The Ultimate Strategy Economy

The Straato Market is governed by a system of intentional incentives and disincentives that facilitate market function, regulate liquidity, and add interesting elements to the trading experience. These mechanisms include the market-making fee, the calculation of the reset statistic, the function of the Offer Queue, and more. You can read about these systems throughout the other pages of these Docs.

However, the Docs have yet to describe the prisoners’ dilemma, a basic game theory concept and one of the most important mechanisms in the liquidity balance of the Straato Market. Imagine that the market reset has just occurred and you owned Straato when it occurred. You started with 10 Straato, but now only have 9 after paying the market-making fee to start trading in the next cycle. You bought your original 10 assets at $3 each, but now the price is back down to about $2. You are hesitant to sell now and realize your losses, as opposed to waiting for potential gains, and decide to simply wait.

Unfortunately, if everyone in the Market shares your strategy, nobody will want to sell at this low price, resulting in a lack of sell-side liquidity; furthermore, the market maker will be unable to stimulate the Market enough to drive the price back up. If no one sells, the price will be stuck and the Market will eventually reset again, resulting in more losses.

This is the sell-side liquidity prisoners’ dilemma. It can only be broken if traders decide to gradually sell Straato, whether collaboratively, through the Community Discord, or of their individual decision. The prisoners’ dilemma also applies to buy-side liquidity at the end of the cycle in a similar fashion.

Beyond the prisoners’ dilemma, the Straato Market offers traders other unique puzzles and problems built-in to the trading experience, which contribute to our goals of making the Straato Market an intellectual and strategy-driven trading environment.

Building Straato Strategies

Although the Straato Market is designed for active trading, that does not mean that long-term trading strategies are not possible or that they are not effective. Longer-term, intercycle strategies tend to focus on the peak prices of cycles, as opposed to the intracycle dynamics of the offer queue and reset. You may design these longer-term strategies based on macroeconomic indicators, patterns of trading volume in the Straato Market, the activity of the Straato Community, and more. Just remember to factor in Straato market-making fees when developing intercycle strategies and skip out on trading cycles strategically.

Of course, what makes Straato truly unique is the intracycle active trading experience. During individual cycles, fluctuations of the reset statistic and the distributions of the offer queue are key to understanding the market’s liquidity and thus the path to maximum returns. Intracycle strategies tend to work best when complimenting a longer-term trading plan, although, when executed well, can yield short-term returns. We find that quantitative strategies tend to make the most sense for intracycle trading, but active qualitative strategies can also be highly effective.