http://bytemaster.bitshares.org/article/2015/01/27/BitAssets-and-Black-Swan-Events/
Anyone who is holding BitUSD at the moment of a Black Swan will have it instantly converted to BTS.
As I said on the
GitHub thread,
please don't do it this way.
Often times, the system could recover from the black swan. New shorts may enter paying interest which would all go towards covering the deficit between the BitUSD debt owed to holders by the network and the BitUSD debt owed to the network by the existing shorts. In that case, users would unnecessarily be forced out of their BitAsset position, which is incredibly annoying for our
customers.
I understand and respect the position that we should not socialize this risk to BTS shareholders or BitAsset shorts that maintained enough collateral. I also understand that letting the BitAsset liabilities stay as they are with undercollateralization can lead to a bank run in which the early movers get out to BTS with nearly $1 for every BitUSD, while the very slow movers can be stuck with worthless BitUSD with 0 BTS collateral backing.
This is why I
propose dynamically adjusting the BitAsset holdings of the customers between the real BitAsset and the BitAsset IOU as necessary to maintain full collateralization. If all goes well, the new shorts paying interest will cover the extra liability and any BitAsset IOUs will be covered fully back to real BitAssets. Users may not even have to be aware a black swan happened. On the other hand, if things aren't returning back to normal, users are all able to exit out back to BTS while sharing the losses proportionally (not giving an advantage to the early movers). Furthermore, people can sell the BitAsset IOU as a separate asset on the exchanges which would have its own price depending on the market's belief that the network will be able to cover the deficit in the future and make BitAssets fully collateralized again.
Edit: In other words, a black swan really just means temporary fractional reserve. However, unlike regular fractional reserve banking we could make a distinction between the portion of BitUSD held that are 100% backed and the rest (which are the BitUSD IOUs), in order to prevent bank runs. Worst case scenario, the BitUSD IOUs become worthless and that is equivalent to all BitUSD holders taking a proportional hair cut because of the black swan event (which is equivalent to forcing liquidation to BTS at the moment the black swan event occurs).