Great text, thanks for your effort.

I believe some numbers in this paragraph might be wrong:

A margin call is triggered in the current BitShares system whenever the collateral contains less than 1.5 times the amount of BTS required to cover the obligation.  Stated another way, if the value of BTS falls by 33% from the time the short position is entered, then a margin call will occur.  The value of BTS would have to fall by 66% before the collateral would be insufficient.

A margin call is triggered in the current BitShares system whenever the value of the collateral falls to less than two times what is required to cover the obligation.

The initial collateral is 3x (2x from the short and 1x from the long) so the correct figures should be:

A margin call is triggered in the current BitShares system whenever the collateral contains less than 1.5 times the amount of BTS required to cover the obligation.  Stated another way, if the value of BTS falls by 50% from the time the short position is entered, then a margin call will occur.  The value of BTS would have to fall by 66% before the collateral would be insufficient.

Don't misunderstand me, I think feeds are hugely important, but don't fire toast over this. He is even more hugely important

He basically says that the fair value of dollar-tracking assets like BitUSD and NuBit is:
Fair Value = 1 USD
+ interest premium vs. USD
+ expected future appreciation (basically how far it is below parity)
- risk of total collapse
+ utility fudge factor (mostly affected by historical volatility, facility of transactions, exchange market depth)
For Nubits he then argues there is no interest premium and since it's trading at parity no expected appreciation, implicitly concluding that Nubit's utility factor must offset it's perceived risk.

For BitUSD he assumes interest premium and risk are comparable to Nubit which leads to this equation:
utility of Nubit = utility of BitUSD + expected appreciation of BitUSD
Because in the past BitUSD has been trading at a discount its expected appreciation is larger than zero concluding that its utility must be lower than Nubit's.

---

What is left when you remove Nubit from the discussion is that
BitUSD trades at a discount because it has a risk that is not offset by utility and there is no expectation that it might appreciate above parity.

I basically agree with that summary (well I wrote it ) and would like to propose a fix:

Adjust a BitAsset's shorting threshold according to historical deviation from parity.

For example if BitUSD has been trading at an average of 98 US¢ in the past few weeks allow shorting only at 102% of the feed price or above. I'm not suggesting that this is really urgent but if in a year's time with enough liquidity present the problem persists ...

Quote from: bytemaster on November 25, 2014, 08:20:05 pm

Quote from: Shentist on November 25, 2014, 08:15:42 pm

is it correct, that the cover operation will not use owned assets?

i just experiemented with some funds and it seems it took not the available bought assets in my wallet, but covered through the feed price.
is this correct?

If you are Short BitUSD then cover operation will take BitUSD out of your balance and use it to cover your order.

Hu?! How is that? How can the blockchain determine which balance_ids belong to my account?
IIRC a force-cover will buy from the market at feed price .. while only the manual cover will take bitUSD from your account ..

Nobody's wrong, just confused
Shentist was asking about manual covering whereas the OP meant forced margin call covering.

Quote from: emski on November 19, 2014, 07:42:25 am

And delegates are free to set trust_level for each exchange which is essentially a weight of that exchange's feed.

Wont that mean each delegate could have a totally different feed price?

That's essentially a good thing. There is no one true price.

… and when it's done with the 5% fee will be distributed as interest to the remaining holders of BitUSD, right?
5% of 750 000 is how much exactly?

Its an altcoin until it unseats bitcoin.

… and bitcoin becomes just one altshare.

…
2) Wait sufficient time passes without any trades in the market
…

I don't think this will ever happen. Anybody can do a riskless trade by opening and then covering a short position with himself thereby resetting the waiting period.