If you view BitUSD as the DAC creating an IOU USD that is settled in BTSX then everyone who extends credit is effectively issuing dollars in circulation as long as people trust that credit.
My definition of a "naked short" is a fractionally collateralized position. So these are collateralized shorts.
A short is when you borrow an equity and then sell it, thereby incuring the obligation to later buy the equity in order to return it to the entity you borrowed it from. A "naked short" means that the equity wasn't "borrowed" before selling it. In other words, on behalf of one of its shorting clients, the brokerage sells an equity that it doesn't actually have to someone else. It probably has plenty of collateral, say in dollars, to cover the short, though, no? I assume in most/all cases the brokerage imposes the same collateral requirements on its customers for a naked short as it does for a short. There would be no reason for a brokerage to not collect collateral from its customers who are shorting, just because the brokerage is going to sell an equity it doesn't actually have. Perhaps I don't understand this...
They do have the effect of competing with demand for other forms of USD just like corporate debt and treasuries compete with demand for FED notes.
Someone buying BitOverstock is not actually increasing the supply of Overstock shares, but they are competing with the demand for them. Overstock shares are a security and entitle the owner to a percentage of all profits and assets of Overstock and also confer voting rights. BitOverstock is not increasing the supply or diluting the claim on Overstock assets. All it does is remove speculative demand from Overstock's shares which allows them to be priced more accurately based upon fundamentals.
I think speculative demand is very important part of price discovery. Don't you reference prediction markets all the time? The wisdom of the crowd is often a better indicator of the future profits of a company (and thus the present value of the profit stream and therefore the value of the equity) that simply looking at current earnings, etc.
At any rate, competing for demand will have a similar negative effect on stock price as the Overstock CEO claims shorting does. Especially where a company does not pay dividends. In that case, it should be nearly identical.
Also, naked shorts do not dilute the claim on a company's assets. There are still a limited number of shares, and the assets will be divided among the holders of those shares. (To the extent that people who bought the long positions on a naked short do not all end up owning the equity, I suppose they could probably sue the brokerage in the case of an equity liquidation...)
I think it would be even clearer if we lived in a society where governments didn't protect shareholders from liability of companies. In this case one might want BitOverstock to be exposed to the price without actually owning Overstock and being exposed to the liability.
USD is a concept, a number, an accounting entry nothing more. I think of USD as a "measure of value" like a "meter" or "foot" where the measure of that value changes based upon market forces. BitUSD is just a container of BTSX that dynamically adjusts its contents to track the "measure of value" society associates with "US Dollar".
Ya I get that. But to the extent it emulates USD, the BitUSD container will soak up some of the demand.