I plan to draft a BSIP to implement GS protection via core code, before doing that, I'd like to do some explanation here:
Global Settlement may be the worst way to handle bad debt, because:
1. it settles all the debt positions, including the ones with CR>1
2. it stop the borrowing feature.
3. it make it not easy for the smartcoin to revive, and it's easy to make whales in the revive process, as what happened in bitUSD in recent past.
GS is just like suicide.
another mechanism has been discussed for long time at
https://bitsharestalk.org/index.php?topic=27273.0, which can be called "individual settlement", the core idea is that when bad debt appears, instead of triggering GS, only convert the bad debt positions to sell orders at settlement price of that individual debt position.
but this solution also have big issues.
if force settlement is still active after settlement order appears, for example, bad debt positions have been converted to sell orders in 0.04~0.06bitUSD with debts, however, as the market price fall sharply to 0.02bitUSD, bitUSD is off peg, devaluated to about 0.6USD.
which means, feed price is 0.02USD, DEX price is 0.033 bitUSD.
then bitUSD holders begin to exploit debt position owners with force settlement.
even worse, the last bitUSD balance cannot do force settlement, it can only fill the settlement orders with higher price.
this process is unfair to the debt position owners and the last bitUSD holders, and will not help things to recover.
then how about disable force settlement feature while settlement order appear?
then bitUSD holders can only fill the settlement orders from lower price to higher price, in other words, from debt positions from higher CR to lower CR, and filling some settlement orders will devalue bitUSD more, as the left settlement orders has higher price.
after considering this, I think a good mechanism need to follow base principle:
1.do not stop the borrowing feature.
2.ensure smartcoin holders to settle bad debt positions from lower CR to higher CR.
3. accept the possibility that the smartcoin will devalue, just try to minimize the hurting to the ecosystem.
GS protection is perfect to suit the above principle.
GS protection ensure the feed price be above the GS price, this is irrelevant to market manipulation or price faking, it is just to force the smartcoin holders to settle the bad debt position with lowest CR first. and filling margin call orders will reduce GS price and also feed price as well and have chance to end the bad debt, this is a way to let the market do the choice.
in the last several days we have seen that this mechanism protect bitUSD from one more time black swan, it works well, however now it depend on witnesses' work and not 100% reliable, to switch to realize the mechanism via core code will help to make it 100% reliable.
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