4. Users can adjust their debt and collateral at any time provided the ratio between the two is sufficient.
To "short" you would first borrow the BitUSD and then place a standard limit order.
Great. This makes it easy (and cheaper) to better simulate a short sell order without excessive soft-collateral funds. You can put up nearly all of the BTS (excluding some to pay for fees) into a short position and get a good amount of BitUSD out of it (not too much to have a high enough collateral value to debt value ratio that makes it unlikely to be margin called or force called from redemption). Then you can sell the BitUSD for more BTS which is then moved back into the short position to increase the debt and then take that extra BitUSD and sell it again. If we assume the value of the initial debt is 50% of the value of the initial collateral and the prices don't change much during this process, then the BitUSD amount will halve with each round. In just a few rounds, it becomes negligible to extract and sell any more debt from the short position. Furthermore, adjusting the ratio at a later point only requires transactions dealing with one short position rather than multiple ones (for example, a new short position created with each round in the process described earlier).
Obviously, this multiple round process is more hands-on and uses more transaction fees than just placing a single short sell order. But the cost and inconvenience shouldn't be much and it greatly simplifies the code so it seems worth it.
Also, a similar (but reversed) process could be used to simulate a cover process by starting with a small amount of the collateral asset outside of the short position.
3. Margin call the positions like always
Do margin calls still buy up any BitAsset sell orders up to 10% above (in collateral asset per BitAsset price) the feed price? What if there are not enough sell orders to meet the margin call demand. Do the remaining amounts sit as an order that is 10% offset from the price feed (even as the price feed changes)? What do you think about adjusting the limit price offset from the feed price of the margin call order as a function of the collateral value to debt value ratio? So if that ratio is above the maintenance threshold, no margin call occurs. But as the ratio drops below the maintenance threshold and approaches 1, the maximum offset from the feed price that the margin call is willing to sell the collateral asset for BitAssets to cover the debt increases according to some monotonic function.