BitUSD is undervalued compared to USD outside (~20% at the time of writing). Potential reason:
1) Not enough incentive to hold BitUSD. No interested received.
2) Not much demand for BitUSD for commercial usage, especially when little merchants accept BitUSD for payment.
Result to achieve:
1) BitUSD receives interest to add incentive for holding it.
2) The added incentive evens out the imbalanced force from one side of the market, which pushes the peg towards 1:1.
1) Interest rate, R, needs to be market-driven.
2) BitUSDs are fungible, meaning they enjoy the same R. The previous proposal of BitUSDx (R = x%) would generate many kinds of BitUSDs, and inherently they are non-fungible, as they enjoy different interest rates. Here, the interest that BitUSD receives comes from the BTSX collateral, which is the loss of the BitUSD shorter.
More short of BitUSD pushes up R; more long of BitUSD drives down R.
(BitUSD priced in BTSX)
Range of R:
Rmin < R < Rmax, while Rmin can be negative if necessary.
1) Orders can be sorted into three categories: sitting orders, driving orders, and neutral orders. When a buy order and a sell/short order are matched, usually they were initially placed in the different blocks. The one placed in the earlier block becomes the sitting order, and the other is the driving one. Sometimes, two matching orders are included in the same block, which makes both neutral.
2) Presumption: driving orders represent market direction/intention.3) Only driving orders move R.
4) A long driving order drives R down; a short driving order pushes R up.
5) R moves 0.1% for every $x million BitUSDs in the driving order, proportionally. For instance, x can be 1, 10, or 100.
Expected end results:
1) R reaches equilibrium. This is the market-driven interest rate, which represents the wills of both sides of the market. If one side disagrees, it would move R by buying or selling BitUSDs to the direction that it prefers.
This proposal provides a general idea of how to set up a market-driven interest rate. Measures against various attacks are very likely to be in need.