Built-In Incentives & Disincentives
The Straato Marketplace, in essence, operates around a system of incentives and disincentives that encourage certain behavior in the Marketplace that is most conducive to its ability to function effectively. These incentives and disincentives illustrate the strategic element of the Marketplace and the thinking that we hope that users will engage in. Notable built-in incentives & disincentives include the following:
Asset Adjustment : Eliminating Long Term Investments
If users hold too much Straato for too long, potentially over multiple cycles, the Marketplace can clog up dramatically and the excitement of the platform is greatly diminished. We want Straato to be exchanged on a regular basis and during each and every cycle, so we take steps to actively discourage users from buying Straato assets as long term investments, across multiple cycles. The asset adjustment for users who are stuck with Straato at the end of a cycle (i.e. during a Reset) serves this purpose, eroding the practicality of leveraging Straato in this way.
Asset Adjustment : Stimulating the Marketplace
Perhaps even more important than discouraging long term investment holding, the asset adjustment allows us, as the Straato Marketplace market maker, to stimulate the economy in order to drive up prices in subsequent cycles. When the economy undergoes a Reset, owners will likely be hesitant to sell assets early, at low prices. Therefore, in order to start the next cycle effectively, we, as the market maker, may need to kickstart the cycle by selling assets at low price levels. As the price rises again, more and more owners will be willing to sell. Counterintuitively, the asset adjustment actually helps owners, as it enables the market maker to stimulate the Marketplace, allowing owners to sell held Straato at more favorable prices in subsequent cycles. After all, Straato assets are worthless if the Marketplace doesn’t function effectively!
Reset Trigger Ratio Thresholds: The Ultimate Tool
The Reset trigger ratio, as explained in The Marketplace Reset, is really the ultimate tool by which we incentivize certain actions in the Marketplace. Once again, this ratio is used to determine when a Reset is necessary and measures both the supply and demand sides of the market.
At its most basic level, the Reset ratio lower threshold ensures that demand persists throughout cycles in the Marketplace. This will ensure that the market undergoes a needed Reset if users simply don’t want to buy assets at such high prices. Furthermore, the minimum number of transactions threshold for triggering Resets ensures that the Marketplace is still operating effectively and has not slowed materially or stopped entirely. Together, these metrics guide the market to Reset on the demand side. Without the Reset, users would be stuck with high valued (but effectively worthless), illiquid Straato forever, unable to sell it, and the economy would stall!
Although the asset adjustment helps the market maker to re-stimulate the economy at the beginning of cycles, we cannot bear the sole burden of this stimulation. Therefore, an upper bound to the Reset threshold was introduced to ensure that supply for assets (outside of just market maker sells) is above acceptable values. In essence, this upper bound ensures that users must work with us to re-stimulate the Marketplace at least to some degree, or else risk facing another Reset. This necessary upper bound also contributes to the existence of an exciting “Prisoners’ Dilemma”, a popular situation in game theory, baked into the Straato Marketplace.