To handle case (2), people have been offering the idea of yield for holding BTA - either positive or negative. However, I've been contesting that you can't peg a floating asset to itself...,
I don't understand what you mean by this.
Proposed, KISS, rules:
1) If a BTA is created (shorted) when there is an under supply, then the buyer would pay a fee in BTS based on how much the price was from the peg. That fee goes to a yield account. All shorts will be paid a fraction of that yield whenever they cover, and the yield is proportional to the fraction of the total BTA supply they are covering and how long they held the collateral (like the current system).
2) If a BTA is created when there is an over supply, the shorter pays a fee in BTA to a yield account which is paid out to longs similar to the current system.
maqifrnswa, a market can shift its value appraisal at any time even in the absence of volume. Imagine there is a change in the market's view on the value of a bitUSD compared to a USD. This could be driven by a change in interest rates on real USD, regulation risk around bitUSD, or any other point of comparison - it does not matter for our illustration.
Under a yield approach, in principle there is always some level of yield at which longs and shorts would balance out their average evaluation at $1 again. If the movement to premiums drove down yields, and the movement to discounts drove up yields, the appropriate yield can be reached where the market would reset at $1. Granted this is harder than it sounds, but that's the idea.
Under your approach a tax gets paid by one side, which opens up a spread in the market, reducing trading activity. Since there is nothing to force trades that incur the tax, there is also no easy way for the opposite side to price in any yield expectation. So the result is a disincentive on one party to stop negative action that might make the peg deviation worse, no incentive for them to positively act to make it better, and little incentive for the other party to act in a way to make it better either.
The idea that it is as simple as this:
The forced settlement price has a fee equal to the average delta between the trading price and the price feed. As shorts "back away" from the feed, the forced settlement backs away in the opposite direction. As shorts get closer to the fee the forced settlement creeps up. This allows the market to control the feed and keeps things centered on the price feed.
Is there somewhere I can read more on this, because I don't really get it right now.