the SCM Update - And why it hurts you, me and the whole economy

[Velheka]

Hey everyone. Long-time trader but never posted on the backpack forums before. I felt like I should voice something about the recent update to the SCM, an unintended consequence that I think harms us all.

 

So as I'm sure you know by now the SCM has been updated so as to make any item purchased from it (or from Mann co. from that matter) untradeable for a week. We’re met with a message sitting at the top of the SCM page, telling us that it’s “to help maintain a safe and healthy item economy within Team Fortress 2â€.

We all get what they’re trying to do with all this – it’s to stop phishers from dumping their stolen goods on the SCM and quickly make off with the cash which they can convert into fresh, laundered keys on another account. I agree that this update will certainly help battle that, it’ll definitely be harder for the phishers – But I also think that this update has inadvertently hurt traders too, due to introducing a time-lag between the SCM and in-game economy

 

Allow me to explain – Forgive the economic jargon, I’ll try to be as clear as I can:

 

*Warning, an assumption that you know some finance lingo and a bit of economics ahead*

 

Marketable items effectively have two prices, their in-game price and their SCM currency price. In a normal environment if one price deviates too far from the other, if the difference is higher than the friction costs associated with selling on the SCM, then the market corrects itself to fix the discrepancy.

For example. Imagine there’s item X, which can commonly be bought for 2 Keys off Outpost and Backpack.tf classifieds, and sells for £3.45 on the SCM. After the 15% transaction costs imposed by Valve, anyone selling at 3.45 will receive £3.00, enough to buy two keys at their cheapest price (off the Mann. Co store for £1.50 each).

 

If the SCM price of item X begins to rise above £3.00 minus the friction costs, then it would be possible to make profit simply by buying item X with keys off of Traders in-game, then to immediately sell item X on the SCM, and use the proceeds to buy back the keys. The process would leave you with a surplus in money, the amount equalling the arbitrage (effectively the market error) of the item.

 

Now what would normally happen, and has happened up until this update, is that this discrepancy is quickly capitalised on. This brings the SCM price of the offending item up and irons out the market gap and the ability to arbitrage. This makes sure that the markets are efficient and are giving the most accurate price.

This is where the problem is. This update has made it so the SCM and the in-game economy cannot equilibrate as efficiently as it could before.

Right now at the time of writing, there is a 87p arbitrage gap in Earbuds. This meaning that you could purchase buds in-game for 11 keys, Sell the earbuds for £19.96, minus transaction costs, leaving you with £17.37. Buying keys at mann co. price of £1.50  you could buy your keys back for £16.50 and leave you with 87p more than when you started. Now while that sounds small, remember you could do this almost forever, until the discrepancy was ironed out - if the market wasn't now forcing you wait a week between cycles.

 

The reason this relatively large gap exists is because of that week delay. What’s the result? There’s a few consequences. Firstly it means prices on SCM (and in-game) are going to be less accurate than before. It also means that people with a lot of capital are now virtually the only ones that can arbitrage the market. Before you needed enough capital to complete at least one cycle (buy the item, sell it, and buy back the keys/metal). Now since you have to wait a week to use the same capital, people who have a lot of keys are going to be the only ones who can make decent returns through arbitrage. In the bud example people with a lot of keys right now can sell all of their keys for buds, sell them on the SCM and buy their original keys back and then some.

 

Finally, we may see an increase in volatility in the prices of items in-game. Suppose the in-game value for an item increases past the 15% threshold needed to cover transaction costs. What would normally happen is that people would buy the item off the SCM, sell it in-game for the increased key price, then sell those keys on the SCM to get their cash back plus the surplus. What may happen now however is that people see the chance to arbitrage and buy the item off the SCM. While they wait for the week cooldown to end however the gap may close, leading people to have to sell the items for whatever they can get, dragging down the value of the item beyond what it should be as a flood of them enter the market at the same time.

 

None of this is good for the economy. All of these consequences make it harder to trade, damage the market and make our lives as traders even worse.

Woah I wrote a lot more than I thought I would. But I hope this may help to point out why this approach to dealing with fraud is probably a bad one. I’d urge Valve to experiment with other methods to stop phishers making profit off other people’s misery, and hopefully you do too.

 

TL;DR Valve have probably damaged the entire economy by forcing a delay between the SCM and in-game economy. The big players, and one's that are good with statistical analysis (IE Real Market Traders) are probably going to have an unfair edge, all the while the economy will perform worse for everyone.

[erts]

i think you copy pasted on accident

[♥Prof. Sugarcube♥]

Too long, Didn't care.

[Slocumruls]

hooray for me. I have lots of capital

[A n d y]

can we have a tl:dr

[Velheka]

i think you copy pasted on accident

 

Edited, thanks for pointing that out

 

Too long, Didn't care.

 

That's up to you. I think this update has seriously rigged the game for a lot of traders, and for those who are willing to analyse this further are gonna reap the rewards. If it's a TL;DR for you then it's one less person that I need to worry about.

[♥Prof. Sugarcube♥]

can we have a tl:dr

 

TL;DR

 

"Economy is failing coz i'm too inexperienced to actively know how the economy works."

[Velheka]

TL;DR

 

"Economy is failing coz i'm too inexperienced to actively know how the economy works."

 

If you have any answers to the problems I've brought up I'm happy to hear them, darling.

 

But I'll appease you ADHD people and write a TL;DR

[A n d y]

TL;DR

 

"Economy is failing coz i'm too inexperienced to actively know how the economy works."

k thnx love.

 

No matter what. Steam and Valve is getting money.

[♥Prof. Sugarcube♥]

SCM is just another way to trade

The Untradable thing doesn't actually affect anything, it's just some inconvenience

 

Think in the long term, i'm pretty sure this devoids Sharkers too.

 

there is no 'Problem'

There never was a 'problem'

There never is going to be a 'problem'

 

People will still buy and sell on SCM like before, they hardly affect TF2 currency prices.

+ about 60% of TF2 traders can't even use SCM, it doesn't apply to them.

 

People don't do research/Actually think with their brains, it's quite shocking.

[Velheka]

SCM is just another way to trade

The Untradable thing doesn't actually affect anything, it's just some inconvenience

 

Think in the long term, i'm pretty sure this devoids Sharkers too

 

I'd suggest reading the OP before you assume it's just an inconvenience, as the point I was making was that actually it's worse than that.

[♥Prof. Sugarcube♥]

You might want to add the plain fact

 

WE DON'T PRICE STUFF USING SCM SALES

[Crabislav]

You know why SCM update hurts me? Because you people post same shit about it everywhere like 20 times a day. There's nothing new any of you can say, don't even bother spreading this shit please, it's annoying.

[Velheka]

 

You might want to add the plain fact

 

WE DON'T PRICE STUFF USING SCM SALES

 

Except we do, the price comes from the equiblrlium between the SCM and In-game Price. If we didn't price using SCM sales then the two wouldn't correlate price, but they do for reason I just said - There's the potential to profit through arbitration.

 

*Sigh* Look I'm not gonna sit here and explain to you again things I've already explained in the OP. I'm happy to talk about other points but not just repeat myself so you personally can understand what I'm talking about. Just forget it mate, makes my work easier when I come to exploit this.

 

 

You know why SCM update hurts me? Because you people post same shit about it everywhere like 20 times a day. There's nothing new any of you can say, don't even bother spreading this shit please, it's annoying.

 

Well as I said I'm new the forums - If someone's posted how the SCM update affects the economy like how I have could you please link them to me, I'd appreciate reading more into what people have already said about it.

[♥Prof. Sugarcube♥]

 

 

 

Except we do, the price comes from the equiblrlium between the SCM and In-game Price. If we didn't price using SCM sales then the two wouldn't correlate price, but they do for reason I just said - There's the potential to profit through arbitration.

 

 

How to make a good suggestion.

 

The least-known;

• Steam market prices generally are not reliable proof; Steam wallet funds are worth less than paypal funds.

 

Said by a mod. Of this website.

[LookAtMyChicken]

SCM update wasnt/isn't a bad thing.

 

Prevents nublets from getting sharked and supporting sharks/scammers and potentially devaluing unusuals further.

People can't shitdump their items as soon as they unbox something and undercut everyone.

The 7 day hold allows valve to prevent more chargebacks/fraud for themselves.

It puts power back into the hands of private traders because now having something instantly tradable is a bargaining chip.

 

People hate change. Admittedly at first I thought this was an extremely dumb move on Valve's part as well. But after looking at it from multiple sides/angles, I feel it is an overall good change and people will just need time to adapt to the temp holds.

[♥Prof. Sugarcube♥]

SCM update wasnt/isn't a bad thing.

 

1. Prevents nublets from getting sharked and supporting sharks/scammers and potentially devaluing unusuals further.
2. People can't shitdump their items as soon as they unbox something and undercut everyone.
3. The 7 day hold allows valve to prevent more chargebacks/fraud for themselves.

 

 

Liked 4 these

[Velheka]

 

 

 

 

Said by a mod. Of this website.

 

 

No. No no no. You're completely misunderstanding me. I'm not saying current SCM prices are possible for proof for valuing items, obviously you're only ever seeing the ask and never the bid, i'm saying that since it's another market for the same item, which by definition means they can be arbitraged, you can profit from discrepancies in liquid markets IE Buds, like the discrepancy that exists right now in the Bud market, and how you can profit on that by doing absolutely nothing except moving around resources.

 

I have to ask, are you familiar with arbitrage or how it works? Because if you're not I'm not willing to sit here and explain it to you, I have festivities to enjoy.

 

SCM update wasnt/isn't a bad thing.

 

Prevents nublets from getting sharked and supporting sharks/scammers.

People can't shitdump their items as soon as they unbox something and undercut everyone.

The 7 day hold allows valve to prevent more chargebacks/fraud for themselves.

It puts power back into the hands of private traders because now having something instantly tradable is a bargaining chip.

 

People hate change. Admittedly at first I thought this was an extremely dumb move on Valve's part as well. But after looking at it from multiple sides/angles, I feel it is an overall good change and people will just need time to adapt to the temp holds.

 

That's true, and I agree with all of those points. I'm only saying that there's negatives, the points you've brought up are totally true, as I said in the OP they will definitely stop fraudsters (I'm not so sure about sharks but it's possible I guess).

 

I'm only trying to give the other side of this, whether my negatives outweigh your positives really comes down to personal opinion.

[knavesmith]

Except we do, the price comes from the equiblrlium between the SCM and In-game Price. If we didn't price using SCM sales then the two wouldn't correlate price, but they do for reason I just said - There's the potential to profit through arbitration.

 

Except we don't. Here in backpack.tf, we almost never use SCM sales to price items (save for extremely rare items whose only sales were a(n) SCM sale) since the SCM can be unreliable and generally a hassle.

 

First of all, the SCM uses Steam Wallet Money which can only be used on a Valve website; store coupons would be a good analogy. Just because you have $5 in coupons (SWM) does not mean you have $5 since said coupons can only be used in its respective store whereas you can use $5 pretty much anywhere.

 

Any USD (United States Dollar) price you may see on an item is its $ worth in terms of refined. Refined is the only item that is actually priced in USD. Even then, the USD price is the average price in PayPal or real life money, not Steam funds, so while you can technically convert currencies from USD to SWM, both prices will be different. Sure, there might be some consistencies between prices but that is merely coincidental and does not mean that USD and SWM are the same.

 

Furthermore, the SCM tends to overvalue items due to the 15% tax charged per purchase. Take the Genuine AWPer Hand for example, at a price of 6 Refined, its USD price would be ~$0.96, but it's going for $1.30 and more. Even after taxes, this equates to about $1.10, 14 more cents than what its USD price in refined would be. Not only does this show that the SCM can overvalue items, it also further proves that USD and SWM are not the same.

 

While SCM sales can still be used as proof for a suggestion, it can only be used as supporting proof, meaning that, like the backpack.tf classified listings, you cannot base a suggestion off only SCM sales (exceptions being very rare items whose only sale was through the SCM). Prices for items are always based off a TF2 currency (refined, keys, or buds, higher currencies valued using lower ones) whereas refined is priced in USD using IRL money transactions (PayPal being the most common). In theory, you can determine values of an item in terms of Steam Wallet Money, but in practice, it doesn't work out according to its true value in other currencies.

[Velheka]

Except we don't. Here in backpack.tf, we almost never use SCM sales to price items (save for extremely rare items whose only sales were a(n) SCM sale) since the SCM can be unreliable and generally a hassle.

 

First of all, the SCM uses Steam Wallet Money which can only be used on a Valve website; store coupons would be a good analogy. Just because you have $5 in coupons (SWM) does not mean you have $5 since said coupons can only be used in its respective store whereas you can use $5 pretty much anywhere.

 

Any USD (United States Dollar) price you may see on an item is its $ worth in terms of refined. Refined is the only item that is actually priced in USD. Even then, the USD price is the average price in PayPal or real life money, not Steam funds, so while you can technically convert currencies from USD to SWM, both prices will be different. Sure, there might be some consistencies between prices but that is merely coincidental and does not mean that USD and SWM are the same.

 

Furthermore, the SCM tends to overvalue items due to the 15% tax charged per purchase. Take the Genuine AWPer Hand for example, at a price of 6 Refined, its USD price would be ~$0.96, but it's going for $1.30 and more. Even after taxes, this equates to about $1.10, 14 more cents than what its USD price in refined would be. Not only does this show that the SCM can overvalue items, it also further proves that USD and SWM are not the same.

 

While SCM sales can still be used as proof for a suggestion, it can only be used as supporting proof, meaning that, like the backpack.tf classified listings, you cannot base a suggestion off only SCM sales (exceptions being very rare items whose only sale was through the SCM). Prices for items are always based off a TF2 currency (refined, keys, or buds, higher currencies valued using lower ones) whereas refined is priced in USD using IRL money transactions (PayPal being the most common). In theory, you can determine values of an item in terms of Steam Wallet Money, but in practice, it doesn't work out according to its true value in other currencies.

 

Again I think there's been a misunderstanding. People seem to be reading that I'm talking about Market items and price in the same sentence and assuming that I'm saying value must come from what people are asking for on the market, while I'm only saying that in liquid markets, it is possible to sell items at their current lowest price. In a way I am saying there's some sort of derived value but not in the same way you are.

 

I'm confused about your part here about the difference between USD and SWM. I'm aware of that, I don't think that really has baring on what I was saying. The chance to 'profit' is still there, whether you can get the money out of Steam is another story but for the sake of this I'm assuming that Steam is the be-all-and-end-all of the currency.

 

Your comment on the overvalue is actually my point, in those situations the market is fine. It's when items surpass that 15% margin where arbitrage kicks in and reduces the discrepancy.

 

And again for the last paragraph there's been some confusion on this. I know that backpack has a reflex to point out to people that SCM are not viable proofs because of the constant stream of people trying to use them as evidence for price suggestions. All I'm saying when I talk about the 'value' derived from SCM prices is the fact that if one deviates too far from the other, and both markets have buyers and sellers, then you can profit from the gap. Again I point to the example on if the SCM price for an item increases (and people are actually buying at that increased price IE equilibrium actually shifts), then it's possible to profit from that via arbitrage by buying the item with in-game currency then selling it on the market. Whether the market or the in-game trading is the 'correct' price isn't what I'm talking about here, I'm just saying that if both markets are active and one shifts to a point where marginal costs are less than marginal benefit, then it's possible to take advantage of that.

 

I'm getting the feeling I haven't explained arbitrage well enough and that's my fault. It's common knowledge for what I do and it seems I haven't done enough to fully explain what I mean by it. Hopefully the above paragraph helps.

[1+1=3 ?]

Would u mind make a summary? This is too long and not reader friendly. 1-2 sentences to conclude will be helpful

[Jakey-Boo]

If you have any answers to the problems I've brought up I'm happy to hear them, darling.

 

But I'll appease you ADHD people and write a TL;DR

If you're trying to sound like you know what you're doing you just blew it. Using an insult when people give a simple request is very inappropriate.

[Velheka]

If you're trying to sound like you know what you're doing you just blew it. Using an insult when people give a simple request is very inappropriate.

 

The ADHD line was a light-hearted joke on the hyper-activity of the internet - Don't take it too much to heart.

[Velheka]

Would u mind make a summary? This is too long and not reader friendly. 1-2 sentences to conclude will be helpful

 

There's a TL;DR at the bottom. I can only apologise for it not being reader friendly, I'm not prepared to get too simplistic in what I'm saying, otherwise it'd be 10 times as long. It's written with the assumption that you know how markets tend to work and a bit of finance lingo. 

[mknknk]

Thanks for putting it into words, well written, has a strong point.

Anyone got Gaben's email?