One of the most critical getinvolved of any successful cryptocurrency is the creation of a deep and liquid market. Centralized exchanges are one of the greatest security vulnerabilities for any currency, especially currencies that depend upon voting. Steem goes to great lengths to provide the most active and secure market for its users so they can keep their money in their wallet where it is most secure.
Trading against Backed Dollars
The vast majority of all cryptocurrencies are forced to trade against Bitcoin due the limited support regulated fiat exchanges give to alternatives. Speculators need a safe place to park their funds while they wait for market corrections. Steem’s internal market gives these speculators a safe place to buy and sell while keeping the full value of their capital inside Steem where it also earns interest and supports the value of STEEM.
The internal market charges no fees, instead users are rate-limited based upon their vesting STEEM. This means that casual users can trade for free and trading bots must be heavily invested in the platform. Typical exchanges charge both sides of the trade 0.2% of the trade volume or 0.1% for volume over $20M per month. With a typical spread between bid and ask being less than 1% this fee accounts for up to 50% of the spread. By eliminating the fee traders can make more money.
Liquidity is a combination of how deep the order book is and how narrow the spread. Steem wants to encourage users to leave open orders on the books. Open orders give other traders confidence in their ability to sell with minimal slippage. Confidence is the foundation of a strong currency.
Anyone who leaves an order on the books for at least 1 minute before it gets filled is given a share in Steem’s liquidity reward program proportional to the size of the filled order. Orders that are canceled do not qualify regardless of how long they were on the books. The impact is that liquidity providers must place their orders close enough to the top of the book that they are likely to get filled, but not so close that they are filled instantly.
Only net-liquidity provision counts. Users who consume as much liquidity as they provide do not qualify for liquidity rewards.
Liquidity providers must provide liquidity on both sides of the order book to qualify for any reward. For best results the volume on both sides should be equal. The equation used to rank providers is:
points = net-bid-volume * net-ask-volume
If either net-bid-volume or net-ask-volume is negative then no points are earned.
These rules are designed to encourage a deep book while discouraging trading bots from fighting for position at the top of the book.
Award 1% Market Capitalization Per Year
In the long run, 1% of market capitalization is awarded to liquidity providers each year. Every hour the account with the highest accumulated points is paid 0.000114% of the market capitalization and then their points are reset to 0. Any liquidity provider who is inactive for over 1 week also has their points reset to 0.
In the short term 1200.000 STEEM is paid every hour until 1200.00 STEEM is less than .000114% of the market capitalization.
Most exchanges place limits on daily deposit and withdraws. The internal exchange has no limits and you are always in complete control over your funds.
All trades are executed and final in an average of 2 seconds. There are no delays while you wait for a 3rd party exchange to post your deposit or withdraw.