You could stipulate, though, that the outstanding short position mustn't exceed the net position, or equivalently that the total long positions can't exceed twice the net position. Why not? (This would require new regulation, but not be impossible, I think.)

If the total long or short positions exceed the underlying economics by a lot, you create all sort of weird incentives for manipulation, as can be seen in the CDS market sometimes.

You could stipulate whatever you wanted, but there is nothing special about that threshold in particular.

I fully agree that derivatives can create all sort of problems in many cases, including when the nominal amount of the positions is much higher than the actual amount of the underlying.

Agreed fully. The 2x long, -1 short limit is just a neat, natural limit that one could discuss, and might be easier to enforce than other (similarly arbitrary) limits.

I'm not against that, but it's not trivial to implement either.

Would require to set up a central registry or so, yeah. (Or finally a use case for blockchain!!!1!!! :-)

Not sure it would be worth it, I think historically excessive shorting has rarely been a problem, except for a few colourful episodes like these.