Power Down goes from 104 weeks down to 13... Options to power down slow and incentives to power up

If you haven't seen it already there was a recent proposal for some radical changes to the economics of steemit. Radical doesn't necessarily mean bad but there may well be risks involved. You can read the @steemitblog post here @steemitblog/proposed-changes-to-steem-economy

Disclaimer: I'm not an economist and have never studied economics on a university level, so any economic speculation here should be taken with a pinch of salt. This post is mainly to make it clear what is actually changing from the whitepaper and I will add my thoughts on the proposals. Click here for the SteemWhitePaper


Proposed changes

Set a fixed instantaneous annual creation rate of 9.5% from all sources (except Steem Dollars conversion)

Currently the yearly rate of creation to the steem supply is at a very high 100%. (SteemWhitePaper page 8)

This high rate of inflation is what has caused the price of steem to gradually drop so low. Though the falling price may invite speculators who have been looking at buying steem, it is risky to allow the price to get so low that the Steem Backed Dollar isn't effectively pegged. This can be seen as a positive adjustment in my opinion to reduce inflation rates but it will have a dramatic effect on the budget available for below.

Allocate 75% of the created Steem to the Reward Fund.
Allocate 15% of the created Steem to the Vesting Fund as interest on Steem Power.
Allocate 10% of the created Steem to the Witnesses.

As you can see from the SteemWhitePaper text below, this is a huge and drastic change to the economics of steemit. What was 90% of the budget for interest on SP held by current steemit accounts, has dropped all the way to 15%.

Given the previous change mentioned - lower inflation - this ulimately has to be lowered significantly to make room in the budget for author and curation rewards which as you can see has been raised (in proportion with the new lower inflation rate) significantly. It might be hard to believe but currently only 5% of the highly inflated steem supply is allocated to authors and curators. And then 5% is allocated to the witnesses. As said in yesterdays @steemitblog blog this will mean initially a sharp reduction in rewards for both author/curator rewards and witness pay. However in the long term, as the reduced inflation affects the market price of steem we should see a gradual raise in these rewards which will be a very positive outcome.

Witness rewards would be rebalanced such that the top 19 would earn 1/29th of the witness rewards, the runner up witnesses -would share 5/29th, and the miners would share 5/29th.
Witnesses and miners would be paid in STEEM rather than Steem Power. All votes for witnesses would expire after 3 months, this would remove the incumbent advantage and require people to continuously evaluate and vote for witnesses.

Currently witnesses get a portion of the budget of steem equal to what author/curators get at 5% of the pool each. Not only would witnesses get a 5% rise in proportion to the lowered inflation but the pay should be spread more evenly between those witnesses in the Top 19 and those outside of it including miners. Instead of 90% of witness pay going to the Top 19 it will be closer to 66%. This should incentivise more competition for those witnesses outside the Top 19 to work hard to earn the votes of stakeholders. Again, this is a very positive change in my eyes. There will however be a sharp short term reduction in pay for witnesses due to the first change of inflation proposed.

Reducing the Steem Power holding period to a minimum of three months.

With all of the other drastic changes to the economics we also have this one. This can be looked at in 2 ways. In one way, it opens the doors to short term speculators which can be a positive thing. However it also brings the influence of a weekly powerdown all the way from 1/104 to 1/13. I consider this drastic adjustment to be extremely risky and a dramatic change to the original ideology behind steem power.

While I never saw any point in powering down what I had at 1/104th of the value of my SP I can easily imagine many new users with no experience of crypto just taking their lucky $1300 worth of SP and powering it down at $100 per week. If we have a lot of users treating the platform this way, it is not going to be encouraging for the speculators we wish to invite in. Long term investment was initially the goal and I personally believe this should still be incentivised.

Options are always nice

When you sign up to a mobile service or tv or broadband you usually get the option to choose a short term contract that costs more monthly than the long term contract. This is an incentive for consumers to sign long term contracts. Steemit however doesn't really involve signing a contract every time you power up. Currently when we power up we are aware that our steem is being "locked up" for a period of 2 years and that SP gives us influencial power on the platform.

A couple of months ago @ned made a proposal to the community that didn't go down very well with the stakeholders. In this post he talked about finding incentives to hold SP. One possible solution he came up with was to decrease voting influence for stakeholders that were powering down. I am not a large stakeholder, but I personally did not like this idea at the time. However the new proposal changes things. At a power down of 1/104 per week, it would only make the 2 year investment less attractive to not be able to power down without reducing curating effects. However, when a user can power down in the short time of 3 months, this can be considered completely selling up and giving up on the platform. Suddenly a reduction in curation powers to such a user does not seem like a bad idea at all. I won't say what percentage of curating powers should be revoked, but if we had the option to power down at 1/13th, 1/26th, 1/39th 1/52 ... all the way up to 1/104 then we can have a different reduction for each level of power down.

New Incentives for Power Ups

There's a huge difference between the 5 or 10 dollars worth of Steem Power a newbie starts out with and the amount that is needed to actually curate for rewards, which with this new proposal will become the only real incentive to hold SP as interest will be significantly reduced. As I've said before in this post there is a lot of merit to gamification of the value we put on indicators of status. Website features like avatars, private messaging, profile biographies, the ability to join groups, verification badges etc could all be introduced as PERKS that are granted to users that reach a level of SP. For the minnows who perhaps don't see themselves as bloggers but very casually and gradually gain SP this would further incentivise participation on the platform as they see themselves climb the ladder to becoming a dolphin with influencial power with each perk they achieve. It should even create a demand for steem as some users will put there money on the table to make their new profile look more attractive and for immediate status on the platform.

I am excited to see these changes go through, but I really hope we can do it the right way. I believe there should be more focus on incentivising users to hold SP especially now if users can now power down fast.

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