I would like to reiterate my view that indexes such as this are not required to be fungible, because they will not be used in exchange for goods and services, but merely to provide investment or speculative exposure. Eliminating this requirement provides for a more flexible and attractive model to be considered for traders as below.
[There is a larger issue here, in that I believe creating fungible currencies aimed at economic transaction is a completely different business model to winning the decentralised exchange space aimed at traders].
Currently my preferred approach to implement something like this is as follows:
i) have each side deposit to and maintain a margin account, say at 30% of notional exposure
ii) denominate the margin accounts in bitUSD (or other bitCurrency)
iii) run the asset in a number of series, for example expiring at the end of each calendar quarter, with new longer-dates series starting when expired ones roll off.
iv) provide a simple roll mechanism for users to maintain long or short exposure if they like
v) eliminate the need for interest, as each series will simply trade at a discount/premium to feed price reflecting cost of carry (futures pricing models)
The advantages of this approach are:
i) the short side will be better populated, because it does not require shorts to be taking a view on BTS as well as the index, only the index itself
ii) it will be more attractive to traders who would be able to leverage on margin as per CFDs and other derivatives
iii) it provides superior 2-way pegging around the futures price (which will theoretically differ from the feed price), and settles exactly and with certainty at the feed price at each expiry
iv) UIAs can be set up to offer fully collateralised ETF-like structures if there is demand for non-expiring investments
v) it provides a source of use demand for bitUSD and other currencies
Of course this is not the only way to do things, and others may have better ideas. But my key point is that if you drop the fungibility requirement of existing bitAssets, other avenues are opened up.