If you know there is someone who will *never* sell (lost USD keys), there is a minimum BTS valuation below which both bitasset and BTS valuation instantly drop to almost 0. Right? At some point buying BTS is buying debt, or something. I can't get my own version of bitshares into a state where BTS is worth $50 and there are $1m bitUSD and then ask you to accept that bitUSD.
That might be an low probability edge case, but doesn't the same assumption require us to assume that "most" of the bitUSD holders would sell their bitUSD if they had the chance to sell it for 2 USD in a different form? What about 1.1 USD?
edit: How this relates to the title is, if we assume that a bitasset holder knows his risk of catastrophic loss is higher the higher his "free" return is, I intuitively find it much easier to believe the system is in an "equilibrium" state.
I also think this means the short price restriction has to be above $1, or maybe have a > $1 instead of an >= $1 somewhere...