The explanation here is very general and ignores the initial first year launch conditions and eventual reverse-splits. It assumes general voting participation on the platform and for simplicity uses nice round numbers.
It doesn't have to go down obviously. If there is considerable growth -- I fully expect it -- the price will go up. I just want to point out the normal / natural downward pressure. And if you're holding Steem for the long haul, you may be holding the wrong thing.
I think the following is an important part of the puzzle in understanding what Steem and Steem Power are and what they are for. In particular the price of Steem falling as a normal, expected, and healthy behavior.
By design, the total number of Steem will double in supply each year to pay for all of its utilities.
Because the supply is increased by 100% every year, if the market-cap, or total value of the network, were to remain the same, it would require the price per unit of Steem to go down by 50%.
Anyone holding just Steem for that period will obviously lose half its value.
Anyone holding Steem Power will not lose any value.
Said a couple different ways:
Given any amount of growth in market-cap less then a double for the year, will show a drop in price per unit of Steem.
In order for the price of Steem to go up, it requires a growth in market-cap more then double each year.
Any price drop less then 50% for the year, would indicate growth in the total value of the network.
Steem can fall in price by one half, each year, and your SP total value will remain the same.
------
I've seen people refer to the benefits of Steem Power as it paying interest. I think there is a better way to look at this and in turn explains the downward inclination of the price.
Steem is subject to inflation.
It is a short-term trading vehicle. (It is not meant to be held for long periods. It is meant to be traded)
Steem Power(SP) is protected from inflation.
It is a long-term investment vehicle. (Meant to preserve value and provide benefits, cannot be traded)
If you have 1% of the supply of Steem held as SP now. You will have 1% of the supply of Steem as SP any number of years from now.
Saying SP pays interest suggests that you're gaining value, when in fact you're not.
Saying SP pays 90% interest or more; and you won't be taken seriously. It's true in a way... it just doesn't make sense unless you understand all the other mechanics.
Let me know if you found this helpful... or confusing etc. : )
Greetings @xeldal.
Have you thought about writing an update to this article.....or has anything changed.
The latest HF has certainly given pause when running the senarios as to the future of the token itself.....Steemit seems to have a future...but could the token itself become irrelevant?
Thank you for your role as witness.
All the best. Cheers.
NB....the query is this.....what is the incentive to keep any amount here at Steem?
@xeldal wrote:
Naturally, there is a limit to this doubling; when every human on the planet is on Steemit.com, to give an exaggerated example. There will have to be a change in this doubling mechanism at some point. It can't go on doubling forever. Would you agree?
It won't matter how many users there are, but yes, eventually the numbers get unmanageable. Steem does what's called a reverse-split every 3-4 years to keep the numbers in a usable range. Basically just moving the decimal place on all balances.
No. Only the virtual supply doubles, and the vast majority is held within VESTS. It's only if VESTS start falling significantly below 90% of the virtual supply (and there's mechanisms to encourage it to return quickly up to 90%) that inflation actually becomes unmanageable.
Good post, this deflation is needed to be able to pay the value creators for their work. I think now in an early stadium of this platform 100% gain in market cap / value should be easy to reach, a multiply of this is realistic I think.
So for early investors it might be still a really profitable long term investment. But when the platform gets more mature and will enter the last stadium of adoption. There is almost no expansion in value anymore and then this 100% will be almost impossible to reach.
Since the deflation is covered by interest when holding SP, it will then only be profitable to hold Steem in the form of SP and use it on the platform. This is exactly where it is created for right?
So when the big gain in adoption is over, you have to keep al your Steem in SP and the rest cash out or use to power up. Then the value of SP will grow / lower together with the value of the platform and give you the power to earn more / have more influence, and the long term value doen't matter if you cash out, so it is quiet a perfect system.
thanks for even more explanation.
Bookmarked
dude ur fucking tripping? its inflation not deflation.. personaally i think steemit is a bit ponzi.. money locked up so there is no big cash out before inflation.. then what happens when the cap is doubled people are going to sell off , dropping the price dramaticly
Thanks explanation.
Why do you rarely create new articles ,,,,? I really want to see your new article @xeldal
Im new to the platform and this information is very helpful to me.
From the Whitepaper: "The purpose of liquid STEEM is to facilitate changes in ownership between long-term holders. It is this change in ownership that the network 'taxes' to fund growth."
Wealth transfers result from content creation, curation, mining, and liquidity rewards. It's fascinating that this creative mechanism replaces and is equivalent to Bitcoin or credit card transfer fees... but has a covert quality that is much more user friendly. Steemit appears to be "free", but, of course, nothing is free.
Any more info like this for people who don't know much about crypto, this was insightful. Anything more recent? That means steemit has to keep growing indefinitely? Sounds like it fits right into the existing economic paradigm...
Steem Power will dilute too just 90% less than Steem...
Correct. I ignore this for this explanation and assume the user participates minimally in voting/posting to gain the missing 10% in SP. Such that his SP is not diluted at all.
Ok I can agree with that, however that demands some work from the investor part which it's a little odd IMO.
He only needs a bot for the curation. That goes pretty well, if you have enough Steempower.
And then there's this related point:
https://steemit.com/cryptocurrency/@inertia/dilution-not-a-tax-not-theft
Interesting. You learn something new everyday. Thanks for sharing.
Very well I understand it a lot better now . Thanks for sharing your wisdom.
Hi @xedal, thanks for the post, can you tell me, is holding SP like holding stocks, stock price will go up or down but number of shares will stay the same.
It's a little different but SP is certainly what to hold if your looking at Steem as a stock. The total outstanding shares of Steem is always going up. So in order for SP to maintain its relative value, the amount of SP you have is also going up at roughly the same rate. It would be like a stock that issues 100% new shares each year and also pays a 90%+ dividend.
What fascinating dynamics under the hood. Thanks for elucidating so coherently. If advertising becomes an earner, as opposed to 'use and volume', untrustworthy actors will foul the plot, .....or not?
Any views on defending the space from the powers that shouldn't be?
Great post, thx.
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STOPcongrats @xeldal
People want to be a rich man. But Steem can help us?
I don't know yet.
Have a nice day!
Finally! Of course I understood the basics but this is the first time I have had a full understand of the puzzling differences between SD and SP. The teaching style in this post is simplistic, in order and easy to follow. Thanks.
Nice info and thanks for sharing
That is helpful info, thanks mate. I look at Steem as an top up to my pension when I retire. Mind you, it may be the only pension I get after the government & big banks take all my hard earned retirement fund for their bail-in schemes. I believe the long term rewards from Steem are great in worth from the time & effort invested. Plus you are apart of shaping this platform.
Thank you @xeldal you are Most Valuable Player for me with 16.75% reward shares ($ 9.30 payout) from you ☺ I have found this information on : http://steemvp.com
Thank you ☺
Hello @xeldal, we are just trying to set crowdfunding on Steemit to get resources to save Abongphen Highland Forest in Cameroon. Please could you help us in our effort? Thank you for your upvotes and resteems. https://steemit.com/introduceyourself/@kedjom-keku/do-it-for-forest-crowdfunding-who-are-we-actually-forest-friendly-family-each-11usd-10x10-m-forest-saved
The problem is, Steem Dollars are not representing one dollar in third party exchanges either. Try to convert 1 SBD in Poloniex or Bittrex. You wont get 1 USD worth of Steem or other crypto.
This is a common misunderstanding. The guarantee that 1 SBD is 1 USD is something that only happens by executing the smart contract "conversion" option on the Steem network. Once the conversion is initiated, after 7 days you receive $1 worth of Steem that can be sold on any market for ~$1 worth of BTC or some other unit.
If you don't wish to wait the 7 days, you can of course trade your SBD immediately as you mentioned on an exchange but you will be subject to the market prices. Sometimes this is the better option, as I've seen SBD trading as high as $1.30 at one point.
Here is a more in-depth explanation of how all that works: https://steemit.com/steem/@modprobe/how-the-steem-dollar-peg-works
There is a fallacy in this case as well. Because, what we get is median of SBD value in terms of Steem for 7 days, which can be lower, higher or equal to 1 USD equivalent of Steem in other market. The point I am trying to make here is, though Steem Dollar is being promoted as stable value holding pegged to USD, in reality it is not working as expected. So far the spread is small. But, as Steem trading increases, this spread will increase more & more destroying the stable value property of SBD.
The problem is that if the price of steem keeps decreasing so do the rewards. Steemit will need to find ways to reward users other than traders and speculators .
Not exactly. The rewards are based on the market-cap and because there are constantly new Steem created each day, the market-cap can remain the same while the price is falling.
If the price goes down the market cap goes down too, the 2 are inextricably linked, the fact that there are new steem doesn't change that, it would if the number of steem was actually decreasing but that's not the case for any currency.
The pool where rewards are being sent from is a constant number of steem, this number stay the same regardless of price so if price goes down people will be rewarded less $ but the same umber of steem hence the demand for steem will have to increase to sustain the payouts.
Here's an example:
supply_of_steem x price_per_steem = market_cap
1st year: 100,000 x 1.0 = 100,000
2nd year: 200,000 x 0.5 = 100,000
In both cases 10% of new steem are payed as rewards. the $$ market-cap is the same, the $$ rewards are the same, and yet the price is 50% lower, because the supply has doubled. The amount of steem paid out in rewards is always increasing.
Quotes: White Paper
Like we've seen in the last couple weeks, the market-cap goes down, and so too the $$ rewards.
What if the price drops much more rapidly than the creation of new steem?
Think of it as a "steem (steam) Train". The more fuel you shovel in, the more power you get out.
The quality of the fuel (coal) was a direct result in the power or pressure of the steam. Now put that in relation to
Steem post.
If you choose a produce a low quality post (coal). Who will buy into it it? Will it create enough steem (steam)
for you to get moving. The answer is no.
What you need to do is keep your post (coal) to a high quality and the more people that see the quality of your steam will keep coming back.
As for the price that's the same as any commodity. If you are clever there are a few bargains looking you in the face and ways of getting them.
Minnows eat too
They're not just for eating..
Why are you powering down @xeldal
If there is demand for Steem like Advertising feature in Steemit that will have a buying pressure then at least will minimize or reverse the inflation.
Steem price can go up if market cap will go up with higher rate than Steem inflation rate. Supposedly goal of high inflation is ( as in real economies) to incentivize spendings. "Money is like fertilizer. You have to spread it around everywhere, if not it stinks. " - John Paul Getty.
go up and down price is nornally, some manipulators playing with it
I am really looking forward to the reverse split to see how many investors actually read the whitepaper. I almost expect huge FUD and price collapses when every 10 Steem become 1 Steem from one minute to the next, at least after the first two or three 3.5 year cycle.
Talk about a negative-feedback-loop. It may be more like a negative-feedback-crash. The financial engineering in steem is definitely highly experimental. I'm still not sure if you can design a system that manipulates human behavior in a positive way, especially over the long term.
Thanks for putting this together. Nice breakdown.
I gonna follow you, I didn't know that. Useful
Perhaps but the rate at which it goes down will slow down as more and more people join and the SP gets diluted.
Not all content will be rewarded later, as the website will always have many similar topics already posted, so only the good writers will earn, thus the inflation rate will shrink.
The inflation rate is a constant. The price will go up only if the total value (market-cap) out paces this inflation, which shouldn't be difficult in the early years.
Well it still depends on the whales if they sell or not. The inflation only manifests itself if people are bidding down the price of STEEM.
If more people hold than sell, then inflation can be tamed. If Steem Dollar continues to give out interest, that will incentivize people to HODL. Also accumulating Steem Power can also be a long term investment.
So in my opinion, it depends on the mood of people, and how much confidence they have in STEEM, it's always about confidence.
If we grow in userbase, more money will be held than sold.
@xeldal - can you do a writeup about the opportunity costs of powering down? I wrote this a few days ago and the vests per SP concept was something I didn't account for.
Thank you for this writeup!
Good post, and I have a question. What about holding steem dollars as opposed to SP?
Steem Dollars will simply maintain there value at roughly 1 USdollar each regardless of the price of Steem. If the Steem price is $1, you can expect to get 1 Steem from a Steem Dollar. If the price of Steem is $0.10 then you can expect to got 10 Steem from a Steem Dollar.
For Steemdollar you also get 10 % interest per year. Not bad in an age of negative interest in the fiat currency system.
All well and good about steem power. Except my SP keeps going up while the overall value of my wallet goes down (note: I'm only holding steem power in my wallet) so there must be inflation and devaluation occuring even with steem power?
The overall value of your wallet is going down because the overall value (market-cap) of Steem is going down. SP doesn't ensure you maintain a dollar value, it ensures you maintain an equivalent percentage stake in the total value of Steem. If the market-cap of Steem were stationary at say $100,000,000. Over time you would see the price of each Steem go down and the amount of SP go up. Balancing each other out for no change in overall value(market-cap). Right now the Steem price is simply falling faster then SP is going up. I hope that makes sense.
wish i knew more about this a few weeks ago lost about 3.5btc before i pulled the pin I'm sure ill be able to get it back trading on kraken i have lost and gained that amount a few times in this game i should have listened to my own rules of (1)don't trade on emotional value (2) only buy low sell high (3)take small daily gains
Well, I don't think any of the information in this post would have saved you. a couple weeks is not a long enough time to really see the effects of the inflation on Steem. SP holders have lost nearly just as much over this time frame. Steem can easily continue to see rapid price appreciation especially this early in the game.
yeah just sucks watching money evaporate
@xeldal You stated that steem can reverse split ,I was wondering when they reverse split steem will they also reverse split SteemPower at the same time
Yes. It's a non-event really. No value is effected or transferred. Simply moving the decimal place to keep the numbers small and human friendly.
I agree with this analysis in general, though there is a bigger issue at play that I don't see people talking about, which is the ability to exchange SMD for USD. If there are not enough people seeing a reason to purchase SP, then there will not be enough liquidity to exchange SMD to USD. The problem is that the later people come onto the platform, the more expensive it will be to purchase enough SP to be useful. This isn't due to inflation, but just the total accumulated real dollar value of SP across all whales.
What do you think?
Also, thanks for your recent up vote on my introduceyourself post. It helped almost triple my earnings in the matter of a few minutes.
Steem Dollars(SBD) have there own markets that currently trade against BTC and hopefully at some point directly with USD. So the liquidity of Steem should not have much bearing on the liquidity of SBD. Steem liquidity would only be a factor for those who actually exercise the SBD contract to settle for $1 worth of Steem. The two markets are technically linked of course but there are additional dynamics at play. When liquidity and price in SBD markets drop too low, the tendency will be to execute the contract for STEEM which delays 7 days and tends to spread out any spikes in demand for liquidity.
I agree though, if there is no demand for SP, that is obviously a problem for STEEM and SBD liquidity. The whole system hinges on demand for SP.
As for the cost of acquiring meaningful SP; I believe the larger the platform gets, the more sub-groups and niche economies will form. Someone looking for influence wouldn't need to compete with the whole of Steem but only in their smaller categories of targeted audiences. In addition with a rising price and market-cap, smaller amounts of SP will be necessary to garner the same rewards.
Whale concentrations will likely diminish as the price moves up and the incentive to take profits gets heavy. Even whale accounts will eventually not be able to curate and influence across the entirety of steem at scale. There will simply be too much content and limited voting power.
Good questions. I hope this helps. This is my initial perception of things anyway. I will spend more time thinking about this. : )
Very helpful response! Unfortunately I somehow missed your reply in my reply list :-(
I just happened on your post again after you up voted my recent post and got lucky to see what you said. Is it true that SP fluctuates with the value of Steem, but SBD doesn't? If so, then I think I'm seeing how the SP getting liquidated to cash out isn't necessarily problematic for SBD in the way I thought it was.
Also, going back to the post you just up voted for me about Business.com promoting Steemit (here is the post again if you need it (https://steemit.com/steemit/@nathanbrown/business-com-promotes-steemit-com-encouraging-businesses-to-join-as-early-adopters-to-cash-in-on-the-new-blockchain-based-social), do you know any other whales or dolphins that would be interested in voting on it? Getting them to vote on it will certainly improve your curation rewards.
Also, I'm curious to know how you got all your SP if you are willing to share.
The amount of SP is not related to the price of Steem. The value of that SP is though, as SP is simply vested(non-tradeable) Steem.
SBD is always worth aprox. $1 worth of Steem regardless of the price of Steem.
For simplicity, let's assuming that steem isn't appreciating in value. Under these conditions steem inflates primarily through interest paid on SP, which means the real value for SP holders doens't change since they are all having their SP inflated at a similar rate. I get this part.
The part I don't understand is this...
Doesn't the steem that is used to back SBD need to be inflated at a similar rate to keep SBD from losing value?
The steem backing SBD doesn't exist yet. SBD is a contract that guarantees enough Steem to equal 1 dollars worth of steem. When\If the contract is executed the steem necessary to make this happen are freshly created. So with a rising price the steem obligation to SBD is deflating; with a falling price it's inflating. Check pages 12-13 of the whitepaper for more info on "Sustainable Debt to Ownership Ratios"
FYI, up voted you and following now also.
Thanks for the up vote in my post about Business.com covering Steemit.com!
Hi xeldal, I appreciate the upvote. Thanks Mike
How much time do you think you spend curating per day?
Hello @xeldal!
Today is my 3rd day in steemit and I am trying to understand better the plataform. Found your post very interesting and really helpfull for me!
I personally belive that this mechanism will help STEEM to became a usefull asset instead just another token user for speculation in exchanges. This renew my confidence in this plataform and in the coin itself.
Thanks!
@xeldal I'll share/resteem all you r video if you cand follow me and resteem ,you're the best ,thank you and hope we'll help each other ! I wish you have the best posts !
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Keep up the good work!
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Amazing post. Really, what a great post. Totally FOLLOWing now and obvious Upvote!
Thank you for upvoting my photo. If you like that one you will love my other ones. https://steemit.com/@readallaboutit