Short term traders pay a 1% spread, and this funds interest payments for longer-term investors. Interest rates of up to 7.77% are paid, upon redeem. If a lot of people are locking funds as -USD, the rewards on -USD will drop towards 0%, whilst the rewards for locking funds as +USD will rise - encouraging more people to go for that option. There are also limits to the amount of each security (USD, GOLD, FTSE, etc) available, so combined with the incentive system, this ensures that no 'unfunded promises' are made. (The more people use the system and lock funds, the higher the limits.) Finally, in case of a black swan event - which shouldn't happen according to the simulations run, but better safe than sorry - there is a reserve than can be injected directly to cover positions.
4) What makes trading on PAX unique? How does it differ from Bitshares?
PAX is different to any other pegging system. Firstly, it's fully decentralised. I don't believe any other system can claim that. It doesn't require any collateral, as BitShares does. And BitShares in particular has poor liquidity, which means it's very hard to buy any number of BitUSD for $1 - which completely defeats the point. I'm also a little concerned about BitShares' model, because it can come unpegged if BTS moves 50% in a day. That's a lot, but this is crypto. It means that BitShares' answer to the problem of volatility in crypto can be broken by excess volatility…Otherwise, PAX has a slightly different redeem mechanism. Funds are
locked for a specific period of time, so you can't
redeem until that time is up (though you will
eventually be able to trade locked funds on a
secondary market). The way PAX works means that
sudden fluctuations in BTCD price are still possible -
as they are with any crypto or other commodity -
but balance will be restored by the incentive system.
5) PAX is part of superNET and BTCD, could
you explain there relationship and how PAX
benefits both parties?
PAX is built into BTCD. It's part of the protocol. So is SuperNET. Although SuperNET uses features and tech from many different coins, the core functionality is coded into BTCD. There's a symbiotic relationship there, because BTCD will receive stakers' dividends from SuperNET revenue.
PAX Infographic