You can short to yourself and buy BTS on an exchange, but all that does is place a bet that you think the BTA:BTS price will return to the feed. There is no arbitrage and thus you are not helping the market become efficient. One can just as easily bet that it will move away from the feed. Why would one strategy be preferred over the other?
Answering my own question, if BTS are expected to be more valuable tomorrow than they are today (measured in real USD), I will want to leverage as much bitUSD as possible to get them. That force continues until I hit the feed and people can start calling me. That is the restoring force that was missing, and will fix this model. bitUSD:realUSD spread is now defined and is a function of the rate of growth of BTS, volatility, and exchange risk.
It's a catch-22: BTS needs the feed to be enforced to be profitable, but in order for the feed to be enforced BTS must be profitable. I think that's fine, if more BTS are destroyed in fees than are given to block producers/developers, then it is "profitable"
Yes there will be BTS bulls who want to leverage themselves and hence create bitUSD. However in a stock market, assuming information symmetry, the current price is supposed to reflect all future considerations. Hence in general the chances that any stock or BTS will go up or down is considered to be 50/50 when considering volatility risk. (Random walk & efficient market theory..Note: I'm not a big fan of efficient market theory, but it provides some guidance) The desire to create bitUSD may not be that strong in a neutral market and most may opt to just buy more BTS instead.
In bull markets, I can see demand to create bitUSD increase significantly due to market psychology. In bear markets, the available bitUSD will shrink significantly for the same reason. You can see what happened with the current system:
http://coinmarketcap.com/assets/bitusd/In Nov '14 the bitUSD float started at $1 million...went down below $500k in Feb '15, and in April '15 it went below $200k, and now it's around $150k with bitUSD selling at a premium. A bear market exacerbates bitUSD creation. Also increased consumer/merchant adoption of bitUSD will generally compound the downward pressure. Sure in the long run, BTS should go up with more transaction fees and adoption, but in the short run the added pressure to buy bitUSD may keep downward pressure on BTS prices. Just a theory. I think that may be what was happening with bitCNY. There was good adoption and a premium for bitCNY, but less & less availability especially with fewer incentives to create bitCNY.
In a neutral market with expectations of volatility, I think the forced settlement feature makes it disadvantageous to create bitUSD. It creates an imbalance in the CFD contract. The owners of bitUSD can call for an unlimited amount of BTS at the price feed without affecting the market pricing. I even think there could be manipulation as I mentioned earlier. It seems bitUSD shorts are at the beckon call of the longs and can be squeezed out at any time. Over time I think the bitUSD shorts will learn the advantages bitUSD longs have (just like the current design) and be reluctant to short. While the system may seem to work well in bull markets, in neutral or bear markets the flaws may show up.
My preference would be to just settle all short bitUSD positions at the bid that fall below 100% collateral. Hence there would be a natural flow of settlement rather than calculated, abrupt, potentially massive forced settlement maneuvers from bitUSD longs.
(Note: I may even prefer a daily settle of the entire bitUSD float at the price feed rather than an option of unlimited forced settlement at the price feed at anytime, but I would have to think about it more and it would probably be too much of a burden on the market engine anyways.)
BTW for those BTS bulls this past year, what has been your experience with creating bitUSD? Do you care about forced settlement?
Thoughts in general?