Introduction to Steem Liquidity Rewards

in steem •  3 years ago


Now that the first payouts have been made you are probably looking for things to do with all of that fresh cash. Steem comes with its own built in market that allows you to buy and sell STEEM and Steem Dollars (SD).

Benefits of Internal Market

The internal market has many benefits over other markets when it comes to trading STEEM. Among these benefits:

  1. No Fees
  2. Highest Security
  3. Lowest Spread
  4. Highest Liquidity

No Fees

The Steem blockchain doesn’t charge trading fees, but it will rate limit your account if you start consuming too much bandwidth. If you hit the bandwidth wall, you can always Power Up to get more access.

Highest Security

The internal exchange is secured by your account private key. This means you do not need to trust any third parties with your money.

Lowest Spread

Steem subsidizes the internal market with liquidity rewards that create market competition to give you the best price possible. The spread can be lower because some of the risk is absorbed by the network.

Highest Liquidity

This is another side effect of liquidity rewards. Traders make more by trading on the internal exchange and therefore there is the greatest market depth.

Liquidity Rewards

So if you are thinking about trading then you will need to have a solid understanding of how liquidity rewards work. Every single hour 1200 STEEM ($250+) is awarded to the market maker with the most points. A market maker earns points any time an order of theirs is filled after being on the books for more than 1 minute. Points are calculated based upon the volume of STEEM filled on both sides of the book.

     SCORE = BID_VOLUME * ASK_VOLUME

As you can see, you gain the most points when you have equal volume on both sides of the book. After you receive your 1200 STEEM your BID/ASK volume are reset to 0. This means that everyone who trades consistently will eventually get a payout. The more volume you pull the more often you will get to the top of the queue.

If you do not trade for a week then your volume will also get reset to 0. So don't get lazy, provide steady consistent liquidity and you will be rewarded.

You only get rewarded for orders filled after being left open for 1 minute. This means canceling / moving your order will reset your time and disqualify you from rewards. It also means leaving orders on the book that never get filled will earn you nothing.

Trading Strategy

If there is only one trader, then it is easy to buy/sell against your own order. Market forces will quickly cause competition of bots to provide liquidity. Bots will end up placing orders in front of each other. Other users will also place orders on the book. Once this happens it becomes impossible to trade against yourself.

Bots need to make the market in such a way that any losses from trading are less than the liquidity rewards earned. As competition increases, the profits from liquidity rewards will naturally fall toward 0.

So if you are good with scripts and want to start a bot, there is some easy money to be earned trading.

Profit off of Cheaters

Some bots may want to trade against themselves with a narrow spread. Anyone can write a bot that buys their order and then turns around and sells it for slightly more. Flipping the market will naturally earn the traders a spread on every trade and simultaneously prevent bots from abusing liquidity rewards.

Preventing Flooding

Bots need to be strategic and ration their transaction rate. There is rate limiting on bandwidth proportional to Steem Power. This means that it is not possible to flood the market with transactions without quickly burning through your allotment of bandwidth. Liquidity providers will need to take this into consideration and possibly buy more Steem Power to maximize their potential market making profits.

Getting most From your Steem Dollar

Over the next week various markets / exchanges will be opening that will allow you to trade Steem Dollars for BTC, Tether, and other cryptos. It will likely be far more efficient for you to sell your Steem Dollars on these markets than to buy STEEM on the internal market and sell STEEM on Bitrex.

Don’t forget your Steem Dollars are earning you interest while you hold them. There is no need to rush to claim your funds. Wait a few days for the markets to open up and liquidity to improve and you will get much more for your Steem Dollar.

Authors get paid when people like you upvote their post.
If you enjoyed what you read here, create your account today and start earning FREE STEEM!
Sort Order:  

Incentivizing liquidity on the trading platform? Genius!

I have converted all of my Steem Dolalrs into Steem Power, that seems like the best way to benefit the site for everyone else. I will enjoy watching this site grow. Best of luck to everone! Post on!

·

Looks like they're converting into liquid Steem, you'll need to convert them to Steem Power after 7 days.

·
·

Yeah, I am still trying to figure all of this out. I will be doing just that. More Steem Power is good for the site, so that is what I will do. If the site succeeds then doing this will benefit me in the long run. However it will definitely benefit everyone else in the short term.

Anyone know how someone would go about creating a bot (to help create liquidity) for this market? I've written some rudimentary scripts for Poloniex using Python. Not sure how to API into this market though. Any pointers would be appreciated.

·

I made a long post when I realized there's actually not a really good answer in one place to point you to.

·
·

Thanks I appreciate that (and I'm sure other will too). I'll take a read.

·

How move ahead your project? You have source codes? What trade algorithm you use?
Как продвигаются ваш проект? У вас есть исходники? Какой торговый алгоритм Вы используете?

·
·

Unfortunately I haven't had time to work on it (any spare time I have is spent curating, posting and commenting on Steemit!).

I will probably wait until STEEM/ STEEM dollars are on Poloniex and use the bot I created there.

good information for all the people here, cheers

·

Payouts are continuous. 24 hours after each post but may be delayed if there is ongoing voting activity.

·
·

So now the payout is no daily base?

·
·

What is the cutoff point for articles to accrue value? Or is there such a time? For example, if after 24 hours you get your payout, will people upvoting your article after that time still cause you to earn value?

·
·
·

Yes you still earn more. The voters don't get rewards after 24 hours but they can still upvote to reward the author.

Currently huge liquidity rewards of 1200 powered up STEEM per hour are being paid to liquidity providers but the internal market liquidity is absolutely terrible. Not to mention the price spread between STEEM/BTC market price times BTC/USD value and the SBD market is massive.

Earlier the spread on the internal market was 12.5%, what are we paying these self-trading bots for?

·

Have you seen the market today? Liquidity is amazing!

Does this mean you need to set up orders on both sides of the book to get the award? So if you have just set up bids, your score is 0, because you haven't had a trade filled on the other side?

·

I don't think you need to have orders on both sides at the same time or all the time, but you need to have had your orders filled on both sides otherwise your score will be zero and you will never get rewards.

I keep getting a transaction broadcast error, I'm just trying to sell 0.1 steem, just to test, can anyone help?

CG

·

Bandwidth limit for your account has likely been reached. We need to improve error messages.

·
·

Thanks Dan, but I think it was my noobness, I was trying to sell Steem, not realising that it was buy I should have been doing, lol :-)

CG

I made a long post when I realized there's actually not a really ....

Are there plans to enhance the internal market by adding some trade history?
What we are still missing is a price history chart and a list of most recent trades.

·

Yes. What we have today is minimal viable product. It will improve quickly.

Do orders in the internal market expire? What is the default time if so?
I placed a small order to sell SBD several hours ago and I have no STEEM, yet no orders appear in the "open orders" area of the steemit.com view of the internal market.

Thanks @steemitblog for this info !

Thanks @steemitblog , This is really helpful.