That's not true. Gold/Oil contracts may be redeemable for gold/oil, but they usually aren't. In practice, those that are so redeemable almost never are (only industrial firms which actually needed to buy gold/oil anyway do such transactions, typically through intermediaries). Moreover, although you say "You do not buy BitUSD unless you expect BTS to have value in the future" you have not shown why. I just described a second reason why one might buy BitUSD: precisely because they feel that BTS will have a LOWER value in the future. This is usually why people buy gold contracts! Separately, you are swapping "lower" with "zero" almost randomly.
You buy BitUSD if you expect BTS to fall at reasonable rates, but not if you expect BTS to have catastrophic volatility or no value at all. So BitUSD is only a hedge against falling BTS within the scope of a reasonable market. BitUSD cannot hedge you against the possibility of system failure or complete loss of confidence.
The fact that other contracts can potentially be redeemed means that assuming the counter-party is solvent and not fraudulent that you have infinite margin (assuming 100% reserve exchange). The fact that people often settle for cash rather than take delivery is beside the point.
In the 'slow decay' example you show there is no 'attack' it is just consistent losses by the shorts for being on the wrong side of the market. An attack specifically aimed at causing rapid change and a short squeeze in order to justify profits is effectively the SlingShot attack. This is a risk all shorts take, especially when books are open. Fortunately, attempts at manipulating up the price of BitUSD does not change the real value of BTS on the blockchain and thus creates profit opportunities for shorts who compare BitUSD to real USD.
So your attack has to be based upon manipulating the real world perception on the value of BTS relative to USD.
Your primary argument is that rational market actors will choose to join the attack rather than fight the attack and thus the market will attack itself so-to-speak. The thinking goes something like this.... I see the price of BitUSD rising and a short squeeze start... at the start of the short squeeze every market participant is in a race to buy so they can sell high to the shorts. The result being that in the event of a squeeze shorts loose everything rather than just part of their position as would have been the case had the rest of the market not jumped on the opportunity to stick it to the shorts.
So recognizing that a squeeze could happen at any time, one may choose to buy and hold BitUSD so that they can 'profit' form the eventual squeeze. This only works if the squeeze happens in the short term and is catastrophic to the speculator if there is a slow steady growth in the value of BTS prior to the squeeze because of lost opportunity cost.
Bottom line: it works the same as any other market, once participants recognize a short squeeze in progress everyone buys in... during the squeeze BitUSD goes up in value relative to real USD. However, what goes up in a squeeze must comes down and thus everyone who bought in the rush that wasn't covering could be caught with their pants down when the tide goes out and prices return to normal. Thus speculating in a short squeeze is very risky, especially with low frequency trading on the blockchain and price move limits.
Conclusion: the market will expect periodic short squeezes, these squeezes can be triggered to some extent by large actors. The most likely timing of a squeeze is after a large natural fall in BTS which magnifies the power of the manipulator who only has to tip it over while collateral is low and thus the attack is easiest. Once again, this is just normal behavior. People see a price fall, anticipate a potential squeeze so buy BitUSD to get ahead of it which causes a chain reaction to start the squeeze.
However, for every individual who wants to buy at the start of the squeeze to sell at the height someone else recognizes that the safest play in this case is a short position on BitUSD with a large collateral to prevent a margin call that is executed once the squeeze is already clearly underway. They can then wait out the squeeze and profit maximally. This rational action works to limit the scope and potential of the squeeze because making money from shorting into a squeeze with large collateral is much less risky than attempting to time the market.
Yes, people can attempt to push the market around, but the volatility of BitUSD will be much lower than the volatility of BTS. Most traders will recognize that BitUSD will fluctuate around the dollar and thus know that any deviation is short-term. Those that wish to sell BitUSD wait until it is overvalued, those that wish to buy wait until it is undervalued for the best deal and professionals trade the arbitrage on a daily basis.
Topic: BitShares XT - Security against Market Manipulation FIND ATTACKS FOR TIPS (Read 52653 times)
