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« on: September 26, 2014, 11:12:37 pm »
Thanks Oldman.
So a bitUSD "should" be worth $1.
When market forces push the value to 1.01 or .99, market making bots step in and equalize the balance.
When the demand for bitUSD becomes VERY LARGE, and overwhelms the trading bots, the price might go to 1.02 or 1.05 or something. Then, people use their BTSX as collateral to create more bitUSD and sell it until it equalized back to $1. Therefore, when there is high demand for bitUSD, more bitUSD is created. As long as the market cap of BTSX is of sufficient size relative to the demand for bitUSD, this works.
When the demand for bitUSD greatly DECREASES, the price might drop to .95 or whatever. Then, people who have existing shorts take the opportunity to cover the shorts, which takes bitUSD out of existence! They do this until the price goes back up to $1.
So it seems that the price of bitusd cannot go far away form $1. If it goes too high, lots more bitUSD appears to fulfill demand. If it goes too low, bitUSD is destroyed. So the price of bitUSD cannot go to zero. But the quantity of bitUSD in existence could go to 0, if demand dried up.
Comparing this to Nubits. Both Nubits and bitUSD are created when demand increases.
However, when bitUSD demand disappears, the bitUSD is REMOVED. (People cover shorts and the bitUSD goes away).
When Nubits demand disappears, the interest rate on Nubits is raised. (And raised, and raised), until holders are encouraged to 'park' Nubits instead of sell it. HOWEVER, in the future when the parking is over, the Nubits are back, WITH INTEREST. Now you have even more Nubits in existence. If demand is still low, then interest rates must go up more!
To summarize:
* If there is no demand for bitUSD, all bitUSD will disappear. The shorts will be covered and the holders will get some amount of money a bit below $1 for them and then they wont exist anymore.
* If there is no demand for Nubits, then Nubits become the zimbabwe dollar. More and more of them are created( due to the interest) the price drops, and the interest rate on them increases.
(Note: I am wrong about Nubits if the Nushares holders can/will actually remove Nubits from existence by buying them. If that is the case then they are similar to bitUSD).
Am I correct about all that? Thanks!