a cost associated with purchasing leverage. This cost is worth it anytime the growth of STEEM is greater than the interest rate paid on STEEM Dollars. If STEEM grows slower than the interest rate, then borrowing SBD is a bad investment. If it grows faster than the interest rate then it is a good investment.
Long Term Perspective
If your long term view is that STEEM will be worth less than it is today, then buying Steem Dollars and converting to STEEM at the low makes the most sense. If your long term view is that STEEM will be worth 10x or more, then you want the network to have as much Steem Dollars as possible.
Only 10% of STEEM is used as collateral for outstanding SBD
The term's of the SBD smart contract are that only 10% of the STEEM network is pledged as collateral for the debt. This means that the network's maximum "loss" is 10% of equity. There is no "infinite dilution" caused by SBD; instead, there is a hard upper limit.
The Steem Dollar serves as a competing currency to STEEM, but it also serves as a bridge into STEEM. SBD existences makes STEEM more volatile which detracts from its appeal as a currency. It is hard to bootstrap currencies without bridges from existing currencies. Ultimately the market will pick the best currency. The Steem Dollar's fate is tied to the Federal Reserve and may die on its own.
So either STEEM falls and the SBD becomes pegged to STEEM or STEEM grows and SBD contributes to boosting the gains.
The biggest risk is unrealistic expectations of normal users who would be unjustifiably upset if SBD was suddenly pegged to STEEM.