The current bitasset pegging system is so fantastically complex because the assets are traded on a free market, which can be manipulated by any other market participants.
A neolithically simple alternative way to peg a bit asset to an external price would be to remove the other participants from the equation.
Create a different class of asset, which can only be bought and sold by the issuer. The issuer maintains a buy and sell price with a spread which takes into account adverse selection costs.
Issues:
100% trust is required of the issuer. Trust that they don't sell you the asset and then raise their buy price to $1M USD. Trust that they have enough liquidity to cope with adverse selection costs, so they're able to buy back the assets they sold you after the price goes up.
Now, take that idea and make the blockchain the issuer.
You then gain 100% transparency on the algorithm controlling the prices. You'd be able to see the 'balance' of the blockchain in advance to be sure it has liquidity reserves.
In addition, bitshares is ideally placed to implement this idea, since the necessary price feeds are already a fundamental component.
The only real remaining issue is designing the algorithm to set the bid/ask prices - perhaps something like the kalman filter (http://www.r-bloggers.com/the-kalman-filter-for-financial-time-series/) could be used over the feed data.
Thoughts?
Not sure I understand the reserving. At the moment we have 3x collateral in BTS, 1x contributed by the buyer, and 2x contributed by the issuers (the shorts). What liquidity reserves are held in this proposal to back the USD, and from where are they contributed?
I was trying to understand whether such a system could work. I'm not necessarily recommending this, just thinking through. Is the following feasible from a collateral perspective, or did the OP have other ideas?
The block-chain could issue and redeem bitUSD against BTS at the price feed, normally no spread. The BTS collateral would be 1x (being what the purchaser pays) as there is no counterparty contributing further collateral at the point of purchase.
So as the BTS price moves around the pool will drift between being under-collateralised and over-collateralised at any point. When there are redemptions against the pool in an under-collateralised state, new BTS are created through dilution to make up the difference between that holder's share of the pool and full redemption value. When there are redemptions against the pool in an over-collateralised state, BTS is burned to the extent the holder's share of the pool exceeds their full redemption value. Should the BTS price rise over time, there should usually be more BTS burned than created.
So as an example, if bitUSD were $10m market cap and 80% collateralised, and BTS were $100m market cap, then if all holders redeemed there would be just over $2m of BTS created (allowing for the effect of dilution on the price per share) to ensure holders are paid out $10m in total.
In this way the pools of bitAssets are effectively backed by the entire market cap of BTS, and are therefore as secure as possible within the limits of the block-chain (i.e. no external reserving). A black-swan event is still possible should the total market cap of BTS fall below the total market cap of the bitAssets combined, because at that point dilution can't help. And a bank-run type event is possible should the BTS price be only slightly over-collateralised, start redeeming en masse and selling BTS in a vicious cycle. Mitigation would be required in these events to ensure bitAsset holders are treated fairly and BTS holders not destroyed. For example, there might be ways for the block-chain coding to regulate the supply (e.g. through spreads) or even to redeem at lower prices (passing risk to bitAsset holder) should the BTS market cap start falling too close to this territory.
There would still be a free market in the trading of bitAssets against fiat, cryptos and even BTS on external exchanges. Market prices and spreads would reflect the timing risks of going through BTS to purchase and redeem units, as well as the market's perception of collateralisation and partial redemption risks. To some extent this may self-regulate the demand for bitAssets where there is a growing chance of black-swans or other risks.
I'm not sure if that was the OPs thinking or not. I was just trying to understand how it might feasibly work.