We know that increasing the daily settlement limit will increase the premium, and decreasing it will decrease the premium.
On the idea of using the settlement fee as a lever to manage the bitUSD:USD premium, I can't see why the market would price this in. If the market is at a premium, then the settlement mechanism is not needed. By the time the settlement mechanism is needed and used, the price must be at a discount where there is no longer a settlement fee. So there is no need for any settlement fee to ever be paid, nor any buyer to price in the risk of a higher fee, no matter how high the premium. So how would this affect supply or demand?
So lets just assume the market settles on $1.30 as the price for creating BitUSD with forced settlement at the feed which is $1.00. Who cares so long as the premium is relatively stable? The only thing that can move the premium is market forces based upon volume and market direction.
I would care as a consumer because I would be better off just using real USD to make my purchase rather than using bitUSD which costs so much more to obtain. Now if merchants were willing to fully price in the higher value of a bitUSD into their product price, rather than just using face value, then that would adequately compensate. But then that forces merchants and consumers to keep constant track of the premium and adjust expectations accordingly, as well as accepting higher downside risk, and I don't know how we'd get everyone comfortable that the premium will be stable. Besides, it doesn't really appear true to label from a consumer/merchant angle.
I'm not underestimating the problem of dealing with premiums (or pegging in general), but I am still optimistic there is an improved solution...