Suggestion – Improved bitUSD Insurance
1. I have my share of thought on insurance premiums – pre and post insurance event but there are not the main issue here. In short the 5% margin call fee (or part of it) can be thought of as insurance premium (if it can be auto burned and or set aside in special ins. Fund.) Additionally, Special low (say 0.25% fee) on each opened short position can be used for the same purpose.
2. Instead of just buying bitUSD from the market, to cover positions with no collateral left/insufficient collateral to cover the whole position, I suggest:
-Buying from the market (as step one) – the same thing the current insurance does;
-Placing a short order at the same price by the system, (with possibly 3x collateral, instead of the usual 2x)
There are several scenarios here:
A. The system short order is never executed – in this case the 'Improved bitUSD Insurance' behaves the same way the regular one does – It adds new BTSX to the system. The good news is that this scenario is only possible if the price of BTSX starts increasing and never returns to that level, even with the newly added BTSX. I do not think this is the best thing ever. This is something that the regular bitUSD insurance is not able to handle any better, anyway.
B. The system short order is executed – resulting in:
- The newly created BTSX are taken out of circulation (at least for now);
- The newly issued bitUSD are backed by 3x BTSX collateral.(even though those are newly 'issued' BTSX)
What happens next:
The system short position behaves the same way the regular short does :
– if margin call is executed - a (hopefully slow) new supply of BTSX will be a added to the system. The benefits are that it may never happen;if it happens it will be probably in slower pace, at later (possibly much later) time.
-The biggest benefit of course is if the margin call never comes into play. In this case the 'system short position' can be closed at much higher BTSX price (say 2 or 3 times the open price) – By doing so, only some % of the new BTSX will be added to the system. Having in mind that the bitUSD insurance will most likely be needed during fast and in most cases temporary drop in BTSX price in relation to bitUSD, the benefits that the current suggestion provides are pretty valuable. The addition of new BTSX in many cases is delayed, delayed and reduced, delayed and smoothed even if finally necessary.