While it is perfectly reasonable for BitUSD to trade at a discount to attract new buyers, it confirms the suspicions of the deniers and thus could potentially end up changing the market consensus that BitUSD will go to 0. BitUSD only works so long as the majority of the market expects it to work and that "faith" can be hard to establish early on without a large market maker willing to back it.
- IMHO a solid market maker is a good idea. Market-makers improve tradeability of most asset classes lacking stable liquidity and suifficient granularity. market makers should be backed by serious funds, just to be able to act in large volume on extreme swings, thus counteracting impulsive and exaggerated moves in their view. the danger is that, unless market maker is regulated by I3, we don't know of their true motivations, which might sometimes include benefitting from the panic. And, whereas a market maker would improve the pricing/liquidity, she is not a lender of last resort (e.g. FED, which ultimately can guarantee that lenders get their fiat money back and so inspires confidence. without the lender of last resort function, the functioning of financial markets would be severily hurt whenever emotional panic feeds on itself so that it becomes rational...). Therefore, even with market-makers, btsx might be targeted by speculative or hostile attack aiming to destroy confidence.
There is a HUGE demand to short USD and right now that demand shows up as BitUSD being massively undervalued. I think this demand to short needs to be done via option contracts. Someone can therefore set a price on the option contract and this price will absorb the short demand without breaking the peg.
Suppose I think XTS is going to rise by 50% in the next month. I want an option to buy it at todays prices, so I have to find someone willing to sell me the option to buy it at todays prices within the next month. These options will be purchased by the people who currently wanting to short who otherwise would not be able to.
BM how can the motivation of option sellers in that case be controlled? e.g. if they delta-hedge options and so continue to build up bitUSD shorts in the system?
Disclosure: Even as I like the idea of derivatives at some point, intuitively this moment doesn't feel right for their introduction. This would create an additional complexity level in a system where most participants get yet easily lost in its current state.
thx - kisa