When BitUSD first launched, BitShares had an unrestricted short pricing policy whereby shorts were not charged interest and could be placed at any price. This can be viewed as shorts competing by offering a discount to BitUSD buyers, with the largest discount orders getting filled first.
However, the unrestricted short pricing policy was later ended because a lop-sided market [1] was causing the discounts to be so large that they were effectively breaking the peg.
Currently, shorts only execute at the feed price, and compete based on the interest rate they offer.
These schemes both consist of shorts offering something to longs. However there are two key differences:
- With unrestricted short pricing, the bid that matches the short gets the benefit. With the current short interest implementation, the interest paid by the shorts is spread evenly across all BitUSD holders.
- With unrestricted short pricing, the shorter pays the BitUSD holder immediately. With the current short interest implementation, the shorts pay the longs over time.
I'll discuss the implications, and possible design modifications, in a future post.
[1] In this case, many more BTS bulls were shorting the dollar than BTS bears buying BitUSD.