The economics of BitShares X is beyond my ability to fully resolve with 100% certainty and thus I would like to present a set of hypothesis that BitSharse XT will test. Hypothesis 1)
BitUSD will 'perfectly' track the USD / BTS price in all scenarios including:
a) when BitUSD is lost to transaction fees and removed from circulation
b) when extreme volatility results in more BitUSD being in circulation than shorts are required to cover.
c) perfectly is defined as within the buy/sell spread and noise floor.
d) with or without interest paid to BitUSD holders.
The justification for this hypothesis is that despite the supply side, market participants invest (buy/sell) on the assumption that all other participants in the future will expect to trade at parity. This establishes a consensus valuation of BitUSD that retains value entirely independent of changes (increases/decreases) of the backing. The historical example of this was when gold was removed from backing of the dollar. The dollar retained the purchasing power it held the day before.
This is currently my gut feeling and if I were a betting man, this is the hypothesis I would bet on.Hypothesis 2)
The valuation changes of BitUSD will 'perfectly' correlate the USD/BTS price changes except for large transient events that result in significantly more BitUSD being in existence than required to be covered by collateral. Worst case 100% of all margin positions in the network are blown and as a result some users end up holding BitUSD while there are no short positions left that are required to cover.
Unlike hypothesis 1 which suggests that this extra BitUSD would continue to trade near parity with the USD/BTS price because it is fungible with all other BitUSD... hypothesis 2 assumes that BitUSD will start trading at a discount to real USD proportional to the surplus (unbacked BitUSD) relative to the new backed USD. In this case the value of BitUSD would slowly climb as BitUSD is taken out of circulation from transaction fees and more (backed) BitUSD is created.
I doubt we will see a complete blowout and if we did I still believe market participants would be unwilling to short below parity or buy above parity. Value would thus be reallocated from everyone in the network to the holders of BitUSD who retained purchasing power despite having all collateral being consumed. Hypothesis 3)
BitUSD will trade at a premium to real USD because it provides more value (pays interest, divisible, private, instantly transferrable, etc)
I believe the prediction market will grow the supply of BitUSD to meet all demand and thus keep the price pegged near parity. Even if short-sellers have to pay interest (so longs can receive it) I believe that interest fees are just part of the risk/reward and the consensus will still be tied near parity. Hypothesis 4)
BitUSD will sell at a discount because it comes with extra risk.
Same conclusion as Hypothesis 3
So there you have it, the full spectrum of possible outcomes that I can think of at this moment. Please provide additional hypothesis. The goal is to make sure everyone understands that anything could happen with these markets and like bitcoin this is one giant experiment.