I was offered a bounty by abit to deploy an automated market maker that sets the price to the current implied value.
From https://github.com/steemit/steem/issues/175:
abitmore commented 7 hours ago • edited
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When you have your bot up and ready to keep 0.001 spread around the median feed, I'll donate 10k STEEM for running it as promised. I appreciate your efforts and willing to help, however, it's not wise to play against the market.
You can read my other posts to find the interesting and heated history between abit and myself. I was surprised at this offer of a bounty. Then again:
abitmore commented 6 hours ago
Yes adm is my account. I set a wall up just now after saw a wall setup by others.
TBH the offer for trading around peg is not really an offer. If you come up with better idea, I'm wiling to provider another offer.
So at this point I am not sure if he was just making false bounty offers, or if he will honor it (or maybe he will edit the github comments and deny it?). UPDATE: I have received a partial bounty of 100 STEEM! maybe there are some language issues that make me misunderstand abit a bit
Anyway, I said I would write an automated market maker around the implied price today. So I did. It is now live and making 0.777 STEEM bids and asks around the implied market price. I explain in https://steemit.com/steem/@jl777/sbd-at-0025-btc-how-is-this-making-any-sense-i-explain-what-happened-with-the-pricings-today about the SBD premium that is not exactly as it seems and I use this to calculate the effective implied price, after adjusting for the cross market arbitrages.
For now it is running at low frequency and low volume of 0.777 STEEM, but so far it is doing a decent job in tracking what the market is actually doing. Unfortunately, I have nowhere near the capital required to have it slew to the 1 SBD == $1 level, but I will use whatever upvote reward I get from my posts to finance the automated market maker.
For now it is once per 5 minutes at 0.777, which is 1111 STEEM per day max exposure, so this is within what I have already earned and I am content to just leave old quotes there. I am paying zero attention to the liquidity points as abit always is clearing out all by bids anyway and I dont use sybil accounts. this means the automated market maker will self-trade as it is not very smart, but that doesnt get any credit for the points, so even though I could put the bids and asks in different accounts to weasel these points, I am not.
Since it is running at low volumes, I dont have any setback conditions. But to protect the bot from fast moving markets and rapid changes in the implied values I would need to make it suspend its new offers during unstable markets. this can be detected when significant arbitrages are available in the SBD or STEEM markets. With such protections, it would become much safer to have significantly higher volumes for the bids and asks.
My interest is in creating and maintaining a fair and orderly market with a tight spread and maintaining a 1:1 peg. I cant do the latter until I get financing, either from a whale who would loan me the STEEM to enable this, or if I qualify for liquidity awards, or if a special market maker contract is awarded to me that grants 1 of the hourly rewards per day. I do not need to make money from the market making and am willing to do it on a non-profit basis, but I cannot put in any more than the 100 BTC that I have put into STEEM already.
Maybe there will be enough upvotes to make up for the promised bounty. At that level I will be able to increase the frequency to once per minute and probably boost the volumes. I have a bias setting that allows me to make the market maker bid more (or less) than the adjusted implied pricing. By setting that at 1%, it would push the price up until it reaches the $1 per SBD. If I can get the financing to achieve this, then it will make SBD equivalent to $1 in realtime. At the level of liquidity rewards, it would be possible to support the peg in all but the fastest moving markets
James
P.S. If you are a whale and interested in enabling the realtime peg you can contact me via jl777 on bitcointalk