There have been several concerns regarding the 3.0 proposal that I would like to acknowledge and address.
1. The market is imbalanced in the sense that USD holders can demand settlement but USD lenders (shorts) cannot demand settlement easily. This is a problem that can only be resolved via a strategy like BitAssets 2.0 where everyone settles once per year. This would destroy the utility of BitUSD as a long-term currency and make it difficult to use in other smart contracts. The only other way to "balance" this is to remove the option of forced settlement and have no expiration on shorts either. This was the original design but has other issues.
2. Settlement at 1% of the feed price creates a "liquidity" imbalance where you can essentially sell a large volume of USD without bidding up the internal market. Shorts must push the USD value down to acquire a large position, but longs are not forced to push it up to settle a large position.
It is this second point that has some people very concerned and is something I would like to address. Lets talk about the "terms" the parties are agreeing to.
1) Longs / Shorts are entering into a contract for difference based up a price feed. Fundamentally a contract for difference depends upon an outside judge of value and the Contract for Difference should have NO IMPACT on the value of a dollar relative to BTS. The longs/shorts are betting on this other "outside" market activity and their expected profits and losses are entirely derived from their ability to predict the future price feed.
2) If all shorts and longs were forced to settle on the same day at the feed then it is clearly observed that the market is "fair" even in the face of manipulation of the REAL MARKET which is part of the risk both longs and shorts take as it could be equally manipulated either way.
3) Allowing forced settlement with X day notice will merely convert some of the Short positions from infinite expiration to short term expiration. For all intents and purposes a 1 year CFD is infinite. If the "forced settlement" option had a 1 year delay then I suspect few would have any problems with "unfairness to the shorts" or worries about market manipulation.
It seems like the vast majority of concerns are around the 1% number and 24 hour number I suggested. I am willing to concede that immediate settlement (0% and 0 hours) is a bad idea because the price feed lags. I also feel that forcing USD holders to lock up their funds for too long while they wait for settlement is also a BAD idea. Having a cost too far from the feed is also a problem that would break the peg.
So without further ado I would like to suggest a compromise that should balance everything out nicely.
1) Limit the amount of USD that can be force-settled each day to 1% of the supply. This would take it almost a year if there were constant redemptions to free the entire supply.
2) When a user requests redemption they are placed in a queue that is filled in the order of redemption with at least a 24 hour delay.
The larger the request for redemption the longer the line will be and the higher the incentive to sell on the market rather than wait in line. This should be enough to keep the shorts honest (not selling to low and not running out of collateral) and should give the longs some confidence in being able to get out at the price feed. I think under this approach there should be no penalty when a forced settlement is requested.
Once again any and all constants are subject to debate.