Introduction

I'm still going through the whitepaper and pondering the implication/application of this new technology on the STEEM blockchain. My goal is to simplify for you what it is, what it means and how it's going to make a difference for you on the long run.

Today, I'm going to be talking about the decentralized exchange aspect of the SMT whitepaper.

More than Social Media

A lot of people are on steemit.com because of the social media aspect of the STEEM blockchain. In fact, a lot of new comers get confused because people have a hard time separating the two. Steemit.com is the website while STEEM blockchain is the technology that enables it.

SMTs introduce a new aspect to the STEEM blockchain: tokens

Tokens will be used to bootstrap and sustain apps, communities and websites. The successful tokens will get a price on the market. Now we need a way for people to trade those tokens for STEEM in a fast, secure and decentralized way.

A decentralized exchange(DEX) allow for buying and selling without having to comprise your private keys and without being worried by hacks.

Because of the unique features that will be outlined below, we will have a completely new class of users to our ecosystem: TRADERS.

How the Traders Will Add Value

Traders will add value to the STEEM token since it is going to be the main pair of the system. Whenever STEEMs are exchanged for SMTs, the STEEM will be locked up in the smart contract until the SMT is sold. All that STEEM being locked up will reduce the supply of available STEEM on the market and increase the value of the STEEM.

Traders will also have an incentive to hold on to STEEMPOWER since it is going to be their bandwidth. If they desire to create trading bots, then they will need bandwidth and STEEMPOWER to sustain them.

Traders will also be in direct contact with what's going on in the STEEM market and let the word out to other traders...allowing the free flow of information to go to traders everywhere.

Side-note: For those who thing there is already too much going on steemit.com, word on the street is that a major overhaul of the front-end is in the work. Also, I wouldn't be surprised if the decentralized exchange would occurs on a completly different website or a subdomain of steemit.com...such as dex.steemit.com

How The STEEM DEX May Become The Main DEX of Crypto?

No Fees

In the normal world of DEX or any exchange for that matter , their lifeblood is fees. Fees, for traders, are like termites eating their profits. But they tolerate them because they are part of the game. Usually, the more liquidity an exchange has, the more they are willing to tolerate higher fees.

The Steem DEX will have NO FEES on transaction. It will be bandwidth limited like any other transactions based on STEEMPOWER. This creates another source of demand for locking STEEM out of the market.

Unique Assets, Gateways and Bridges

There are several assets that SMT users and creators will have access to by way of the Steem DEX: STEEM, SBD, SMTs, and Simple Derivatives (IOUs). These neighboring assets can increase the visibility and network effect of all created SMTs. STEEM is the gateway token for assets issued on Steem, staying relevant by acting as the bandwidth usage measuring stick across Steem’s SMTs.

With the introduction of IOUs, we are opening the door for exchanges to create their own tokens to act as a gateways and bridge between the fiat and crypto. IOUs of Ether, Bitcoin and other will be available for those who want to trade on a no fees, fast and secure exchange.

The major issue that most business face when launching a new market on an exchange is the lack of liquidity. THE SMT/STEEM market will have the automatic market maker that will allow for automatically bootstrap those market. I doubt that it will be the same for simple derivative IOUs.

Conclusion

I'm super excited for STEEM to have a decentralized exchange. I can imagine website and business built on top of the exchange, acting as bridges and gateway to the STEEM ecosystem. Point of Sale system can be opened, credit cards, etc.

The sky is the limit now.