I am sure that somewhere on these forums at least some of these questions have been answered, but my searches have not revealed satisfactory answers. If anyone can point me in the right direction, of course that is appreciated as much as a direct answer.
My question is as follows:
There seems to be a crucial asymmetry here. Shorts are required to cover every 30 days, and yet bitUSD holders need not sell... Ever. If bitUSD is intended to be used as a saving/spending tool rather than a speculative one, there will surely be a significant quantity of bitUSD floating around that no one (at least initially) intends to sell.
Ergo, and from what I understand this is indeed happening, it seems like there will be an accumulation of buy orders for bitUSD coming just from the shorts to cover their positions, and there will necessarily not be enough supply to meet the demand. How will this not drive the price of bitUSD above $1?
At first glance this might not seem to be a problem, but that would not only mean that we don't have a working peg (which defeats the purpose of this whole enterprise) but that shorting becomes a losing proposition in anything other than a protracted BTS bull market. This means a further contraction of the money supply as fewer bitUSD are generated, and we see a runaway short squeeze. This further destabilizes bitUSD and destroys its utility as a stable store of value.
It seems that the above situation could be triggered very easily, but would be nearly impossible to fix.
What am I missing?