The Dao Street Journal: Bitshares and BitUSD

BitUSD:

Why does the bitUSD margin call persist? As the bitUSD market continues to experience an open large bid for bitUSD (7 million +) the price continues to drift north of its nominal peg to one USD. Since we can empirically observe this strong demand for bitUSD we can ask why is there not an equivalent 7 million bitUSD on the sell side if every one of those units sold can be in excess of the pegged value?

The answer lies in incentives for market participants. The chronic margin call is signaling to the market that the cost or risk of selling bitUSD is too high. The general solution should include lowering this cost of trading. There are two basic ways to subsidize bitUSD shorts at the moment.
[Note these comments are intended to open up a larger dialogue about the effects of any modification. Markets are highly complex social organizations because they are made up of people - who's behavior is largely unpredictable].

1. Adjusting margin ratios. At the moment it requires 1.75+ USD worth of bts to create one bitUSD. Since investors face opportunity costs, this cost of capital is high. Lowering the ratio to 1.7 or lower wouldin theory allow more bitUSD to enter circulation which can then be sold to meet bidding demand for bitUSD. Of course this carries the embeded risk of encouraging less collateralized positions and more future margin calls. That may be a factor. But the net result is unclear.
2. Second, a direct subsidy could be offered to the stakeholders who hold net short positions in bitUSD or any smart coin in margin call. This method is promising for its simplicity however the issue of where the funds would come from is up for debate.

What do you think about the persistent margin call in bitUSD? I would love to hear your thoughts on whether either or neither of these actions would help encourage equilibrium in the bitUSd markets.