With regard to BM's idea on BitAsset holders getting participation in BTSX growth, I tend to think that a wider community of potential BitUSD users (merchants and customers) would not want their USD surrogate holdings conflated with an equity stake, forcing them to a view on BTSX, as positive as the current BTSX community might be on this. A straight interest rate is simpler and has wider appeal.
With regard to using a prediction market to set an interest rate, does the successful operation of this depend on the consensus in the prediction market being that BitUSD will be close to pegged? Presumably if participants can't rely on that, this will change their interest rate predictions, and it really becomes a game theory of predicting what everyone else is thinking rather than the true equilibrium rate? And if that were true, then isn't the problem of the market forming a consensus that the peg will hold just transferred from the BitUSD market to the prediction market, still with no guaranteed that such a consensus will form? As per a previous comment in this thread, I admittedly still don't understand the mechanics of how the prediction market would operate, so my logic may be way off base. Sorry if it is.
To your first part, yes I agree to merchant and customers a straight interest rate has wider appeal. (However I don't know if it is simpler to implement.)
As for the second part, I think the prediction market setting the incentive rate will work well. People taking either side of the prediction market have the same risk. They are also not cross-referencing a value like a BitAsset is. (In which case you need to take account of cost + risk relative to the thing you're referencing.) Their goal will be to maintain a long term average mean for BitAssets using an incentive rate to compensate for demand imbalances and risk. They will simply be moving the incentive up/down depending on where BitAssets are currently averaging in relation to the peg.
(I'm sure it's not really that simple but in my head it is
)
The reason the main BitAsset doesn't peg is because of a medium term demand imbalance (more general BitAsset short demand than those wanting to go long.) This would drive it below the peg without the 1-1 short limit or an incentive rate that matched supply and demand closer to the peg.
Then while they think the peg works now, there's actually risk that has to be accounted for as well as utility + conversion cost. Basically a lot of things that make BitAssets worth less than 1-1 so no consensus/liquidity etc. is going to make something worth more than it is.
As I just said in another thread...
For me, the most obvious example is BitBTC
Why would anyone buy BitBTC @1-1 in BTSX without an incentive?
They would then have BTSX failure/bug risk. They may not be able to re-sell BitBTC @ 1-1. They have to pay trading fees as well as the same conversion fee to real BTC as if they just sent BTSX to an exchange.
So it's obvious to me incentives will have to be added. The good news is shorts are willing to do that atm & BitBTC with incentives is a game changer
(The other good news is over time a stable BTSX, utility and other BitAsset advantages will make BitAssets worth more than 1-1 long term.)
Edit: As Xeroc pointed out BitBTC can be transferred in 10 seconds which is an advantage and it's easier/simpler to maintain privacy so there are already some BitBTC advantages