Hi guys,
In my opinion, liquidity providers should be regarded as workers and compensated properly if we don't want to do a bail out and maintain the stability at the same time. Issuing bitUSD with collateral and adjusting it according to the market change seems to be a pretty good amount of work, with accompanying risks.
I think BIP 19 and 20 should be revised so that we explicitly reward market makers. There is no need to reward BTS holders unless they work for the market. For me, it seems the best way is to add an automatic mechanism to let an account lock its asset for a given period of time, always issue the maximum amount of bitUSD and sell/buy at the pegged price, and reward them a certain portion of fee income (raise until there are enough participants for liquidity). My gut feeling is that we need to spend 50% of the income to maintain liquidity.
EDITED: In case of black swan events despite of this mechanism, market makers would be removed one by one since they don't have enough collaterals for the MPA assets they issue (and force-settled, losing a lot of money after the market goes back to normal). If there remains the last market maker, the reward would be substantial since 50% of all the fees for bitUSD will belong to her. This would encourage market makers quickly lock more assets during the period to sustain the event. The minimum locking period should be at least one day, and the reward should increase exponentially as the locking period increases.
Thanks,
Gloine