The updated ecconomic insentives of STEEM (HF21)

HF21 is live, and many of you will probably have seen some changes that may or may not be obvious with a quick glance. To many STEEM today looks like business as usual, but in fact a lot has changed that has the potential to incentify huge changes to the way we all use the platform. You can speculate on what these new incentives are going to create, but a lot of what will happen is up to us. Up to our personal choices. Do we all collectively choose to go for quick personal gain? Or do we choose to work to make this place our home, a place to live and be friendly and social or at least financially civil with our STEEM neighbours? And if we see something, or rather someone, that litters up our STEEM neighborhood, do we act using some of the tooling HF21 has armed us with? Or do we ignore it out of fear

In this post I want to, following the example of @justineh, try to do a normie talk discussing some of the incentives HF21 gives us, both for good and for bad, and about the personal choices that HF21 hands us.

social interaction

Let's start with the big elephant in the room that almost nobody talks about when discussing HF21. The thing that Steemit Inc doesn't ever talk about in their euphoric posts about HF21. The thing none of the larger accounts and/or witnesses ever touch when discussing the wonders of the EIP. The thing that even @justineh forgot to discuss in her post on What To Expect from HF21. That thing is social interaction.

For red-fish, one important source of initial growth, slow growth, but still growth, until recently, has been providing social interaction on the posts of friendly minnows, dolphins and orcas. Many authors and other types of content creators apreciate the social interaction, through comments on their posts, and will routinely throw a few cents up to a few dimes worth of upvote at engaging feedback on their content and/or social interaction sparked by their content. At least they did until HF21 hit.

It is here where the first new incentives rear their heads:

• The economic value of a few cents up to a few dimes for comment on your own post is significantly lower than that same vote on a top level vote.
• The minimum up vote value needed for payment to occur on a comment upvote has gone up significantly.

There is a relatively strong economic incentive for authors currently up voting comments on their work to stop doing so. If before an author needed to do a 30% up vote to give the commenter a > $0.02 tip for his or her comment, this might need to become something like a 70% vote now. A 70% up vote that would have an economic value of just above $0.04 for an up vote, but could have an economic value of up to almost $0.07 when cast at a top level post that gets up votes from other accounts as well. Will this incentive lead to a massive decline in the number and/or yield of up votes? Likely. But as with many of these things, they are just incentives. We as a community have choices that shape the future of the platform.

Now lets look at it from the flip side. What are the incentives there. Here the dust level threshold plays an enormous role. For those of you who don't know what the dust level threshold is, I'll try to explain:

If your post or comment gets a number of up votes. After 7 days, the value of those up votes is taken. A split is calculated between the author and the curators (the people that up voted your post or comment), your author share is paid out, and the curator share is distributed amongst the people who up voted your post or comment. But there is a catch. If, once calculated, the author share is worth $0.02 or less, the dust level threshold, then nobody gets paid anything.

Here the new reward split, the new reward curve, and one other part of HF21 that is a bit out of scope for a normie talk post all come together. If someone gave you a $0.05 cent 100% up vote one week ago, the 75% author share would be calculated at $0.0375, well above the dust threshold. If made today, the same 100% up vote would result in a $0.03 value, and at a 50% author split, that same 100% up vote would result in an author share of just $0.015. That is way below the $0.02 dust level threshold, so no one gets paid anything.

So, combined with the likely outcome of our previous two incentives, this brings us to two new incentives:

• Commenting on the post of a minnow sized (or small dolphin sized) author no longer has the potential to get you an above dust-level threshold up vote
• Commenting on the posts of a dolphin or orca sized author is significantly less likely to get you an up vote.

Will these incentives keep many of the currently active comenters from socially interacting with authors? From an economic perspective, it is likely it will. But then, we are social creatures, and forging a social band might repay in other ways. It is important to realize though these incentives are there. How we act on them is our own choice. So again, lets hope many of us will try to act in the best interest of the future of the platform, and not just our own short term financial gain.

Scot tribes and social interaction.

With scot tribes like #palnet, #creativecoin and #steemleo, there is an other incentive we should not overlook when it comes to social interaction. After HF21, the amount of SP needed to upvote a comment at above dust-level-threshold level has gone up significantly. This fact has widened the gap in this respect with some of the scot tribes. While a minow sized stake in STEEM doesn't give you the ability to do an above threshold upvote on a comment, a transfer of that stake to for example #creativecoin, does very much give you that ability at the moment.

• For a minnow, or smallish dolphin, hit by above social incentives, a move of stake to a Scot tribe could restore the ability to tip commenters.

Will minnows and small dolphins move large parts of their stake to Scot tribes? Again, while there are new incentives to do so, these are human choices. In this case particularly difficult ones and thus also the most difficult to predict or model. Especially as there are other complex factors both financially and moral that might drive this choice. A move might after all save social interaction, but a mass move might drive down the price of STEEM even lower than it is now.

delegations

As we have seen with the social interaction, the economic value of stake at the bottom end in the mid range of the STEEM economy is way more dynamic than it is for orcas and whales. As such, there is a huge difference in value for stake held at the lower end of the economy vs the higher end of the economy. This difference in value creates a huge market incentive.

• The difference in value of the same stake for small vs large stake holders creates an incentive for small stake holders to delegate their stake and for large stake holders to cheaply acquire delegated stake.

bid bots

One place where the incentive to delegate might have a huge impact, as at this place multiple incentives come together is in the realm of the bid bots. Larger bid bot owners are prime candidates for responding to the above incentive of acquiring additional delegation. And there are a few other incentives that play a huge role in why they will want to do so.

• The 50/50 split acts as a strong incentive for bid bot owners to lower the price for a bid.
• The (likely) availability of more delegated stake combined with the above, creats incentives for bid bot owners to sell larger votes.

On the other side of the equation, we have content creators earning less at the bottom and mid section of the reward curve.

• The reward curve creates incentive for low earning authors hit to buy their way up the curve through bit bots.

All and all, there are a lot of incentives that could allow the bid bot economy to flourish under HF21. I think we can (almost) all agree that this would be a horrible outcome. Can we prevent it from happening though? After all, there are some pretty strong incentives stacking up to promote growth of the bidbot economy and not much incentives working against it. That is, possibly where down-votes might come in.

down votes

One interesting feature of this HF is down-votes. From today, we get 250% times a full down vote in down voting capacity for free. That is, we can do some down votes without affecting our up voting capacity.

• The zero price of doing a down-vote removes a negative incentive towards using down votes

This blade though cuts on two sides. Abusers and bid bot owners get free down votes as well.

• The increased capacity for retaliation creates some new incentive towards using down votes.

And if we combine this with the market incentive towards delegations, and the concept that bid bots will likely be large consumers of delegated stake, we close the incentive list with:

• The possibility of market value reduction, creates an incentive for bid-bot owners to retaliate against down votes aimed at its service users
• Increased probability of retaliation by (even larger) bid-bots, creates incentive to not use down votes against bid-bot users.

So is all lost when it comes to preventing a huge boost in the bid-bot economy? Well, looking purely at the economic incentives, we might conclude that. But again, people are social beings, bid bot owners are too. And retaliation in defense of poor content might quite likely be seen as socially unacceptable. But how about mediocre content? How about the idea that HF21 is about promoting REAL curation? Shouldn't we be down voting ALL bid bot use as if they were simply self up votes by proxy (as most actually is)?

There is hope there. But again it is social. If a few whales would step up and randomly vote bid bot users down to zero as a social service to the platform using their free down votes, then yes, this might create a downward trend for bid-bot vote market price ans stop the bid bot economy from flourishing even more than it does today.

Conclusions

As things look now, when looking purely at the ecconomic incentives created by HF21, HF21 would seem likely to bring a lot of doom and gloom. But as said, that is from an economic perspective only. There are social aspects at play as well, social aspects that might actually end up making HF21 into a success. The EIP as implemented now is a huge gamble by Steemit Inc and the top witnesses that can only end well for the platform if its users allow themselves to be driven by social rather than purely self interested response to economic insentives.

If you take historic data to seed a simulation using the set of incentives listed in this post, at least, without the scot tribes part (that is multi faceted and particularly dificult to model using computational statistics based simulation techniques), HF21 will turn out all doom and gloom. These simulations though don't consider either the social aspects of things nor the dificult interaction with Scot tribes. It is likely if we were able to construct a model including insights from sociology and psychology, the outcome would be better. One thing is abundently clear, this HF depends greatly on the comunity to succeed. It depends on people to continue being social even if it doesn't directly pay out in comment upvotes. It depends on stake holders holding on to their stake or be particular about who they rent it out to. It depends on bit bot owners realizing it is socially unaceptable to retaliate down votes against posts made by their users. And most of all, it depends on whales and orcas to step up when it comes to down voting bid bots, promoting social interaction not just on their own posts, and when it comes to curating good content.

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