As far as I understand, in order to make cryptocurrency pegged to USD we need somebody to take the risks of exchange rates. So, if ratio CRYPTO to USD is at a given time 1CRYPTO:1,1 USD, then we increase cryptocurrency supply by 10% and it will return to 1:1 parity? And conversely, if at a given moment ratio is 1.1 CRYPTO: 1 USD, we decrease money supply by 10% and ratio will return to 1:1, is that right?? Increasing and decreasing amounts of cryptocurrency in existence in response to price fluctuations can effectively peg 1 crypto: 1 USD or not??
No, it's by no means a guarantee of a peg.
The cryptocurrency's actual exchange rate will be determined by people's collective expectations of the present and future value of the cryptocurrency relative to the dollar.
Most importantly, the exchange rate will be driven by how much people trust that they will actually be able to get a real dollar in exchange for a unit of the cryptocurrency.
The only way to guarantee a stable price in USD terms, the instrument has to be convertible on demand to USD assets that are worth par value (for example, a bank deposit). A central body can achieve this by:
- exchanging the crypto-currency for USD monetary assets at a fixed price via direct transactions (something like a redemption); or
- intervening on crypto-exchanges to defend a fixed parity price.
By implication, a central body has to be able to buy or sell USD monetary assets to exchange them for the crypto-currency. In the real world, only a legal entity can own assets, and transfer them.
The individuals who control the legal entity will have full control of the USD assets, no matter what your software protocol says. If they walk off with the assets, your only recourse would be to real world courts, and you would only have recourse if you signed a legal contract with the instrument issuer.
It would be extremely difficult to get such a scheme to not end up under securities regulations, and it would be hard to classify it as a “crypto-currency,” as it would just be another financial entity issuing securities.
As long as it the creates and destroys the correct amount of tokens it should be able to maintain the peg. The cryptocurrency Steem Dollars is a stable cryptocurrency. The system buys and sells the unstable cryptocurrency steem, to manage its money supply.
The only purpose of steam is to manage the money supply, so it has no fundamental value. So if everybody panic sold steem dollars, steem would hyperinflate. It would then be irrational to hold steem and there would be no more buyers.
If it were backed in actual assets such as bonds, stock, gold, silver, currencies, or maybe even other cryptocurrencies, it would be better defended against panic sells.