Something I've been trying to understand is how secure is the (BTSX) collateral held behind BitAssets, because in effect the level of that collateral is a factor in how confident users can be of getting paid back if something goes wrong or demand falls. So my question is what risks are there, and what protections are either in place or need to be developed over time?
This is discussed in Max Wright's video from about 10:40 min
What are the best ways to hedge bitcoin?
I watched the video, it was very interesting, thanks for the link, something I may watch more of in future. The main risks Wright discusses are BTSX volatility (i.e. if it falls so fast that shorts cannot be closed out before an under-collateralised position is reached - which he recognises as extremely unlikely) and the exchange counter-party risk of buying and selling BitUSD on exchanges (where he anticipates a more direct way for users to convert fiat <-> BitUSd in coming months to help negate this).
But is it possible for an under-collateralised position to result from security risks such as:
- some sort of external hack?
- malfeasance on the part of the developers, delegates or others?
- a client or block-chain bug?
Or are these each essentially impossible because of the open-source nature, blockchain etc and why? Generally in the financial world there need to be protections around collateral, so I'm just trying to work out how that works for digital assets. Thanks.