Improving Steem liquidity through using buying / selling pools
The following outlines an proposal how we could increase steem / steem dollar liquidity and on the same time get rid of the need of the internal steem / steem dollar conversion with all its influence on the supply of steem.
Introduce buying and selling pools to stabilize prices and encourage liquidity providers
Instead of using the current manual steem / steemdollar conversation with all its drawbacks I would suggest to use so called ¨buying-¨ and ¨sellling-pools¨ to stabilize prices. This could look like the following:
First of all the inflated steem, that is payed out in steem dollars is put in a so called ¨buying pool¨.
Second: If the price of steem dollars is above the pegged price, new steem dollars are created and sold on the internal market for steem. These steem are also put into the ¨buying pool¨. The maximal amount of steem dollars created through this per month is limited to 10% of all the steem dollars in circulation. This would also encourage to place buy orders in the internal market and therefore increase liquidity.
Distribution of steem in the buying pool:
If the price of steem dollars are below the peg, 10% per month of the steem from the buying pool is used to buy back steem dollars on the internal market. This would encourage to place sell orders in the internal market and therefore increase liquidity.
80% steem dollars would simply be destroyed. The other 20% of the steem dollars could be put in an so called ¨selling pool¨ to encourage placing buy orders. The selling pool could be handled similar to the buying pool, but the other way round.
Improve liquidity through giving priority to older orders:
To even more encourage providing liquidity older orders could have a higher priority. For example instead of simply buying on the lowest / highest price, the buy / sell pool could buy / sell on the highest priority:
PriorityOfSellOrder = DayesOnTheOrderBook / (SellPriceOfTheOrder – HighestBuyPrice)
PriorityOfBuyOrder = DayesOnTheOrderBook / (LowestSellPrice - BuyPriceOfTheOrder )
For example: an order that is 2 days old and 2% above the highest buy price would have the same priority as an order that is 1 day old and 1% above the highest buy price. The longer you wait the better the price you get, as long as you are below/above the pegged price. Therefore if you want to make double profit by trading, you need to wait in average double the time (not counting normal trades).
In short if the steem dollar price is higher then the peg, new steem dollars are created and exchanged for steem which is put in a buying pool. If the steem dollar price is lower then the peg, the steem in the buying pool is used to buy back and destroy steem. Both would also help to provide a lot of liquidity in the internal market. Prioritizing older orders would on top of that encourage liquidity providers that provide liquidity for an longer time period. The selling pool concept would also make the manual conversion of steem dollars obsolete and therefore guarantee, that steem is not more inflated per year as promised by the inflation rate. Even if the steem price would drop 10 times we would have better rates then the current banking system which has round about 5% to 10% reserves. In case of a ¨bank¨ run people who are ready to wait longer for their steem would be encouraged this would therefore reduce the sell pressure. On top of that sell pools would encourage to provide liquidity on the buy site even in the case of an bank run.
I hope you enjoyed the outlined suggestion. As always, feel free to comment and please link similar articles /posts!
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