Suppose I bought BitUSD by accepting somebody's short. If they close the original short will my BitUSD be converted to BTSX?
Closing a short is a two-step process for the short seller:
- Obtain BitUSD.
- Destroy the BitUSD to free the collateral (e.g. by clicking "Cover" in the GUI wallet).
In general, if you bought Alice's short for 100 BitUSD, and later she closes her short position, in between those things happening Alice must have provided $100 worth of value to some BitUSD holder in order to obtain the 100 BitUSD she used to close the position. Likely this $100 value was provided in the form of BTSX in an order on the BitUSD / BTSX market, but it could just as easily be Bob's payment to Alice for painting his fence.
So if they close the original short, *somebody's* BitUSD was "converted" into whatever consideration Alice gave to buy back the BitUSD (but this was a mutually voluntary free market transaction). The only exception is Alice's BitUSD can be converted involuntarily into BTSX if the price rises and the network enforces a margin call, but that's Alice's problem -- short holders (like Alice) can be forced out of their positions by the margin call, but long BitUSD holders (like you) cannot.