I have had white board designs for how to reenforce the peg via 2 markets. 1 market sets the "premium" shorts must pay.. ie: the amount they must bid over the ask. With this 2-market system the short interest would be curtailed by those speculating on the premium market. The result would be a peg and automatic "interest" rate setting for BitUSD.
BitUSD would always be valued at $1 because the interest rate/risk premium would adjust to compensate for supply/demand/risk assessments of the market.
That said we have a MAJOR bootstrapping problem with all markets. They require a network effect and high liquidity to function. It is hard enough to find speculators on the BitUSD vs BTSX market let alone a "meta-market". A system that requires 2 markets to function is way too difficult to bootstrap at the same time.
Indeed, this would be the ultimate solution. It would create two interconnected markets:
- the first one being the bitUSD/BTSX market as we have now (with shorts artificially prevented from shorting below 90% of the market feed)
- and second one ("meta-market") trading the predicted dividend (or interest rate) that bitUSD shorts need to pay to bitUSD longs on the first market to keep the supply and demand on the first market in balance
Thus the second market will be trying to predict future imbalances on the first market and the result of this prediction will be applied on the first market. Looks like a solid solution fully addressing the problem that I have when I think about implementing interest rates: how to flexibly adjust the sweet spot that will make bitAssets holders happy without overcharging the bidUSD/BTSX traders (as overcharging kills liquidity).
The two-market solution would be a very nice approach but I agree with BM that it's probably too early for Bitshares X to be able to bootstrap two interconnected markets at the same time.
But maybe we can achieve a good solution by combining the existing trading rules and the proposals made it this thread.
Let's assume the following:
- there is a rule that prevents bitUSD shorting below 90% of the market feed (as we have now)
- bid-ask overlap is collected by the system as a trading fee (as we have now)
- a fixed percent (e.g. 50%) of the trading fee gets paid to the bitUSD holders as dividend (as it was proposed in this thread)
It seems to me that the above elements constitute a nice self-regulating mechanism:
1. When shorts are supplying more bitUSD than there is demand for it, this sequence of events happens:
-> the shorts quote close to the 90% limit
-> this produces big bid-ask overlaps so the trading fees collected by the system get bigger
-> the system has a large pool of trading fees to be distributed to the bitUSD longs as dividends
-> as dividends grow there is an increasing incentive to hold bitUSD so the demand for it rises and this counteracts the initial imbalance
2. When there is more demand for bitUSD than the shorts are willing to supply, this sequence of events happens:
-> the shorts quote far from the 90% limit
-> there are very few bid-ask overlaps so the trading fees collected by the system get smaller
-> the system has a small pool of trading fees to be distributed to the bitUSD longs as dividends
-> as dividends get smaller there is a decreasing incentive to hold bitUSD so the demand for it falls and this counteracts the initial imbalance
My only doubt is whether this feedback loop is quick enough to be effective.