Following my last post, I want to consider the limit case where the only bitUSD market is the internal one, as is the case currently. Then BTS is the only path to USD, and the method resolves as follows:
- On any day when the bitUSD:BTS market falls below the price feed, the inferred value of a bitUSD is less than a USD, and this instantly triggers a block of shorts to be selected for calling
- Calling is implemented like a margin cover, by buying bitUSD with the collateral, but with 24 hour notice to the market
- This could continue on consecutive days until the ask returns back to or over the feed price
So in the limit case, the difference to BTA 2.0 is that:
- supply reduction is automatically enforced rather than triggered by settlement requests from individual longs
- the cover price for shorts is a market price, rather than the feed price, with all participants given 24 hour notice to ensure full information and fair pricing
The advantage of this approach might be that a long can no longer manipulate the BTS price to their benefit, because they compete for the BTS made available through the short covers, including with new shorts. Even if somebody owned 100% of the bitUSD, they can only force out blocks of BTS gradually around the price feed, because whenever it goes over that price the short covers stop.
Shorts are protected from unfair pricing by the 24 hour market notice period and by taking account of market conditions in setting block sizes. Block sizes would err on the lower side, and may require several periods to remove the market discount.
As bitUSD found wider external acceptance, the shortest path to USD would be external markets, and preferably bitUSD:USD markets, and its the discounts in those markets that would trigger the short covers. This would demonstrate a commitment to underpin parity in the broader market.
Still just an early idea though.
[Edit: In fact, the short cover procedure is a lot like the way short expiries work, when they are subject to paying no more than the feed price (100%). The main benefit here is that rather than having forced expiries which are often unnecessary when bitUSD is trading at or above parity, we are only forcing covers when there is a discount, and covering from the shorts that are the least keen to hold their position.]