I’m delighted to welcome you to the third edition of SteemMag, a weekend digest for Steemians.
This weekend’s special edition is about one of the most important parts of the Steemit ecosystem. The Internal Market system plays a huge role in the value of the authors and curation rewards amongst other factors. Yet, Steemians know little about the participants of this aspect: Market Makers.
A recent comment by @smooth buttresses this observation.
Many are not aware of the many different aspects of Steem. It is good to hear how things look from the trading and market making perspective.
SteemMag will go full steem with this special feature containing three sections.
Section A: A Day In The Life Of A Steem Trader
Section B : A Brief Chat with some top market makers
Section C: Some important recommendations by them.
I hope you will enjoy it. I had fun putting all these together.
SECTION A:
The first section is about a day in the life of a Steem trader. For this, SteemMag had the honor of meeting @jl777. You probably have read some of his posts where he has been clamoring for a revamped internal market liquidity rewards system.
A Day In The Life Of A Steem Trader
SteemMag:
What's a typical day for you as a trader in the steem internal market? Basically, what do you do as a market maker.* maintaining the bots? watching the prices?
Right now i just make manual orders, when one fills, i make an opposite order. without liquidity awards, the risk factor is too big to be running the bot, at least without a lot more defensive algorithms. I designed my bot to provide useful liquidity for the community, so a few thousand dollars worth on either side at very narrow spreads. I didnt spend any time trying to make a different bot that trades against my own bot just to get points.
Once I debugged the bot so it understood enough about external markets, it was running pretty much on autopilot. It was breaking even until the end of the liquidity awards, but afterwards I had a bit of internet connection troubles and didnt disable the bot prior to the large volatility in STEEM and SBD on external markets,so that ended up costing me a bit, but that was totally due to my error of not paying attention after the points awards were over. Clearly the markets keep going.
So a typical day, well I just make sure the bot is running and make sure it isnt losing money due to some unexpected bug. its goal was to provide liquidity and not to make profits from trading, so it really wasnt an intensive amount of work to manage.
Without the liquidity awards, there is no volumes in the internal market and that allows the external markets to create a lot of volatility, so we need the liquidity awards back. I have made many suggestions, including splitting the rewards between a new points system and contracting proving market makers for services. This will provide the best of both worlds as we get the assurance that somebody will make a market and also that there is competition for the liquidity points. I have posted about using distance from the price feed and duration of quote as key factors to the new points system. That will give the power of the liquidity points to the market peg of SBD, which will stabilize STEEM and the entire ecosystem by reducing the price volatility risk
I am now running a witness under the crypto777 account and am exploring integrating steem into my iguana platform
The market making is not anything that I do fulltime, it was just something I did to provide useful liquidity and also to see about the points system, which sounded kind of strange.
If people want to support me, they can just upvote my "crypto777" witness https://steemit.com/~witnesses.
SECTION B: INTERESTING CHATS WITH SOME TOP MARKET MAKERS
A CHAT WITH @complexring
You probably have read one of his several posts that have graced the trending page. He is the math whiz :) who bedazzles us with posts on maths and finance. Interestingly, he is a fiction writer, a witness. and a whale. A man of many hats I must say.
SteemMag:
Thanks so much for taking the time for this...... Do you have any thoughts on the recently removed liquidity rewards? As a trader, do you think the liquidity rewards should be struck at out completely?
@complexring:
I'm not entirely sure. It's difficult to create a scheme that doesn't give undue advantage to large stakeholders
S:
I agree. But should there be some limitations e.g no of orders to be placed ?
C:
Limitations on number of orders doesn't really do much good. Anyone can use multiple accounts. Or if number of orders is the limit, larger orders are placed instead.
S
What are some improvements you would like to see get implemented as soon as possible?
C:
Weighted voting on the main steemit site. MathJax implemented (for my math posts -- selfish, I know). And removing of any place on the site that asks for 'owner' keys (active should suffice for those permissions)
A chat with @jasonmcz
@jasonmcz is the co-founder of Firstblood.io. He recently launched steemprices.com tool to track the various exchanges rates for Steem and SBD. You also must have followed his internal market liquidity rewards series. The last one graced the trending page today. You should go give it a read.
SteemMag:
How happy were you that the liquidity rewards were removed?
@Jasonmcz:
Hmm...I would say it's 70% glad (because it's removed) with 30% regret (because I got in this game too late); You know humans are greedy. It's a part of human nature. Right?
S:
What would be your advice those experiencing Fear of Missing Out FOMO due to the dwindling exchange rates and are ready to dump?
J:
Four letters. HOLD. Five more letters. TIGHT.
I think STEEMIT, just from what I saw during this entire beta test, has a lot of potential and has a huge room to grow into mainstream. Once more mainstream media starts picking up more about this new thing, you are gonna have people lining up wanting to open an account and want to gain more power in the community.
S:
Where do you see Steem and SD prices in -
J:
3 months: settling around $3.00
12 months: between $5.00 - $10.00
SECTION C:
SteemMag:
What are some improvements would you like to see get implemented REGARDING THE INTERNAL MARKET SYSTEM as soon as possible?
My post here - A non-gameable liquidity points system pretty much solves all the issues that I see with the liquidity points and it improves it significantly by creating risk for the market makers.
As it is, it is like N@S (nothing at stake), so you can game the system and get points without taking any risk. And if you didnt take any risk, arguably you didnt add any value. And if you didnt add any value, why are you getting any points?
We have a price feed. Given the price feed, we can evaluate a bid or ask against it and see if it has any value, ie. if the market price is $3 and you bid $2, what good is it?
Or if you ask $4, so we get the situation where the current market price is above the price feed or below.
Let us analyze
If the market price is above the price feed, then there are bids you can make that are not really that risky and still get points. However, you are boosting the internal price closer to the market price, so there is arguably some value
The key is to use the incentives to incentivize the right things which to my mind is the useful liquidity, ie close to the market price on either side. The other factor is duration. What good is a bi that is there for 6 seconds? just long enough for the selftrade to fill it.
But that is exactly what was rewarded at first. Put a giant order up and then immediately fill it with another account you hold. Technically, you are gaining points in one account and losing points in another, but there was no requirement to combine the points. I am almost certain, my bot got more net liquidity points than all other bots combined, as it never selftraded and still got millions of points, ie it was all net positive points. all the big selftrading bots were points neutral overall but my bot got all of 3 awards, less than 2% of all the awards for the week it was active
One more change I think is needed is for all market makers to register all their accounts. This will allow all self-trading to be factored out. Additionally, if a group of market makers collude, that can also be detected. I guess it is a rather large overhaul of the points system that is needed, but that is what is needed
@jasonmcz
One thing I would really love to see is a whole upgrade of the internal market from UI to mechanism. TBH, I enjoy trading without fees, and I am sure there are a load of other traders who are thinking the same. Making markets are profitable too. So I would suggest, now Steemit.com is open source, us work on a better UI and UX to attract traders to place orders on the market, thus more liquidity. And perhaps another idea is to implement a maker and taker model just like other exchanges instead of providing liquidity reward.
There you have it. I would like to say a big thank you to all those who made this feature possible with their contributions. To all market makers, we urge you to work harder to make this community an awesome place for all.
@dan @ned I’m sure you guys are paying attention to the observations made by these market makers. Looking forward to a more robust system.
If you’ve got a question, please make a comment below and I would see if I can get one of the market makers to respond to you.
P.S
In page 2 of this weekend issue of SteemMag, you will find more exciting features like This Week On Steemit and much more…
-> Page 2