Short of them delisting SBD and being personal guarantee of 1 SBD = $1 USD it will always have volatile on the open market. Even junk coins in the cryptocurrency market sky rock and boom all the time.
Even with break points/line in the sand of when certain market condition is met witness deploy mechanism to counter. That will only have some success at best some times which has always been clear in forex. Even long withstanding policy bends and breaks over passage of time. Even more so in smaller market caps.
As well if the Dollar collapses does that mean SBD will collapse at the same time??
That is always the issue with fixed exchange rates.
As it stands everything is too connected with BTC every time it takes a dump majority of crypto markets bleed in value.
There was some earlier discussion on this where it was observed that stakeholders via their elected witnesses can choose to switch the peg to something else (gold, silver, basket of commodities, etc.) if that did happen.
As smooth noted - the peg can be to any asset, really. It's just a matter of choosing which one and adjusting the protocols/parameters to reflect that. Some have asked for a peg to BTC or gold. But I think the most stable would be the widely-accepted currencies like USD. Even their fluctuations in price/value is far less volatile than nearly all other assets/commodities, and certainly cryptocurrencies.
This is not quite true. In the regime where STEEM is successful, STEEM's supply will simply send SBD prices down, and we will need the other tool to prop up SBD (interest rates), or simply just the conversion mechanism itself that burns SBD's for the equivalent of STEEM. Yes, it may still be slightly volatile, but it will be much easier to control.
Agreed on the point about smaller market caps. That's just makes it easy for manipulation.