So under bytemaster's proposal, shorts would all execute at the feed price and compete on collateral.
I like the idea of letting high collateral positions absorb the short demand: The more BTSX is tied up in collateral, the better the BTSX price.
I dislike the increased reliance on the feed. And as gulu noted, forcing shorters to sell at the feed will risk a "demand crisis": When BitUSD demand is high, it might blow through the "short wall" at the feed and get little resistance thereafter, since few BitUSD holders would want to place Ask orders when they think BitUSD is going up.
What if we allow two different types of shorts: "feed shorts" which must sell at the feed and compete with each other by offering more collateral (but 2.20x is the minimum), and "fixed-price shorts" which sell for 2x collateral? Feed shorts always get priority over normal shorts, but normal shorts are there to back up the system when nobody wants to feed short (i.e. in a bear market).
If we do see a bear market and nobody wants to feed short because everyone thinks BitUSD will go up in the short term, then normal shorts will still be able to sell at a premium to the feed, increase the supply, limit BitUSD rise, and prevent a BitUSD shortage or "demand crisis" where everyone wants BitUSD but there isn't enough to satisfy the demand, driving prices upward.
I would also like to propose adding an optional minimum price (as well as a maximum price) to a feed short. Giving users more control is always good!