BitAsset2.0 pricing theory

[maqifrnswa]

This is somethig i've been trying to get to the bottom of since BTA2.0 was announced...
How do you price a short?

The system allows for automatic destruction of BTA when there is an oversupply, but I thought there was no mechanism to cause the creation of BTA when there was on under supply. However, the SWAN event essentially wipes out the market based on external feeds and thus is the mechanism for "creating" bitassets (then instantly destroying them) when in a massive under-supply.

Therefore, pricing bitassets is becoming a little clearer. The system enforces:
SWAN < bitUSD/BTS  < USD_FEED
A/USD_FEED < bitUSD/BTS < USD_FEED
where A is the least collateralize debt/collateral ratio (in units of bitUSD/BTS). We can assume A is essentially a constant. A can change, but the rate it will change is relatively slow as it requires a significant number of people to up their collateral.

So there are two prices, with a very large spread:
1) If I think USD_FEED should go down (that is BTS value increasing), I want to short at USD_FEED so I make a profit no matter what (or at worst, break even).

2) If I think USD_FEED will increase (BTS value decrease), I want to buy bitA at as close to SWAN as I can, as I will make a profit no matter what (or at worst, break even).

Therefore, as long as BTS is increasing in value (i.e., making a profit), I will want to short as close to USD_FEED as I can get. That is the mechanism that enforces the peg.

The only participants in such a market are those that all agree that BTS value will increase, but disagree over the rate and/or premium that should be paid.

Conversely, if market participants all expect a black swan, price will drop to black swan levels and market participants will play the game of chicken with the price feed. Since that is a one shot event that destroys the market, and value of BTS, the only participant will be those that also shorted BTS on an external exchange.

BTS profit (and expected future profit) is essential to the peg in BTS2.0 to 1) enforce the peg, and 2) grow the number of users participating in the market.