Are we getting less "interest" with the new short rules?
If so, I don't think this is a good trade off for excess collateral.
Thinking as a BitUSD holder (which I am) I care more about liquidity than I do interest. The higher the collateral level, the more "leverage" I (as BitUSD holder) have over the short to make sure I am given a fair price.
The law of marginal utility does come to play here... at some point the collateral level is so high that adding additional collateral is meaningless.
At 2x collateral I can still see potential for black swan events... this potential is reduced significantly by having a 30 day max holding period which forces losing shorts to boost their collateral back to 2x. At 2x collateral you are protected against a 50% fall. At 3x collateral you are still getting meaningful reduction in potential for black swan events, being protected by a 66% fall. At 4x collateral you are talking about a 75% fall in BTSX price in a very short time... at 5x collateral you are talking about an 80% fall in BTSX price in a very short time... increasing collateral by 25% (from 4x to 5x) only gains you an extra 5% protection. Doubling it from 5x to 10x collateral you are only protected by another 5%... a fall of 90% (almost instantly, not gradually)
So you can see that after a certain point the value of additional collateral is no longer protecting you against realistic volatility and such a rapid fall would only happen if a catastrophic failure of the network happened meaning all BitAssets will have trouble finding liquidity even if on paper they are still trading at parity.
Where to draw the line between meaningful protection against volatility and waisted collateral is a judgement call that is difficult to make.
What is likely to happen with the collateral only approach is that the quantity of USD available to short will end up decreasing because there is only so much BTSX that is interested in shorting at all. So the higher the collateral the less USD each short can back and thus the short wall decreases. The less USD for sale means that it is more likely that a surge in demand for BitUSD will push through the high-collateral shorts and hit the lower collateral shorts. In effect, collateralization cannot go to infinity because quantity of USD shorted would go to 0.
So market makers are in the business of volume, high collateral limits the volume of USD they can process at one time and thus greatly hurts their profits and bottom line.
I think if people want long-term shorts and high yield USD then the solution is a Certificate of Deposit of a fixed term. Someone with USD would actually LEND it to someone backed by sufficient collateral for a specified period of time and an interest rate.
Now you are moving the long-term shorts out of the market engine and into private CDs. You are also separating the USD holders demanding liquidity from those demanding a return. As a result you also remove all restrictions on short selling for someone who legitimately borrows the USD from a long rather than creating USD to sell.
So now "shorts" are given an option: pay interest to a long-term USD holder and have freedom to sell at any price and any time *or* be restricted by the price feed and post even higher collateral.
I think providing this alternative lending process is better than attempting to integrate it all into a single market engine with competing goals.