If the system dilutes unlimited BTS for market making, what will happen when a whale or a group of whales manipulates the price of BTS?
* buy the BTAs which are borrowed via dilution, dump BTS to external exchange, settle
* borrow BTA, and sell to the system, pump BTS on external exchanges, buy BTA back from system
Risks are too high IMO.
If price is decided by external exchanges, to be safe, fund for market making inside Dex have to be much less than volume/depth of external exchanges. However, if the fund are too few, it makes little sense, since no enough liquidity will be provided to the Dex..
So the Dex should find price by itself. For example run a LMSR bot with huge fund. But how to peg?
So a possible solution would be, do market making on external exchanges and Dex. When volumes on external exchanges are high, market making on the dex will be safe. If no depth on external exchanges, dex will die.