Fixing a Problem in the Economics of Steemit
Imagine a lottery system in reverse. Out of everyone who has signed up, one of them will be chosen at random to incur an enormous debt in the millions, while the rest will be rewarded with a few dollars. Similarly, what if insurance worked the other way around? Drivers are periodically granted a trivial amount of money until they're involved in a car accident, at which point they are compelled to pay double the amount of damages. In theory, with the right numbers, the net effect on wealth could balance out. Yet you don't see reverse lottery or backwards insurance businesses anywhere, because they are palpably an inefficient use of funds and just don't make any economic sense.
Part of the Steemit economic system has this very same problem.
The Problem with the Current System
Overall Steemit has an ingenious rewards system: it allows users to pass on rewards to others at no real cost to themselves. This is achievable because each user does not directly send their own wealth to other content creators, but rather, elect certain content to receive a larger proportion of rewards from a public pool. The public pool of funds comes from the inflationary nature of the Steem currency, which currently creates around an extra 9.3% of new Steem per annum (this rate reduces over time). This new Steem created is distributed as follows:
- 75% goes to rewards (both curation and authorship)
- 10% goes to witnesses
- 15% goes to paying interest on all existing Steem Power
Now I wish to focus on this 15% of the 9.3% of inflation that goes to paying interest on everyone's Steem Power. Right now this works out to be approximately ~1.5% interest per year. And this number will only shrink further as time goes on as the rate of inflation falls. Considering the average daily price fluctuation of the currency is probably close to 5%, a yearly interest rate of 1.5% (and reducing over time) is a less than negligible added incentive for people to power up and hold more Steem Power. Yet this does NOT come at a negligible cost - it is 15% of the TOTAL amount of new Steem coming in. At today's price of $0.245 per Steem, this is roughly $800,000 a year being used to pay an annual interest roughly on par with 1/4 of the daily price fluctuation.
Just like in the reverse lottery, if an otherwise decent sum of money is spread out too thin, it can lose its utility value. Right now, $800,000 worth of new Steem a year is effectively being wasted.
Proposal
I think we should use this 15% of new Steem elsewhere. I propose that most of this amount gets added to the reward pool while some of it will go into a fund, perhaps controlled by Steemit Inc, to further support certain projects. The new distribution will look like this:
- 85% goes to rewards
- 10% goes to witnesses
- 5% goes to a development/marketing/projects fund
This will represent a very noticeable (13%+) increase in rewards from posting and curating while allowing Steemit Inc to have an ongoing development fund.
But the Steemit account already has 73 million Steem, why would they need more money to fund anything?
Let's say you run a business with very promising prospects, except every employee paycheck, every piece of equipment and supplies, every marketing endeavor etc. - literally every possible expense has to be paid with a chunk of your own shares. On top of this, you will never directly receive a profit in the form of revenue, only indirectly through the increased value of your own shares, which ironically, can only be pursued by spending more of them. You are cut off from any natural operating capital that should be part of the business process itself.
This is a very awkward position to be in. You're forced to spend the very thing you deem to have the highest future prospects: your shares, at a time when you know it carries the least value.
Yet this is precisely the balancing act that Steemit Inc. must do on a day to day basis.
While their funds are plentiful, they are also finite. Given how competitive and difficult the social media sector is, the psychological burden of operating under this balancing act is almost guaranteed to produce sub optimal results. They're likely to be overly conservative with expanding and expediting their operations, which is very much needed in Steemit's development.
I believe it is imperative for the entire Steem community to directly show their support of Steemit Inc, by allowing this 5% of new Steem to be put into development funding. This is not merely about the amount of money allocated, but a sign that they can freely pursue greater projects at a faster pace because we, the community, have their backs. They're no longer in this awkward position of funding themselves with nothing but their own finite supply of Steem. And if that supply drops low, they know that we're open to increasing their funding. Conversely if Steem is doing incredibly well, we can rein it in and have even higher rewards for everyone. I will ask that in return, Steemit Inc. be a little more open with respect to the use of funds in their Steemit account, which they have pledged to help develop this platform.
We have a brilliant decentralized platform with decentralized governance, and on top of that I think we can have some of the power of centralized development. Make no mistake, we are competing against companies that can waltz into MIT, pick the top 30 graduates and offer them $350,000 each to work for them. And I honestly think we can out-compete most of them. But the first step is to unshackle our development team and allow them to go full Steem ahead by opening the doors to ongoing funding. Fortunately this can be done with next to no cost to us, in fact, we can still enjoy considerably higher rewards on top of it.
Conclusion
The 15% of new Steem going into paying a measly 1.5% pa interest on Steem Power is a complete waste, and would be better used to increase author/curation rewards, as well as supporting our development team. Knowing the community is willing to support Steemit Inc. directly will go a long way to help them expand development more rapidly.
Image Source 1
If you think some of these points are valid or worthy of discussion, please Upvote, Resteem and Comment, and I'll be very interested to hear your thoughts.
I don't foresee myself doing many of these pieces, as I find Steem/Crypto related articles are off putting to new users even if they're generally well received. If you enjoy satirical comedy please follow me @trafalgar
Couldn't agree more. People aren't interested in Steem Power, and we are seeing more SP being liquidated everyday. Liquid Steem on the exchanges is up nearly 500% since Hardfork 16. Those who are sticking with SP is because of the influence it brings and not the paltry, insignificant interest rate.
But allow me to rant on a tangent.
Personally, I don't see the point of Steem Power. It's a peculiar artifact from the hyperinflation days that today does nothing but bad PR and make the system unnecessarily complicated. I suppose one purpose was offering security, but without the ridiculous interest, that is certainly not the case. The next was saving stakeholders from panic dumps, but that has proven to not be the case either. Indeed, the price was tumbling during the 104 week power down period, and that caused many to assume that the price would crash to 1 cent or so when the 13 week power down went live. That never happened, and the price has been much more stable during the 13 week power down era.
Indeed, there are many successful cryptocurrencies worth hundreds of millions if not billions of dollars out there, which didn't need a lock in period of any kind. Crypto markets are self correcting, and prices correct very rapidly on pumps or dumps. By drawing out the dump cycle, the price can drop gradually over time, whereas a flash dump is quickly corrected. This will be a controversial opinion, but I'm willing to suggest a completely hypothetical scenario that the Steem price would be a lot higher were there no 104 week power down period to begin with. Sure, the price would never have hit $4, but on the other hand, there would never have been a gradual bleed to 95% of the peak value.
The current interest is very unattractive, too. The "3 month lock in" period is still bad PR and reeks of "scam" to ignorant traders. It's obvious seeing the Poloniex trollbox - the FUD is still strong.
Of course, there needs to be a way to determine influence, and there are many simpler ways of doing that. I like snowflake's suggestion the best. The liquid STEEM holding of a certain account will "mature" to voting influence after 7 days. This solves the 7 days re-voting problem (in fact better than the current model, where it's possible to re-vote with the 1/13th of the same SP) and allows for a more elegant wallet with just two components - STEEM and SBD. No power down headaches to worry about - a frictionless network for investors and users alike.
Many investment vehicles have long term holding requirements. I don't see that as scammy at all (bonds, CDs, IRAs, 401Ks). I also think that steem power's 90 day power down window is useful to encourage voters to take a long(ish)-term view towards the content that they vote for. A compromise might be to pay rewards in steem. People could always power-up, but no one would be forced to lock up their gains.
The question we have to ask is what is the purpose of the lock in period? and does it really encourage people to hold steem?
My answer to that is that it doesn't. It does the opposite actually.
Throw someone in a cage and ask him how eager he is to get out.
Now throw someone in a cage with the key and ask the same question. The one with the key will not be as eager as the one without the key because he knows he can get out anytime he wants.
If steem power is removed entirely there won't be more people cashing out, this is a misconception. What makes people hold long term is their belief in the project. Using force ( lock in period) to achieve something is never a working strategy because users will always get around it. People who want to get out will do so regardless of any power down period anyway. The lock in period just slows down the price discovery process.
It's not a cage and it's not using force if it's a voluntary agreement and no one is being imprisoned. Those analogies fail.
The purpose of the power down period is not just to keep people from cashing out. It's also (perhaps moreso) to encourage voters to vote in ways that promote the platform's long term interests instead of focusing exclusively on their own short term interests. i.e. Vote for the article that will attract users and raise the price of steem, instead of the article that will attract whale votes. Traders and investors who are not interested in voting on content have no need to ever even learn that steem power exists. They can remain exactly as liquid as they choose.
And you're right that someone who wants to get out will find a way. They can just sell their whole account. It happened with the steve-walscot (or something like that) account. So that's even less of a reason to worry about friction.
Wouldn't allocating 3% more to authors and witnesses achieve the same but keep the functionality of Steem Power? Steem Power has uses which aren't trivial.
@steemit Inc has stopped powering down. This indicates to me that 1.5% interest isn't negligible even for the richest Steemian.
@demotruk's comment on the 1.5% interest and its implications for Steem's economy should also be keep in mind when discussing this issue.
Also can we really revote with 1/13th of the Steem? This means payout period can be longer than 7 days? Or am I missing something else?
I hope the comment that you replied to made it clear that I'm not in favor of eliminating steem power?
As to reallocating the interest, the more I think about it, the more ambivalent I become. As far as I'm concerned, at best it's a low priority to make any changes at all to the block chain economics at this point. Steemit can already get revenue for development from reward splitting from HF17/18, so they don't need a separate development fund. The developers need to focus on improving the user interface and supporting entrepreneurs. The antifragility that comes with numerous entrepreneurs driving their own growth on the blockchain is where the explosive growth will come from.
Not sure about this. I seem to remember reading something that said that we lose our voting power at the beginning of the power-down week and we get the withdrawal at the end. If that's right, then we wouldn't be able to double vote because the steem power would be "offline" for 7 days - an entire payout cycle - before we could transfer it to someone else or power it up again. I can't find where I read that now, though, so I might be misremembering.
I understood you weren't in favor of eliminating Steem Power.
I also think as you said that it's not possible to vote twice with the same stake or 1/13 of it but it would be nice if this could be confirm.
An agreement that most people don't want to sign up for.
Good because it doesn't.
You assume that if we remove steem power people won't be invested long term anymore, this is where my analogy doesn't fail :-)
I don't think that's what liberosist meant by friction. There is friction because the barrier to entry is high due to lock in period. The majority of users don't want to lock their money which means many users are excluded from participating.
Steem power also adds a lot of wallet complexity which is bad for mainstream adoption.
Authors don't need steem power to participate. Long and short term traders don't need steem power to participate.
If someone wants the privilege of voting to shape the nature of the content on the blockchain and the distribution of rewards, then I think it's fair and prudent for the content community to demand a demonstration of long term commitment to the platform. It's sort of like "proof of stake" at the content layer.
Possible compromises: Early withdrawal with penalty, distribute rewards as steem instead of steem power.
I know what you mean but i think the benefits of eliminating steem power outweight the benefits of keeping it.
It's also going to be more and more difficult to own a large piece of the pie as more users use steem and as the price increases, so the problem you mentionned is going to dissipate with time.
belief is not enough to keep me in any cryptocurrency, I trade them all day for profit, and I am only dedicated to steem because it has steem power, a great way to lock in my trading profits is with steem power. Locking up tokens is good for the token value. Dash has masternodes, Ether has ICOs, and steem has steem power.
The steem power harvester!
From what I've seen you are trading a lot with your emotions and jumping on every hyped crypto. So I understand how locking your crypto may help you in that regards, however long term holder trade rationally.
AFAIK users are not required to lock any funds to become a dash masternode, so it would be exactly like steem without steem power. If masternodes had to lock their funds for 3 months there would be a lot less of it.
if user sells their 100 DASH and only have 900 DASH left, that user no longer has a masternode, so it's locked up for sure. There are far more traders who trade on emotions and jump on bandwagons than there are long term holders(rich people). STEEM needs steem power to protect it's market against FUD and emotional trading.
If the user sells 100 dash then his masternode automatically goes offline, the money is not locked and can be withdrawn at any time.
That's incorrect and long term holders are not necessarily rich people.
if steem power lock was removed today, steem price would crash today
Exactly +++
Sure, but those are backed by known and stable institutions. The crypto world is a different matter altogether.
Well, I think the goal is for steem and steemit to become known and stable institutions. They are incorporated, there are names and faces associated with the corporate officers, the code is open to inspection, and they've been around for over a year. I can see how a holding requirement might appear scammy if they were operating in the shadows, but they're not.
And at this point, anyone who was spooked by scam fears and wants to power down has done so. The only friction that remains in the system is friction that people have chosen to accept. I see no clear benefit to disrupting the current architecture.
Sure, but you're being logical. That's not how the crypto world works. It's all about perception and emotions rather than facts and logic. There was a massive FUD campaign against Steem last year, and many still believe Steem has failed, is a scam etc. As the price increases lately suggests, more people are coming round to the facts, but Steem still has a perception problem.
Of course, I agree with you about not disrupting the current system. This is merely discussion, and I'd only agree to this change if we're sure the benefits greatly outweigh the risks.
100% agree, a few of us have discussed the possibility of getting rid of SP altogether and just let liquid Steem vest automatically after 7 days to avoid double voting.
Of course, there are issues like security (which is non trivial) and the instant gratification of buying voting power might be attractive to users. However, I think they can still be remedied in other ways.
I also have a few other suggestions but I didn't want to cram them into 1 post, and I feel that this one would be less controversial.
I look forward to a follow up post then :)
haha I dunno, I sort of want to just stick to my comedy/satire pieces and stay away from crypto/steemit topics that scare away new users. I feel that this suggestion was somewhat important so I broke my own rule and pushed it out.
I feel the same way, I much prefer writing about stuff I'm into. But I feel it's important that our voices are heard on some important matters. It's a short term problem, of course, it's still early days. Once we head out of Beta, we'll go back to ranting about our interests and penchants :)
with no 3 month lock I would have already sold all my steem and forgot about steemit, the steem power lock keeps me here, and I like that
I agree! I feel like the same thing would of happened to me to. The lock, And the Steem power holds me here. Because I have something "invested" . But at the same time I see the potential issues outlined in the post.
Don't kid yourself, the money keeps you here!
if you are talking about posting rewards. you are wrong, my average earning per blog post is about $1 since I joined in May 2016, steem power locked up keeps me here, and keeps me interested in cryptocurrency as a whole
I've been thinking about this lately as well. I asked myself "would I include SP if I were designing Steem from scratch?" My answer is that I'd only do it if I thought it was the simplest way to prevent the re-vote problem. And if I did do it, I wouldn't offer interest. SP would very simply be a way to commit some of your funds to count towards voting influence.
Without Steem Power the platform has no way to generate demand for Steem and revenue.
The utility of Steem Power will remain. There will be more demand because there will be less friction. Especially in the maddeningly volatile crypto markets, 3 months is a deal breaker. There have been a lot of Steem buys on the exchanges in the last month and a half, yet precious little of that has been powered up. Net transfers to exchanges remain largely negative. A majority of the demand has thus come from market speculation rather than buying influence on the platform. Just to clarify again, that utility will remain, just in a different form.
There is no reason to power up. I'm not even doing it anymore.
The "3 months lock in" period also takes away a lot of the utility of steem power. Most users don't want to lock their money for so long. Some users may want to curate only for a week and then do something else with their money but they can't because their money is automatically locked for 3 months. Removing steem power is a no brainer to me.
I see what your getting at. I feel like we have to accommodate 2 mindsets. The people who would absolutely need their money right away, And other people who can wait.
I personally am okay waiting for 3 months. I see why people on the outside see it as a scam though. Maybe we can find a way to satisfy both parties.
Why would people want their money be locked in for 3 months? There is no benefits in that, like OP said 1.5% per year certainely do not warrant wanting to lock your money for 3 months.
@leesunmoo suggested similar but more innovative one. When power-up it takes 7 days from STEEM to SP (slow power-up), and can be cancelled if they want during the 7-days. Instead, power down can be done immediately (instant power-down).
That was my suggestion too, but I prefer snowflake's idea because it does exactly the same thing with the added benefit of simplifying the wallet. Instead of slow power-up it can just be STEEM that matures after 7 days to offer influence. It is of course liquid at all times, so you can transfer it immediately etc.
So don't need a second Steem Power component that needs powering up or down, even if it's instant. Just have STEEM - gains influence after 7 days.
I think many disagree with you here. Other projects like Augur REP and DAOs have time-lock contracts for the very same reasons steemit has one.
Others are right to point out that steem has a crazy inflation rate and that Steem Power is important to avoid some of that influence. Liquid steem is still the valuation point of the network.
Steem's inflation rate is ~9%, not crazy at all.
Without lock-in the reputability of an account becomes as fluid as the token. The network loses its resistance against manipulation. Vesting is necessary to shiw that the author is in it for the 'long haul.'
This argument and many arguments like it make a common mistake, they look at STEEM inly as a cryptocurrency and not a social network with a native cryptocurrency backed by content. While some comparisons between STEEM and other cryptoa translate, the majorty are false analogies.
I disagree. The so-called "interest" really isn't. It's more akin to a stock split than interest. Analogize steem to a Corp. Each unit of Steem Power is analogous to one share of stock, and SP holders are the owners of the company. Even if 100% of the distribution went to SP holders, this does not mean that they earn more "interest" than now. Yes, they own more shares but all else being equal each share is now worth proportionally less than before the "split". Just like a stock split.
The reverse is also true: depriving SP holders of the current 15% allocation does not cost them any "interest". What it does do, however, is increase compensation to workers at the expense of shareholders being diluted at a greater rate.
Corps can compensate workers with cash or with stock. Steem does the latter by allocating most of the recurring stock split allocation (so-called "inflation"), or 85% of it, to posters, curators and witnesses. If we instead allocate 100 percent of the split allocation to the workers and none to existing shareholders, then we are simply giving those workers a raise, that's all (assuming the size of the split remains unchanged).
So the idea that the 15% is currently being "wasted" or used inefficiently is just not true. The real question is simply whether workers currently need and deserve a huge raise for their services. Personally, I don't think they do. Steem has been a huge success to date and workers have been rewarded handsomely.
Steem gets its market value in large part because of long term holders. If we dilute those holders more rapidly, their incentive to hold diminishes. The market value of Steem drops accordingly. And the new "stock" awarded to workers via "inflation" is worth less than before. Holders (and the market price of Steem) are thereby harmed and workers are only marginally benefited (if any).
I understand your analogy between this currency and a stock but I think the distinction is arbitrary. At an abstract level, even interest gained in a fiat currency on some level is merely earning a 'split' and takes a part of the inflation. There is no true distinction be it fiat currency, stock or crypto currency, they're subject to market forces. If you feel that there is a difference between the two as fiat currencies have an arbitrary inflation rate compared to profits in a stock, than here Steem is more like a fiat currency. Either way, this analogy is not very elucidating.
I feel that the disagreement here is that you deem the 15% going to stakeholders is a benefit, irrespective of whether it appears trivial or not, and redirecting it to developers would mean a loss on the part of stakeholders. This is true, I am not arguing against that.
I am arguing that there are certain forms of wealth distribution, such as the reverse lottery example, where total utility is reduced. I think taking $800,000 a year to provide a 1.5%pa and shrinking benefit to an asset class with a daily volatility that's about 4x that amount is one such example. Even leaving aside whether the developers deserve it or not. I feel without question this amount would make more of a palpable different if it's put entirely into the rewards pool, or just taken off the inflation entirely.
In theory the market can perfectly take this into consideration and reach the same equilibrium. But in practice market failures such as asymmetric information will play a part. Psychological biases will make it very difficult even for the most rational among us to properly value a 1.5% pa payment of an asset class with a daily volatility 4x that amount.
As to whether the developers deserve some of these funds, if I'm unable to persuade you in the article, I will be unable to persuade you here.
Your criticism is a sound one, but I hope you put some thought into my reply too
You're all making great points but what I'm repeatedly finding confusing in this discussion, is the comparison between a 1.5% pa and 'daily' volatility. Isn't this comparing apples and oranges? Isn't this conflating the daily with the long-term? I mean, if one is holding long term, what do they care about the daily percentage fluctuation? They are holding long term.. They are happy for whatever 'long term gains' made by steem, and ostensibly they are happy for the 1.5% to sweeten the pot. I just find this repeated comparison confusing.
Very good question
Best way to describe this is that the market generally views that there's a financial cost to assuming volatility, as volatility is a form of risk, and all other things being equal, people are risk adverse. I'll copy a excerpt from the wiki page:
If you look at the Black-Scholes model, the financial formula used to calculate prices for all derivatives, volatility has a relatively high price. I think in an intuitive sense, this basically means that generally, people who look at the price of Steem and notice that it zoomed from 20c to $4, plummted to 7c, then pulled back up to 30c within a span of 10 months and are still honestly considering it to be a worthwhile investment, are highly unlikely to be swayed one way or the other by the extra 1.5% yearly interest payment. That is to say, they've assumed the extraordinarily high risk of a high likelihood to lose all their money in the hope that they make a killing, and deem, I think quite rationally, that an extra 1.5%pa interest won't save nor deter them. Yet this 1.5%pa payment is coming at the cost of $1000,000 a year now, which I think is a waste as it provides next to no added incentive.
I sort of know what you're coming from, volatility can seem like an isolated issue that I'm confounding with interest in an attempt to trivialize the latter. That if two things have an expected value that is equal, in the longer term it doesn't matter and any interest on top of it is a separate benefit and should be seen as such. But generally the market does not see it this way. An interest payment on something with low volatility is worth far more than the same interest payment is on an asset with high volatility, even if the expected return of those assets are equal. It is a little arbitrary in the sense that it's not a law of physics but an aggregate measure of human desire. Interest payment is exactly the same, generally we're partial to having money today rather than tomorrow which is why positive interest incentives are necessary. Just as generally we're partial to low rather than high volatility. If we all woke up tomorrow valuing delayed gratification more than instant gratification and higher uncertainty over lower uncertainty, the numbers in the models will change to reflect this market.
I hope the example above sheds a bit of light on this. I'm not a finance/econ expert but hit me up on chat if you have further questions and I'll try to answer them.
Thanks for your reply. That was very insightful. I'm nowhere near a finance/econ expert, but since being in crypto I've learned far far more than I ever thought I would about these topics.
Thanks a lot for keeping an open mind =)
The closed one won't open anything.. ;)
My take on the matter - 1.5% increase in SP remains to be an arbitrarily low number used to make it seem like there's a point to holding SP. I'd venture that curation works can easily top this 1.5% increase per year just by using the platform, and increase in curation rewards is the better reason to accumulate SP. A 1.5% increase is also negligible for the passive stakeholder, in which such capital could work way better elsewhere if that's the case. The number is so small that if removing that could net the entire network an extra ~$800,000 per year to channel to stuff that are more functional than a placebo-like perk, why not? It doesn't have to be raising the wages for workers or allocating budget for marketing, etc. Can be anything at all, especially stuff that makes Steemit special. Might not be a popular opinion since they're quite costly, but I really think that relieve efforts / charities / meetups / Steemfest type of deals are something to be reckoned with.
Well said, I completely agree, it was different at the beginning when the purpose of the allocation to steem power holders was to reduce the inflation impact and reward steem power holders. That benefit is now largely gone anyway and it might be better use to use this money somewhere else. I love your suggestion to spend it on something that makes steemit special.
@trafalgar
I have seen this argument made several times before about eliminating the "interest" on SP. I think calling it "interest" is a bit of a misnomer. At best, these distributions are a way to help mitigate dilution. Eliminating the distributions effectively makes holding SP more "expensive" for users and will likely result in fewer people willing to hold SP. There is already little incentive to hold SP. What would you propose as a way to mitigate dilution if you eliminate distributions to SP holders from the equation? Or should SP holders simply accept the greater dilution?
A couple of things here...
First - Steemit, Inc. should not be given more stake/control/money than they already have. In fact, they ought to be reducing their current holdings...by a significant amount. We continue to hear them speak out of both sides of their mouth when it comes to "decentralization" and what they're willing to do to promote their own website. The last thing that most people likely want to see is further concentration of stake/control/money into the hands of a few people, especially if actual decentralization is the goal. This has been one of the most prominent vectors for attacking Steem/Steemit since last year.
And quite frankly, Steemit, Inc. has stated on several occasions that they don't have much interest in improving their site and marketing this project themselves. With the money that they already have, they should be fine with continuing the relatively slow pace of development that we have already witnessed. Giving more money to them won't change much, in my opinion.
Secondly - I don't think the reward pool needs a larger percentage of rewards. If anything, as was stated by @pfunk already, there needs to be better rewards for those who are willing to buy/hold stake in the platform. That means providing better incentive/benefits for those users who actually want the influence and actively use it. Currently (at least the last time I saw it calculated), authors are earning 88% of the rewards on average, compared to 12% for curators. The ratio is coded as a 75/25 split, but due to the reverse auction, stakeholders using their influence receive about half of what is allocated by the code.
It has been stated many times by users (myself included) that the ratio should be returned to 50/50. This would give a much larger incentive for users to power up their STEEM and possibly even drive demand for STEEM much higher than it is. At the very least, it would likely reduce the number of accounts that are powering down. Of course, the split wouldn't even be 50/50 due to the reverse auction, but it would bring the ratio much closer to even than it is now. With the number of readers/voters greatly outweighing the number of authors, it makes sense to have a larger pool for them, especially if onboarding and large-scale adoption is desired.
This is an economic-based platform. If you want more of something, incentivize it. If you want more people purchasing STEEM and powering it up, make being a stakeholder more lucrative.
On the same note - if you want less of something, make it more economically painful to do it or simply reduce/eliminate benefits. Killing the "interest" for stakeholders and giving more money to those who have no need to invest/power up is a sure-fire way to reduce demand for STEEM and will likely just encourage more and perpetual dumping.
Let's find better ways to improve demand for STEEM rather than proposing essentially the same ideas time and time again for killing off any desire to be a long-term investor. After all, short-term speculation was what they (allegedly) wanted to avoid with this project...because it's what all other cryptos have done. We need more long-term thinkers around these parts. Too many people are only interested in right now and many of the complaints and solutions that we've seen over the past several months reflect that. This needs to change.
Thanks for your robust reply, upvoted.
I take your point about the author/curator split, admittedly I'm not sure how that works, and there may be reasons why the effective split deviates from an economic optimum. However, just from the hearing 'reverse auction', it sounds like market forces are dictating the rate to be what it is, which at least at a cursory glance would seem fair. But there may be more to this, thanks for alerting me to this issue.
The interest (I don't think just because it doesn't beat inflation doesn't disqualifies it from the term, but that's semantics) may serve merely to mitigate some of the effects of inflation. If we're completely unable to agree on how the 15% should be spent, a common denominator would be to deduct 15% from the inflation rate and remove this part entirely. This would effectively have almost no change but makes the numbers on the books a lot clearer by removing an extra layer of market analysis and thereby improving efficiency in arriving to a more accurate overall price equilibrium.
It may be true that some believe there is insufficient incentive to hold voting power and removing this 1.5%pa will, however little, reduce that incentive even more. I am not disputing that, but I wish to point out that the 'however little' part is very important. The question is: is the marginal extra incentive of holding SP gained by this interest payment sufficient to cover its cost of 15% of the new steem created? How many people are right at the razor's edge between holding and selling where a yearly interest payment of about 1/4 of the daily volatility of the underlying asset is likely going to shift their view one way or the other? I honestly don't believe that number will justify a cost of, as of now, $900,000 a year or so. Having 1 person with a million dollars, or 100 people with $10,000, or 100 million people are all examples of of a distribution of a million dollars, but they represent vastly different utility values. The form of distribution in the interest payment in question, I feel, represents a sub optimal utility value to say the least. To surmise it as 'there is insufficient incentive to hold SP as it is, reducing it further would just make it worse' is not quite getting the point.
I happen to agree that there exists insufficient reasons to hold SP right now. My personal belief is that this is an incentive that has to arise organically from the desire and willingness to partake in a robust platform or ecosystem of platforms. The bigger and better Steemit, Squeak, Steepshot, Busy, etc are, the more people will naturally be incentivized to take part and have a voice by building up voting power. The wealth redistribution in our ecosystem should center around only directly rewarding the production and discovery of the best content, as well as the maintenance and development of the platform/s. Any other incentives such as directly attempting to bribe people into holding voting power via any means without otherwise contributing is introducing an element of inefficiency into the ecosystem that is economically guaranteed to be a deleterious impact. Even if I am wrong about this paragraph, or if you disagree with me here, it doesn't invalidate the previous paragraph.
Finally, if you read my piece and are not convinced that Steemit Inc should receive more funding I can understand. They certainly didn't ask for it and I'm not affiliated in any way. Out of a decentralized currency, decentralized distribution, and decentralized development, I think the first 2 are good but the last part is not very competitive compared to established businesses. It is overall a difficult balancing act to get right.
Thank you again, for your reply, especially about educating me on how the authorship/curation split works (which I shall look into). That's a separate issue, and I may well agree with you there after researching it.
I'm not at all married to the concept of paying people with inflated currency in order to mitigate the effects of inflating the currency. So on that, we can reach agreement.
What I find, however, is that most of the ideas that are suggested or proposed never address the purpose of the incentives or how to balance the rewards structure for both authors and voters/investors. Many of the solutions focus on how more rewards can be given away to those who have no desire or need to be invested in the system. The original ratio was 50/50 for authors/curators. It was changed to 75/25, with an added reverse auction to mitigate automated voting, which ended up creating the 88/12 average.
So to me, the first step for increasing demand for STEEM and more participation in the platform for a larger number of users would be to increase the rewards/incentives for those who are not and have no desire to be bloggers. If we want to eliminate the SP "interest," then that should be the next logical step. Increase rewards for those who actually take a long-term approach and want to be influential and involved in the day-to-day activities on the platform.
And as far as centralized development is concerned - as I already stated, Steemit, Inc. hasn't exactly demonstrated that increasing/improving development is their goal. They have stated explicitly that their flagship site likely won't be improved beyond "just good enough." If they want more money than the many millions of dollars they already have, then they should demonstrate that this money will actually be used for development, marketing, etc.
I can live with eliminating the 15% inflation/distribution altogether...if curation rewards for SP holders were brought back to 1:1 with author rewards. We need less money flowing out and more incentive for more users. Votes will always outnumber posts. Voters will always outnumber bloggers. The focus should probably be more on the average reader/voter and not the average content creator. That's where the real growth lies. Well, that...and having an attractive UI that people actually want to use.
Yes, I'm glad we align in our view that using a bit of the inflation to pay an amount to mitigate inflation is pretty inefficient.
I think we both recognize that rewards on this platform has to revolve around creating, discovering, curating, maintaining good content and the platform/s necessary for such actions. Other forms of arbitrary rewards like a direct pro rate inflation of currency, or a random lottery that are not directly promoting those above effects are probably sub optimal.
You make a strong argument that the balance between authorship and curation is too skewed to the author at an effective rate of 88%. I am inclined to agree here. My initial instinct is that 50/50 would be a little too heavy on the curators side and perhaps insufficient motivation for authors to create quality content, and maybe something close to a 75/25 effective split would be closer to the mark.
Having discussed it in chat however, it appears I'm in the minority here and that most ppl would rather see a stronger balance towards curation more in line with what you've suggested. Perhaps my lack of experience and authorship bias is compromising my judgement here, as it is sort of an initial gut instinct. Either way I do agree it needs to go down from 88%
As for steemit,inc I feel that they do work hard and Steem's success is heavily dependent on them for the foreseeable future. I've already put forward my case as strongly as possible, but it is quite reasonable to remain unpersuaded.
Ultimately real growth lies from a well functioning streamlined platform/s with easily accessible top quality content. This requires talent that's willing to create that content, people willing to discover and make that content more accessible, and developers to make and improve the platform. The incentive balance we eventually get probably won't satisfy everyone perfectly, but hopefully satisfies most people sufficiently, and on point enough to lead a bright future for Steem
Thanks for sharing your thoughts @ats-david, I enjoy your posts
Why go to Steemit Inc when it can go to a type of smart contract that distribute when a project is approved by the community?
It can, I'm pretty much for anything other than where it is now
But to answer your question, I believe a centralized development team with a decentralized monetary system is the key to a successful platform. I outlined why I think it's important for Steemit Inc to have ongoing funds in my article.
I do think though, that it is reasonable to disagree on where the funds go, but staying where they are is very wasteful
Agreed
This is my big asking whether someone can put LIAIKE my cats, blogs and even better would be a donation would advance saaks. Thanks famous cats who made donations. BIG THANKS IN ADVANCE @urmokas
Excellent reply; you gave voice to what was rattling around in my head. It certainly is disturbing to me that Steemit doesn't want to improve the site without offering some alternative. Perhaps the site could eventually be moved into an open community where all the users essentially play a role. Some would do the actual coding, others would "vote" for features by putting STEEM into escrow to pay the coders. Likewise marketing, project management, etc. Unfortunately, such a system is likely to suffer from huge amounts of inefficiency, so it may well be bad idea.
Ultimately, if Steemit is going to grow and attract users, some group needs to be constantly improving it. I would argue that right now Medium is a much nicer site to use. If that doesn't change I fear Steemit will end up sitting on history's rubbish heap.
Absolutely agree, the 1.5% inflation (or interest.. whatever it's called) for a large amount of the pool per year can be used to fund projects more substantially.
Couldn't have said it better myself. If there are really great, worthy ideas that can't be homecooked, don't think they'll mind departing with some of the stash :)
yes, especially since we can still get increased curation/author reward
the 15% used to fund a 1.5%pa on SP is just silly
From what I understand about the economics behind Steem, I completely agree with you. In fact, I think it could be divided as 80-10-10. That way more funds for marketing and other projects.
Yes, I was being conservative because I anticipated public backlash against funding Steemit, while keeping the possibility of increasing funding open when the Steemit account gets low
I think right now, just opening the door to funding is a very important first step and a good message to send to the development team. I went at lengths to justify why even though this is not a lot of money relative to the funds they hold, it has strong symbolic and psychological significance
Yes that is true. The developers are the true heroes and you are right this symbolic gesture will mean a lot to them and we would be able to see more awesome stuff in the future. The possibilities are just endless. Can't wait to see this thing moon already :D
YES !!!
I like the idea and I also like the idea of going a step further. If we are going to get rid of the interest on SP, can we also get rid of the SP all together? Steem can have some of the same utility that SP currently has only without the lockup requirement. Perhaps we can put in a stipulation where earned or transferred steem has no voting rights for a period of 1 week?! This would go right along with the KISS principles...
Authors get higher rewards, which will attract more users. Developers or advertisers have a recurring revenue stream from which to draw from which will help ensure growth. Owners of Steem are no longer binded by the 13 week powerdown schedule, which will make people more comfortable investing in the platform. Basically all these measures will help with growth.
Sign me up! ;)
Yep, I didn't want to cram too many suggestions in one post, but I'm definitely in the camp of streamlining the system away from 3 currencies.
There should be an elegant solution around security, double voting, instant gratification expected from people who buy the currency wanting instant voting power etc. without the need for SP
Here though, I'm only focusing on getting rid of the 1.5% SP interest and using those funds elsewhere. Honestly anywhere would be less wasteful if people are not persuaded by what I suggested it should be used on, even just reducing the inflation rate by 15% would be better
never mind
Regarding just your proposal, I think it's a good one that makes more sense than keeping if for the reasons we currently are. I like your 5% number as well. The increase to rewards wouldn't be insignificant which seems to be a big growth driver...
The security could be addressed by holding the Steem in the "savings" portion of our wallets. It has a couple day window before it can be withdrawn which would give people some time to notice their wallet being hacked before it is too late.
yup there should be fairly elegant solutions
you can for example, even allow people to set the delay in the 'savings' vault
But I think the core issue is getting our incentives correct and a development fund is a step in the right direction. Hopefully development speed picks up as they feel more comfortable using their funds knowing the community is behind them.
I think you make a compelling argument. Upvoted and followed, I'll be watching closely to see how this idea develops.
Unquestionably more marketing resources is more useful than the 1.5% SP interest. The question is, why hold Steem Power then? There's something missing in our current incentive structure there. The problem isn't keeping your money there; Voting and security benefits are nice, but only emotionally apparent after you've powered up. The trick is how to get newer members to Power up.
That's the incentive to ponder.
Yes, however little incentive there currently exists to hold SP, the 1.5% yearly interest which is about 1/4 of the daily price volatility, is adding next to nothing. If the price creeps up another cent, it'll be at the cost of $1m a year for no tangible reward.
There are a lot of discussion about whether we even need SP or even SBD at all, but this is a separate issue and can be changed (or not) in due time. I'm currently only focused on this 15% as I think the $800,000+ a year shouldn't be wasted any longer than necessary.
With regards to the question of why hold voting power at all? my personal belief is that this is an incentive that has to arise organically from the desire and willingness to partake in a robust platform or ecosystem of platforms. The bigger and better Steemit, Squeak, Steepshot, Busy, etc are, the more people will naturally be incentivized to take part and have a voice by building upu voting power. There are no short cuts to this.
Any direct attempt to bribe people to hold voting power, be it in the form of higher interest rates, or dividend payments, etc will come at a cost to the ecosystem, such as higher inflation or transaction costs, that would likely come at an overall net loss due to market friction and imperfections and the manner of wealth redistribution in question.
Ultimately Steem can flourish if it is able to redistributing wealth in a psychologically frictionless manner towards quality content. No further coercive incentive is necessary or desirable. Building engaging platforms that hold quality content over time is the only way.
There are economic nuances here that can be argued here of course, and I may be wrong in some sense. But my instinct here is that's how it should be. I wonder if you are persuaded, share your thoughts with me if you have the time
PowerUpCoinDays, which could be used to promote content on demand
You increase the curation rewards. Give people a reason to want to reach large SP levels.
I must disagree. When you start separation of funds for development/marketing/projects, you are creating employees. Employees lack passion. Motivation always going down. They think how to earn more money, and not how to improve system. Better ones, those who do think of improving system, feels under-rewarded, and hence don't give the best of themselves…
Bitcoin is the best idea. Open system that anyone can improve inside his own ideas, capabilities and needs. Passion for personal success through improving the system is much stronger force than any reward “given” through corporation hierarchy
I don't think monetary incentives themselves are guaranteed to produce substandard products, generally well aligned incentives will encourage cooperation and motivation and produce superior products
I am not a fan of steem economic changes, you joined steemit in March 2017, be here for at least 6 more months before start recommending changes like this, this issue has been discussed many times before, steem power is perfect the way it is now.
yes, I have looked into the hyperinflation model in the past and did a small amount of research on the current structure before writing this up
If any of my facts are grossly wrong, or you find my arguments unconvincing or ill conceived, please let me know
I don't oppose a little something being redirected towards development, but if you do away with SP I'll be selling all.
I don't think all stake should be liquid, especially not when it comes to the influence when distributing rewards. That opens up the door for massive p/dumps from the people who can print fiat without limit or supervision and would like drain the life out of this project.
If there was mining I wouldn't mind so much, but if this is going to be only PoS then without collateral it would be a green light for corruption.
Well i'm not proposing to get rid of SP in this post, although on balance there's probably a more streamlined way of keeping all the benefits of a functioning economy without 3 different currencies.
I'm looking at the reactions to the article and it really makes me nervous some people are considering doing away with SP. I can see why having 3 currencies may not be ideal, but there is a reason to lock up those funds.
There are, such as security and double voting, but there can be alternative solutions. I don't think locking up supply is generally the right way to go in terms of trying to increase price.
But this is a separate issue, I am in favor of simplifying the system but I can live with 3 currencies.