I don't think we will be able to get smartcoins to trade at parity with the current design, which is perfectly fine because I think the current design is the best design, possibly with a few tweaks and feature adds.
First, we need to understand the roll of the short seller. The short seller is a lender that provides a service to the network by lending bts to borrowers in the form of smartcoins. Lenders do not lend money for free so they will either charge interest or charge a premium. Otherwise, the risk/reward doesn't work. For example, if I lend 1 usd into existence at a rate of 300 bts/usd with 2x collateral of 600bts, then my risk of loss is 100% of outlay (with a 50% drop in price) while my potential gains are only 50% of outlay. It just does not make sense to enter this agreement unless I charge a fee to compensate for the added risk.
So the question becomes: Why would anyone pay $1.10 for $1.00? First of all, I outline why this may be the case when trading
physical commodities vs digital assets such as bitcoin, usd, ect. Second of all, this is why I think we need some sort of leveraged trading, if possible. Traditional options and futures markets are highly leveraged. If I ask someone to deposit $1,100 and he gets credited in the system for $1,000, then he will be reluctant to do it and say that he would rather use a centralized exchange where he can deposit $1,000 and get credited for $1,000. However, if I tell someone they can deposit $1,100 and get credited in the system for $2000, then he may be more willing to do it because leveraged traders are comfortable with paying a premium to borrow money. In this situation, the trader would pay $100 to the lender to borrow $1,000 and put in $1,000 of his own money at 2x leverage. Obviously he will have to be aware of margin call requirements and the loan may have to have a contract end date. This would also work out well for the lender as he could earn a return on his bts and not be exposed to exchange rate risk as long as he maintains proper collateral.
For instance, if the smartcoin creator creates 1,000 usd and lends it out vs selling it, then all that is required is for the borrower to repay the loan in full, at which point the lender can adjust collateral back to 0 without having to buy any usd on the open market. Because of this, I imagine premiums would be much lower to borrow smartcoins than to buy smartcoins. I agree that forced settlement is questionable as to whether it is needed or not, but I don't think removing it will affect premium that much. As someone else suggested, maybe parameters can be changed for cny vs usd vs euro to determine which design works best. I think it would get confusing to have multiple designs of usd and I'm not sure how beneficial it would be, but it is definitely worth a shot at this stage.