RE: This biggest reason steem prices are falling: The Arbitrage Sabotage Steem-Dollar Teeter-Totter

[wiser]

Personally I find the internal exchange to be clunky and buggy so I wouldn't miss it too much if it closed down. I used it a little at first. Today I sold some SBD on BitTrex and it all went much more smoothly. I guess the internal exchange is convenient when you want to convert your SBD to Steem, and that's largely why I used it earlier. But I would have all kinds of issues where I'd put in a specific limit order and it would change it to a different price, or I'd try to trade at market rate and it woulf change the price to make it a limit order.

I think the arbitrage may be inevitable when you have two currencies going. and one of them is pegged to the dollar. I suspect the end result will be that SBD and STEEM are both worth the same, around a dollar, and people will wonder why there were ever two.

The downward trend in STEEM price doesn't surprise me. It's a pretty normal pattern that lots of new coins follow when they first get on the market. It will turn around as long as the fundamentals remain sound. The arbitrage may exacerbate it but I don't think is the cause.

Comments

[sigmajin]

. But I would have all kinds of issues where I'd put in a specific limit order and it would change it to a different price, or I'd try to trade at market rate and it woulf change the price to make it a limit order.

this is a little known "feature" that @tombstone is denying the existence of in the other thread... the less SP you have the more it changes your order price...

[brendio]

Cross posted from other thread for clarification on the order pricing mechanism with respect to order size (rather than SP).

An a example, current price on internal market is around $1.25. Let's say there is a large buy order for $1.25 and I want to "front run" (put a buy order in just above it). With an order size of 1 steem, I would need to bid $1.251 to avoid being rounded down to $1.25. If instead I place an order of 10 steem for $12.501 I can get to the front of the bids without sacrificing as much of the price.

@wiser, I think this is the reason for the behaviour you saw:

But I would have all kinds of issues where I'd put in a specific limit order and it would change it to a different price, or I'd try to trade at market rate and it woulf change the price to make it a limit order.

The internal market seems to operate on the basis User X wants y SBD for z STEEM. Example from steemd.com:

brendio wants 10.307 SBD for 8.000 STEEM

The market rate displayed is the derived from these parameters rather than being coded in the algorithm, with the result that the higher the order size, the greater precision one can achieve, because each value for STEEM and SBD is limited to 3 decimal places.

Hope this helps and someone can correct me if I'm wrong. I've been playing with the market a bit to observe this functionality.