1. Was BitUSD mismanaged? If so, by whom and why?
2. Was it the fault of BSIP42?
3. How will BitCNY be saved from the same fate?
4. Was the GS inevitable?
To break it down:
BSIP42 allowed witnesses to experiment more with price feeding to improve the peg.
Different algorithms have been tried which came with more risks and better peg for certain market conditions.
Market conditions changed drastically. Unfortunately, at that time, the algorithm for price feeding was such
that the peg was holding strong, at a (significantly) increased risk of global settlements.
What the algorithm basically did was move the (margin call) price feed away from market so that margin calls
(which buy at 10% above market) would only trade at current market rates. Hence the price feed was off by
10% in general (more of less). Additionally to that, a stateful feedback loop was integrated to track the *premium*
of bitUSD and move the call price even further.
The consequence was that a huge margin call aggregated during the bear market and those margin calls were
unable to buy back their bitUSD in the internal markets (not even with a 10% penalty) because the call price (feed)
was off too much.
Could a GS have been prevented without BSIP42, I am not sure. It could be because the margin calls could have
been filled more easily. Would there have been traders doing so? No one knows.
My personal conclusion (as a proxy) is to not accept call price (feed) manipulation and instead use other means
to give (and take) incentive to borrow (and short sell) new bitassets (depending on supply and demand).
Those means have been discussed back then too, but an issue in the backend that is currently been worked
on effectively prevents us from using it. Additionally to that, the bear market has continued and moving away from
BSIP42 (in particular for bitCNY) would cause an immediate global settlement, which at least is undesirable for the
vast majority of the bitCNY traders and BTS holders from China.
The ideal "solution" for me would be to sit out the bear market and as soon as collateral ratios in bitCNY pick up again
gradually reduce the impact of BSIP42 and instead replace it with (potentially a mix of) dynamic MCR and dynamic
MSSR.
bitUSD can be revived and when that happens I do not intend to support any witness that feeds a price feed that
goes more than ~2% away from fair market pricing for bitUSD.