Crush the Bid: Rethinking bidding bots
Let's talk about bidding bots. It's time for a fresh look at how they fit into the Steem ecosystem.
Bid-based Upvoting
First, for those that may be new to the conversation... what are bidding bots, and how do they work?
A bidding bot is a specialized account. You send a transaction, and in turn you receive an upvote on your content. There is a fairly large list available at SteemBotTracker.
Any Steem account can do a full upvote up to 10 times per day... that's one vote every 144 minutes. Most bidding bots operate on a 144 minute round. While recharging, the bot accepts transactions with posts in the memo links. Once fully recharged, the bot checks the validity of each memo link and delivers its 100% upvote pro rata across the bids.
In the classic examples... if you are the only bid, you receive a 100% upvote (even if your bid was the minimum bid allowed by the bot). If more people bid, you get a % of the upvote that matches your % of the total bid. So if the total bids were 25 SBD, and you bid 1 SBD, you will receive a 4% upvote. That's pretty straightforward, right?
Upvote Valuation
But how much is an upvote worth? Well, that's easy... you open the account in steemworld and check the value at your expected %... right?
Well... yes. And no. Let's imagine a perfect round. You find a bot with no bids. You check SteemBotTracker or Steemworld and you see that the upvote value is worth 10 SBD. You know that 25% will go to curation, so you bid 7.5 SBD. Because Steem Bot Tracker shows that you've soaked the profitable bid, and there are no amateurs crushing the bid, you get a 100% upvote... a vote worth exactly 7.5 SBD... You got pure promotion, no profit, but no loss either.
No risk, right? Wrong!
Payout Delay
You don't receive the payout at the time of bid. You receive the payout at a later time... between 0.5 days and 6.5 days later, depending on how long after your post was published you decide to bid.
In effect, you are paying in advance, in either SBD or STEEM, for a blend of SBD/STEEM that you will receive in the future. You have created a customized smart contract with the blockchain, using the bidding bot as an intermediary. In exchange for your payment, the bidding bot commits a transaction that locks in delivery of your SBD/STEEM blend at post payout. So long as no third-parties intervene and flag your post...
Every time you use a bidding bot, you are betting that the SBD/STEEM blend will be worth more at time of delivery than it is now. If you pay with SBD, you are betting that SBD will increase in value against STEEM (resulting in higher SBD proportion in payout). If you pay with STEEM, you are betting the inverse.
You are also choosing to spend liquid crypto instead of cashing out, so you are betting that the market value of the SBD/STEEM blend will also be worth more at payout than it is now. You are also betting that no other bidders will crush the bid for whatever reason.
Financial Risks
So you're betting on a lot of different things to go exactly right. In an upward trending market, with a good understanding of the risks and an appropriately diversified strategy, you can do pretty well. I have averaged ~15-20% profit per post (measured as the SBD value of author payout returned in excess of the SBD spent promotion) over more than 100 posts and comments.
That's pretty damn good. But I have a Finance MBA and I spent years designing bespoke financial technology solutions for hedge funds (mostly middle office... don't be too impressed)... as a business process analyst, not as an engineer.
Take a look at the 'feedback' on bidding bot posts. Your average user doesn't understand that bids after theirs can impact the payout. They don't realize that bidding last-minute usually results in bidding against somebody for the last bit of profitability. They don't know that upvotes can only be sent every three seconds, and comments every twenty seconds (usually set to 30 to avoid being throttled by the API), so closing a bidding round on a bot with 800 SBD and a minimum bid of 1 SBD could take 400 minutes. Yes... you read that right.
So we're talking about a fairly sophisticated financial instrument, with a fairly unsophisticated class of financial consumers. I live in the United States, and you can't trade standardized forward contracts (futures) without at least $25000 in an account. You can't trade customized forward contracts as an individual at all. Financial regulation in Europe is just as restrictive.
So our ecosystem is full of sophisticated financial contracts that are illegal for individuals in most of the developed world... but at least they're handled responsibly, right?
Wrong... let the buyer beware. Somebody crushed the bid? too bad. the bot screwed up and miscalculated the % payouts for the round? too bad. You didn't read the arcana for that bot and post wasn't between 2 and 3.5 days? too bad. no refunds.
Things are starting to get better in this regard. Massive kudos to @yabapmatt here, for creating SteemBotTracker, and for creating @postpromoter, with an open source toolkit that makes it much easier to have transparent bidding rules and deliver refunds on invalid bids.
But all these issues arise before the biggest problem of all... there are massive financial risks that are borne by the buyer between bid and post payout... and the seller has zero corresponding risk. The payout is not paid by the seller, it's paid by the blockchain. So if you get a good result and the future payment on your derivative is better than your bid, it doesn't hurt the seller at all. If you have a bad result and the future payment value declines, that doesn't affect the seller either. (although if you have a bad result from somebody crushing the bid, the seller does benefit)
So the entire risk structure is completely lopsided. It leaves a very bad taste in people's mouths. The higher somebody's reputation, the less likely they are to use bidding bots... they don't need it and the financial risk is too high. As soon as you join Steem and discover that progress is slow, you are introduced to a highly sophisticated financial instrument and told that it may be your best way to get traction (but not too much... if your reputation grows too quickly, the big curation initiatives will completely ignore you).
but at least we're talking about it and taking action...
Wrong again. every action and discussion I have seen about bid bots focuses on the demand side of the equation.
What is the quality of posts that are being upvoted? @themarkymark admitted that with hundreds of bids on @buildawhale every day, it's hard to find 5 quality posts worthy of curation.
How are people abusing bots? (fill in the blank)
What is an acceptable level of promotion for a post? @earthnation says 44 SBD per post, but only 3x per week. More frequent posts should cap at 11 SBD. You might have your own perspective.
What time lag should there be between bot usage and payout? Yes, moving it forward to 3.5 days gives more time to review rewards and penalize people that used bidding bots to upvote shitty content... but it also increases the financial risks borne by the purchaser of this sophisticated derivative.
We're looking at this all wrong
If all the risks are borne by the purchasers of this sophisticated financial instrument, why is it the purchasers that we're calling to account? Why aren't we calling out the #whales that create and operate these bots, asking for more responsible behavior?
Let me spell this out for all bidding bot operators: You are selling a sophisticated financial instrument. If this comes to the attention of regulators in your jurisdiction, your current business practices will probably get you big fines or jail time.
Let's establish ethical standards for bidding bots. Bots that fail to meet the standards should be removed from SteemBotTracker. They should have their update posts downvoted. They should have their bid comments flagged. They should be pummeled into oblivion, so that they are not the bots that new users see. Let's make the professionals responsible for their own behavior, instead of blaming every problem on their customers.
Ethical Standards for Bots
So here are my top 5. Some of these are in place already on Steem Bot Tracker, and I commend @yabapmatt for that.
Clear communication. The bot's own page should have all the terms (minimum bid, post age limitations, etc) spelled out in the header section. They should provide the same information to SteemBotTracker. Existing bots should be given a time window for full compliance, and non-compliant bots should be removed from the tracker. We have reached a point where bots can launch just by listing on that page, so it should be considered the gold standard and held accountable to only list reputable businesses.
Automatic refunds. The bots should deliver automatic refunds. Bids should be checked when they are received (not at the end of the bidding round) so that users are not surprised or left waiting for the round to end to know whether there was an issue with their bid.
Reasonable minimum bids. I commend @buildawhale for raising their minimum bid from 1 SBD to 2 SBD, but I don't think it was enough. 100 bids on a round can take nearly an hour. Minimum bids should be at least 1% of the maximum potential bid. At least 2% would be better. This clears up a lot of the confusion around cycle times, and makes a better experience for bot owners, investors, and customers.
Outcome transparency. This will require new development, but... bidding bots should log all of the bids received for every round, mark them as either refunded or valid, match them with the % upvoted... and publish these records regularly. It could look something like this:
| Name | Bid | Valid/Refunded | % Voted | post perm-link |
|---|---|---|---|---|
| @josephsavage | 5 SBD | Valid | 25% | ... |
| @sneakyninja | 15 SBD | Valid | 75% | ... |
| @steembasicincome | 1 SBD | Refunded | 0% | ... |
This makes it much easier to check whether bots are running correctly, not cheating on rounds, and meeting the community's ethical standards.
5. Bid capping.
I expect this to be the most controversial of my 5 points. Bots should disallow crushing the bid. They should use the Market feeds to estimate the SBD value of their expected SBD/STEEM payout at 25% curation... and refund bids that cause the total round to exceed a certain threshold. I don't actually care what threshold they choose, but they should publish it as part of their parameters and refund invalid bids. It could be 100% (a bid of 7.51 on a bot with 10 SBD voting power would be refunded). It could be 200% (making it irrelevant, but still a parameter the bot has to publish and compete on).
There would be some sophisticated users that are deliberately crushing the bid as a forward bet. When STEEM broke 10, I had posts that paid out nearly 100% profit, because of the rise in value between my bid time and the payout time. When SP started to come back down (right now), most posts are barely breaking even. If I want to speculate on those changes, using bots, I might choose a bot with a 105% or 110% threshold. Some bots might set 95% thresholds (every round is guaranteed to be profitable- at least before forward pricing changes are taken into account). What they give up in return they would gain in consistency, because their rounds would probably sell out early.
Let's be Adults
I know that I haven't been around very long. I know that my reputation isn't that high, and that it's low relative to my follower count because it's inflated by bot upvotes. I hope that we can be adults and still discuss the issues. Sure, Steem is it's own ecosystem; it lives in the cloud; it's a free-market anarchy... and we have an illusion that regulators will never find us. But don't say I didn't warn you. When they shine their light in our direction, if we have a self-policing ethical ecosystem, they may just move on. If we're still selling financial derivatives to amateurs, with zero risk borne by the sellers... well... there's going to be hell to pay.
@themarkymark @yabapmatt @buildawhale @sneaky-ninja @booster @pushup @minnowhelper @upmyvote @allaz @msp-bidbot @smartsteem @lovejuice @upyou @levitation @moneymatchgaming @votebuster @boomerang @upmewhale @mercurybot @jerrybanfield
... don't say I didn't warn you.
Great read and excellent observations. I don’t think a self-policing ethical system will ever suffice though. Not unless it also includes actual protections, not merely refunds.
I wrote about the same topic a while back already but suggested another solution. Basically, the suggestion to be found in between the lines, to call a spade a spade and call bidding bots what they effectively are: advertising.
That would require a whole new approach though, on hard fork level even. But best of all is that it would allow both to co-exist, all while taking the fallacy that is the promotional aspect out of the argument. Because that’s merely a catch-22, an argument to the benefit of only the bot operators. Because the day will come/has arrived already in which you can not hit trending anymore without using a bot. Unless you have several orcas or a whale supporting you.
Thank you for your response. I do remember that post from a while back. I didn't respond at the time because I was new to Steem, just starting to experiment with my bidding bot strategies, and not at all ready to weigh in on the different levels of arguments.
I am not in favor of protocol changes to resolve social problems in the ecosystem. I think that establishing solutions without implementing a hard fork is better for the long-term health of the ecosystem.
Trending and Hot pages are not protocol level. That means that one of your suggestions (stripping paid votes out of the formulas for trending/hot) would resolve most of the demand problem. The financial risk implications would still remain, but if the bots aren't required to get post visibility then the virtually unlimited demand would diminish and the problem would mostly disappear.
Since Steemit is fully focused on SMTs and doesn't give a damn about problems that they believe will self-resolve with the launch of SMTs, maybe calling on the other groups that provide front-end interfaces to fork the Condenser and rebuild the hot/trending calculations is more practical than calling on the bot owners to change their stripes.
You can lead a horse to water, but you can't make it drink.
I totally agree with this. Most voting rounds end up with a loss. There really isn't any reward pool rape caused by bid bots at all because most people are loosing money (even over 80%) by using bid bots. It's just advertising. At best I'd say we need to limit the max post age. Other than that I don't see anything to be fixed.
Wow, @josephsavage, that was a really pleasant read. You turned around my whole perspective and understanding about bidding bots. I have never thought about the fact that we are in fact looking at the problem the other way around.
Why aren't we calling out the whales that create and operate these bots?
You rose a great question, we are blaming users, but no responsibility is put on the whales. It is like not blaming the drug dealer for selling drugs, in a way :)))
This is a really good point. Thanks for drawing attention.
Points to be taken care of as soon as possible:
Refund of invalid bids, and also refunds of bids that crush the highest bid cap.
Issuing a warning to bots that do not follow the 5 points described here in this post.
An Orca, a dolphin, and a minnow should adopt a bot to take care of the bids submitted to it. Curate it in the timeframe of the bid submission and the time of the vote.
Comment voting should be banned for bots.
This actually sounds like a meaningful action plan. Thank you for taking the time to work through my extremely long post and pull out the next steps so succinctly!
I love where you're coming from, i never saw bidding bots as futures contracts before but that's exactly what they are.
I didn't realise it but i myself have been shorting STEEM against the steem dollar by participating in the bid-bot anarchy - mind, it has been paying off superbly as of recent.
I hope bid-bots do get more regulation though because shit could go south when steem/steemD stop pumping or a regulatory body finds out.
I've been cutting down on my use of bidding bots lately, maybe 3-4 per post instead of 10-12...
It's playing with fire, though, isn't it?
Bid bots are the perfect vehicle to bring in money. Not only, as you pointed out, does the vote seller take no risk but they capitalize on our inherit greed.
If we as a community would all agree to just vote the minimum bid each time we voted we would maximize our profits/$ spent since the higher the value of vote the lower the % return. Then the only variable would be the number of people voting in a round.
But since we always want to one up the other one or take as much for ourselves that we want we make the large crushing vote to take for ourselves. So I really like the idea of bid capping.
I also agree that the owners of the bid bots should be held accountable to the accounts that they let use their services. More of them should be actively banning accounts that are upvoting spam.
Or maybe create a master list that if you are banned by 3-5 upvote bots then you can't use any of them.
I think crushing the bid would be reduced if more users actually understood what they are doing. So far I have been tight-lipped about my bidding strategies because I don't want to give away the secret sauce, but I've come to realize that if more people followed my strategies, they would be more successful, not less.
So watch for a tutorial on how to reduce risk and increase profits from bidding bots to be published this weekend, probably.
Delegating to bid bots is a great way to generate cash flows on an underlying SP position without having to actually cash out. It's a great move for whales, as long as they don't think that bidding bots are harmful to the ecosystem. If bidding bots are harmful, then it's terribly short-sighted and they'd be better off just cashing out.
There are no easy solutions for how owners should decide what accounts use them. Point 4 is a step in this direction, because it creates visibility for investors (delegators). If you scan the list of what was voted on and it's all garbage, you remove your delegation and give it to a different bot. Similar returns, but better content. This would be a positive move.
That's a band-aid solution. Since there is no centralized authority, there would always be upvote bots that compete by not having any quality controls. As long as they can find investors, the demand for the product will always be there. And that's the real underlying issue: demand is limitless and unsophisticated. That's why i think the answer is for the 'industry leaders' to adopt ethical standards. That's why I called out @yabapmatt to take responsibility for keeping the services listed on his site to a certain ethical standard. Like it or not, he is the single most influential person in the bidding bot industry right now, and he needs to take ownership of the responsibility that entails.
I don't think it's just greed. I think there's an element of gamification to it too. However, it's much easier to win the game when the price of Steem keeps increasing -- as @theinsideout mentioned above. I just wish more people who use the bots would take the time to understand them. Since that's not likely to happen, I agree we should have some rules in place to protect the community.
there are advantages and disadvantages if we use bots.
hopefully we are more intelligent in using it.
josephsavage
Upvoted, Resteemed. "Lets make steem great again". :p.
Thanks, @dakotakaiser. I appreciate your support in getting this important message out. We are still waiting for bot owners to weigh in, and I'm just whistling into a hurricane if they don't.
Thanks for taking the time to explain this in clear language. When I started getting active here, Steem and SBD kept rising, so it was easy to win even if you lost. The lower prices are forcing us to learn more about how a lot of things work around here, including bidding bots. Lucky for me, people like you provide a chance for an education if people will just take the time to read. "Resteemed"
Thanks for the resteem! That helps a lot. I've had good response on this from bot users, but I'm still hoping to reach some bot owners and get their thoughts.
I've realized the need to write a complete guide on how my bidding strategy works. I will probably publish that this weekend.
Thanks, I'll be looking for it in my feed.
As for getting the attention of the bot owners, how can you do that so long as they're making money? I mean, that's what @grumpycat was doing by flagging people who use bots that aren't compliant with his 3.5-day rule, but even so, most bots haven't changed yet.
That's a fair point. It's a cash cow, so why should they change?
I think I made some valid points in my post about the legal risks bot owners are taking, but the real question is 'how can we get them to actually read this?'
@grumpycat had no effect on bot owners because he targeted their customers, not their businesses. There is virtually unlimited demand for post promotion, so targeting the customers has no real impact. You have to call out the owners, establish industry standards, and punish the bots that continue to operate in unethical fashions.
If he targeted their update posts to strip the rewards... if he targeted the delegators, if he got @yabapmatt to remove them from the SteemBotTracker...
Those actions would have real impact on their businesses, and would give them much stronger incentives to fall in line. But if you're afraid to take on whale bot owners, by all means go after their unsophisticated customers that are new to Steem and have no f***ing clue why they were targeted...
It's like swinging a baseball bat in a rain storm to keep the rain drops away.
I'm not sure its as much of a cash cow as it seems. Only the SP delegation sellers are making big money I think. @themarkymark says @buildawhale has an 850 dollar upvote and he pays 8500 dollars per day for it, well that just happens to be right at 100% of the upvote (without taking SBD pricing into consideration).
Even if @themarkymark is paying out 100% of the SBD received to delegators, he is still making money. What happens to the curation rewards earned by @buildawhale?
The bot owners can set the payout % and announce what it will be. @themarkymark could set his payout at 85% and he might lose a little voting power but it wouldn't break his business at all. It would probably improve return for the investors that stayed because smaller voting power means your number of bids to service in each round would decrease and rounds would be closer to the intended 144 minutes.
(Point 3 above is actually to create a more stable operations environment for bot operators and investors, while improving predictability for customers)
Right, I felt sympathy with some of the posters he flagged because they didn't really do anything wrong and produced good content.
I wrote about this a couple of weeks ago. The problems around people losing money - sometimes very large amounts - are easily fixed with bid capping. However, the people who run the bots would then make less money for themselves, which is why they aren't interested in doing it.
Thanks for sharing! I do recall that post, or maybe some others like it. These inputs swirl around in the back of my brain until... click. It all comes together.
The abuse that your wrote about would be mostly resolved by the acceptance of my 5 standards.
With points 4 and 5, the bot would record the bids and start marking them invalid when they crush the window beyond the maximum parameter. With point 2, the crushing bids would automatically be refunded. With point 1, the bots that don't follow the standards would be more easily identified and dealt with.
Do nothing. That's the best thing to do about vote bots. Do nothing, no rules about explaining anything to the person that wants to use them. Let the whales and up and coming dolphins take as much money as they can from the plakton/redfish and minnows they want. "ethical ecosystem", that line really made me laugh.
I think all of you should bow to the whim and will of the "for a post? @earthnation says 44 SBD per post, but only 3x per week. ", and do as they tell you. Only vote when they say it is okay, only how often they say it is okay, and only for who they say it is okay to vote for. Have a friend you like supporting and voting for, to damn bad. Have a minnow you want to raise up, to damn bad.
So I say do nothing about the bots, let them clear the chaff out, do nothing about the schemers as scammers, let them clean the chaff out. Let them take the money and run like so many have done. Then you can feel sorry for them and vote the idiots up that let someone steal their money. Power the Bots, more bots are needed, spam bots, resteem bots, cheating bots, loan bots, and lets not forget the downvote bot.
Bots are here to stay, they will never be fixed, or made to go away. Trying to control them, is only another way for people to centralize/mainstream the system. If an individual breaks the rules of their country, or host country and they get caught and prosecuted, their fault not mine. If someone wants to believe they can get a 40% or better return by "Banking" with someone, and they run away with that person's money, to bad. They can hire a lawyer, and throw more of their money away.
So if a group of people can not manage themselves, there are always groups and organizations like @earthnation to manage your lives for you, and make those hard calls, like how you are allowed to vote.
That's the thing... I actually like it here.
I'm not trying to establish a centralized authority. I'm not saying that @earthnation should set the standards. I definitely don't think their numbers should be arbitrarily followed.
I don't like centralized authority, and I'm not a big fan of government stepping in. But that's why the community needs to take action on our own. If we do, then... nothing to see here, move along. If we don't, then others will take action for us, and we won't like it.
It ties back to what @dan said about effective governance. Which is ironic, because I thought I disagreed with him. I guess I agreed with the philosophy, but not his planned approach. The devil is in the details.
A tough call. Fact is your vote is yours to do with as you please. We do have a group that can step in. They step in at planned hard forks. They are called the witnesses. That is why you see people and groups of people wanting to be witnesses. They are pretty much the community backbone. They governing body if you like.
My vote is my vote, I use it as I please if it does not violate what the rules say, not as someone else wants to direct me to use it.
If you have not voted for some witnesses, find some with a philosophy you can follow with few regrets and vote for them.
To be clear, I'm not calling for action from the witnesses (as witnesses - some are bot owners, and I am calling for action from them) or suggesting a protocol change. The witnesses are the guardians of the protocol and keepers of the blockchain. They are not a governing body for what happens on it.
In this case, no action from the witnesses is required. There are enough market incentives in place that if the industry leaders take action the other participants would feel competitive pressures to fall in line.
I have four spots open. Any suggestions?
Not really, I have a lot of open spots, I add them as I find them. I did not mean to imply they were a governing body, they are the ones who indirectly control the direction steemit moves, at least that is how I understand it, they are the ones who make the hard fork decisions.
I don't really want to see a governing body on steemit I guess. I like the way it is set up now. If people have a real issue, it seems to get discussed and then taken care of.
Example, the cryptanalysis guy haejin or something like that and berniesanders feud - pretty much settled between them. Did a governing body need to step in?
The guy that was running a so-called bank on steemit and offering outrage ROI - most of the people that bought into that lie were taken care of by a user, no governing body needed.
So I guess I just do not see a need for a governing body. All they will do is tell you how to be good little facebooker, youtubers, and googleliters. So far all the post that call for a governing body for this reason or that, well, to be honest, I have not seen what the imagined problem is. Maybe I am just blind. But nice discussion, thank you for being concerned with something you feel is an issue, all I am concerned with is we do not throw the baby out with the bath water kind of thing.
I absolutely agree with you. I'm not trying to get a governing body in place, but to get the bidding bot industry leaders to step up, decide on ethical standards amongst themselves, and self-police their little niche businesses.
Their doing so would significantly decrease the likelihood of some outside governing body coming in and shutting them all down with sever fines and jail time.