Right now the code will simply result in a negative USD supply with no collateral. The fall would have to be very sudden and long-lasting. A slow fall is not a concern.
We should focus on gateways + IOUs so the exchange has no risk.
Ok. I have looked over your document herehttps://docs.google.com/document/d/1S-tqmfGhxS3Myy83IvZfffoYDwc5kIv1n7GhXYq937I/edit
So under such a event because of using IOU's the exchange could:
Choose not to honor IOU's
Stop trading until event is over
Am I missing any other option's a exchange might have during this kind of event?
If the only thing the exchange is doing is gateway+IOU then "the event" is not applicable. It just doesn't affect them if they never touch bitassets.
Maybe I am off base but the exchange is issuing IOU's based on market pegged assets it receives.
Example
I send 100bitUSD to XYZ exchange.
XYZ Issues me XYZUSD its very own UIA.
XYZ likes to use its own UIA for the reasons stated above.
I go about trading XYZUSD on the XYZ's external exchange
The price of BTS suddenly and sharply falls
XYZ has the 100bitUSD I traded to them for their XYZUSD so that I can trade on their external exchange.
"A BitShares gateway does the exact same process, the only difference is that the database that tracks the users’ deposits to the exchange is the BitSharesBiItShares blockchain. When a user transfers fiat dollars or bitcoin to a gateway, the gateway responds by tranIsferring an IOU asset issued by the gateway back to the user. When the user returns the IOU to the gateway the gateway sends fiat dollars or bitcoin back to the user."
If I understand the above correctly XYZ is holding bit(fill in the blank) MPA's and issuing their UIA's. The exchange has more control because it can stop trading or choose not to honor their UIA but they are still exposed because they have the bit(fill in the blank).
So my question I guess becomes How sudden of a fall and how long of a drop?