I believe the first factor that determines the success of the Steem network is the quality(or popularity depending on your definition) of its content. The quality of its content is massively influenced by the votes of Steem Power. Currently the system only allows members to vote with Steem Power with a multi-year vesting schedule.

This model enables members to have a financial incentive to vote in a way that maximises the long term value of their Steem. This is a great concept to promote a collective long-term perspective among members, and also contributes to supporting the stability of Steem market price because it limits the liquid Steem supply in the trading market.

However, the current allocation and utilization model of Steem power has some problems. I propose the introduction of a Steem Power Rental Market to address these problems. I believe a market driven curation model not only can greatly help to provide more efficient utilization of Steem power but also may offer a solid internal revenue model for obtaining a fair estimate of the entire Steem network’s market valuation.

Current Problems

•  Limited number of large Steem power owners with limited capacity to their curation activities.
  
  Depending on your perspective, the current ownership structure of Steem may appear to be sound or may seem too concentrated. I don’t want to discuss this issue here, but at least for curation, the whales’ influencing power is relatively too powerful compared to other smaller accounts, so most content rewards highly depend on being brought to the whales’ attention. However their curation capacity, what they can do everyday, is physically limited and will face more difficulties as more users join and more content is produced. They are not dedicated full-time curators. Most already have full time jobs programming, marketing, managing, and other important roles as operators of the system or for other companies. By depending only on these whales’ physical capacity, it is extremely difficult to optimize the curation process and improve scalability.
  
  
• Long term commitment requirement of Steem power ownership may encourage long-term perspective, but it does not necessarily improve the owner’s personal curation ability.
  
  For example, let's assume you happen to own an art gallery. By owning this gallery, you will have a long term economic interest to improve the total value of the gallery. However this ownership does not improve your curation capacity itself. You don’t become suddenly a good curator for this gallery, which may require professional education and extensive experience in the field. It is better to hire a professional curator who can manage curating the gallery. You can monitor and evaluate how the curator improves the overall reputation and value of the gallery. If you think that their performance does not meet your expectations, you can hire a new curator. Currently, to hire and manage these kind of dedicated curators is too much burden for most Steem owners. The system needs better mechanism to match the owners and curators.
  
  
• Barrier to entry for new curators is too high
  
  Requiring a 2-year investment commitment may be too high of a burden for potential new curators who have experience or specialize in certain content areas. They may have great ability in selecting good content in those areas, but they can not be sure before they try out their ability in Steem network, and they may not want to take the risk of a 2-year commitment before proving their ability to themselves.
  
  
• Limited diversity and perspectives
  
  Considering the above problems, the whales’ personal tastes and political or ideological perspectives may also have too great of an overall influence on the Steem network’s contents. If the Steem network’s aim is to cultivate an inclusive community representative of the whales’ preferences, that would be fine, but if it wants to compete with reddit or facebook, it will need much more diversity in user and curator perspectives.
  

Solution

The basic idea is give the curating power to market. A market driven solution may solve a lot of these issues very efficiently if it is implemented properly.

The 2-year vesting requirement for Steem power ownership would stay the same, but I propose allowing Steem power owners to lease their voting power to different members who want to rent it. Instead of depending on Steem power owners’ personal curating capacity and ability, let’s allow the market to find the best curators by providing economic incentives. A curator with a better reputation and better performance in the past will have access to cheaper voting power than poorer performers. I call this a “rental” transaction because it does not transfer the ownership of Steem Power, although we may refer to this process as “buying” or “selling” curation (voting) power rights for a given time period.

• First of all, to make this voting power trading market a principal force, I think it is necessary to set a maximum amount of Steem power that can be exercised per post per account.
  
  For example, let’s set it to 20,000 Steem power per account. There would still be no limit on how much SP each account can own, but only maximum 20,000 SP per post per account will be counted when it is used for voting. Let’s assume you have 200,000 SP. When you up-vote a post, only 20,000 SP will be used each time, and your voting power percentage will decrease by 20,000 SP portion only. So, your influence power is exactly the same as another account with 20,000 SP only, but your voting power percentage decreases by only 10% of 20,000 SP account’s Voting Power decrease. This encourages whales to spread their voting, and makes it more difficult to utilize and manage their voting power by themselves putting more pressure on large Steem Power owners to pursue a more efficient curation system.
  
  
• At least 70% of curation Rewards needs be paid by Steem dollars.
  
  To compensate the increased payment by SD, it may be necessary to decrease the SD portion of content rewards from 50% to 30% or lower. The reason behind this is that hired curators need liquidate SD to re-rent SP to maintain their activities. If all of their returns are invested into SP, they can not continue curating work at the same scale as before. Most of the paid SD will stay in the Steem ecosystem. It will increase the SD circulation volume, and can contribute to stabilizing SD prices.
  
  However, content contributors can keep contributing without receiving instant liquid rewards. Author rewards tend to exit the Steem ecosystem. A lot of writers tend to sell their SD rewards in the exchanges very quickly to cash out. This places significant negative pressure on Steem market prices.
  
  
• Steem Power Rental Unit (SPRU) = 100% Voting Power of 100 Steem Power
  
  Steem Power Rental Unit (SPRU) would be the standard unit for trading. If you have 10,000 Steem Power with 100% Voting Power, you have 100 SPRU. Before you sell your voting power, you should recover your voting power to 100%.
  
  
• SP Owner can offer maximum 50% of their SPRUs.
  
  For example, if you have 10,000 Steem power with 100% voting power, 100 SPRUs, then you can rent out only 50 SPRUs (100% X 5,000 Steem power). Your remaining Steem power is 10,000 SP with 50% VP, and the remaining SP will regenerate VP at the same rate as other SP.
  Rented SP will not regenerate and will reset to zero 1 week after the rental date.
  
  

Trading System

• The owner sets the minimum ask price for 1 SPRU and total SPRU quantity to offer.
  
  
• The renter sets the maximum bid price for 1 SPRU and total SPRU quantity to rent.
  
  
• Each renter account has Quality Score (QS) and QS is calculated as follows;
  
  
  QS increases proportionally to Reputation Score and Performance Score. Performance Score is calculated based on two factors, (1) ∑(generated curation rewards) / ∑(spent SP X VP percentage) (2)∑(generated curation reward during last 120 days). It considers both ROI and the return size from recent curation activities. I can not set the specific parameters for this formula yet. I am just putting forth an idea of which factors should be included in calculating QS.
  
  
• Each renter’s biding ranking would be determined by the following formula;
  
  Ranking Score = QRS * Max Bid Price
  
• The matched pair’s rental price is the average of buyer’s Max Bid Price and seller’s Min Ask Price.
  
  
  Clearing Pairs
  
  
  1. Alice rents 50 SPRU for 110 SD (120(max)+110(min) / 2 = 110) each from Amin.
     
     
  2. Becky rents 50 SPRU for 150 SD (200(max) + 100(min) / 2 = 150) each from Amin.
     
     
  3. Becky rents 200 SPRU for 175 SD (200(max) + 150(min) /2 = 175) each from Bart.
     
     
  4. Charles does not get any SPRU because Chales’ Max bid price is below Cara’s Min offer price.
     
     

Discussion

• Who will rent Steem Power?
  
  
  • People who have good curating abilities in certain areas such as beauty, science, arts, comics, games etc, and is trying to profit from the margin between curating rewards and Steem power rental costs. If this person continues to prove that he/she has competitive advantages, this person may become a Steem Power owner eventually, depending on overall Steem’s long-term investment opportunity vs short term curating profits.
    
    
  • People who need to boost their initial recognition temporarily. New content providers may want to increase initial exposure to a larger audience without considering significant short-term reward profits.
    
    
  • People who need to promote certain events, products, or services in particular periods and don’t want to commit to a long term investment for this purpose.
    
    
  • People who use bots to make reward profits. These bots may abuse the system and result in poor quality content selection while making more profits than average human curators, but they may help by adding more curating power to good curators. I will discuss how to control bad bot system abuse in more detail later.
    
    
  • People who need regular advertising on Steemit network.They may have long-term interests or not in the Steem network, but they want to advertise their own or their clients’ products and services on regular basis. Steemit may create separate advertising spaces for this kind of need similar to Google’s adwords, adsense, or FB’ ads. There may be a need to implement an advertising content selection algorithm using targeted keywords and target content. This will be the main extra revenue stream in the future.
    
    
• Concerns
  
  
  • What if poor curators rent steem power and vote on low quality contents and reduce the entire system’s reputation and value?
    
    ==> They can do it for a very short term period, but their reputation and performance scores will be damaged, and their acquisition cost will keep going up. The economic damages will deter and prevent poor curation. A simple sybil attack will not work with the same reason. The more difficult problem will be bots with multiple accounts trying to abuse the system. For example, they create 100 accounts with 100 SPRU in each account, and they vote for each other and accumulate quality score evenly, and vote on one of their own posts. Their combined content and curation rewards could exceed the total voting power acquisition costs regardless of the voted content’s quality. This method could outperform another competitor who is using just one account spending the total same cost.
    
    
  • What if all contents in the main spaces are occupied by just advertising or paid content?
    
    ==> The majority of “good curators” trying to make profits by voting on good content will reduce this risk. If there are more garbage posts on the first page, it will be a lot easier to introduce good content and get more voting power from other voters. So, the good content and paid contents will reach an equilibrium. If the paid content itself does not cater to certain interests or exhibit quality, the cost to maintain the same position will keep rising. Also, if Steemit creates a separate space for direct advertising, there will be no competition between “organic” content and direct ads.
    
    
  • Will there be enough demand for renting Steem Power?
    
    ==> As far as curating rewards exist, there will demand for renting Steem Power. The rental price will largely depend on curating rewards and the reward value is largely depending on the network size and value. More users → Bigger network size → bigger network valuation → bigger curating rewards → bigger demand for renting → bigger renting revenues → bigger network valuation → bigger curating rewards → …
    
    
  • Will Steem Power owners power down less?
    
    Currently one of the main reason to power down is needing regular cash flow regardless of the future steem price. Owning 1 million USD worth of Steem Power makes one feel great, but some owners need some cash right now to cover their expenses. They can write and curate, but their time is limited, and their talent is in investing. By renting their voting power, they can generate a more predictable and consistent cash flow without powering down. At the very least, it will reduce the need to power down. Also, it brings more new long term investors who are looking for regular cash income as well as a long term capital income. Overall, this system will work to decrease Steem supply and increase Steem demand.
    
    
  • How can we prevent more systematic abuses?
    
    This system will still have a high risk of being abused by more advanced attackers. To prevent this kind of unexpected abuse, we may adopt a safeguard system. When these kind of abuses happen, the majority of financial damages will be incurred by long-term investors which are SP owners. So, giving more power to SP owners to stop these abuses is more than reasonable. How can they stop it? When SP owners observe this abuse, they can place negative votes on the suspected "account", and once the negative score passes a certain point, it will nullify quality score. This does not limit account’s ability to post and votes, but it cancels the advantages that were accumulated by system abuse. Of course, this may not be an ideal solution, but at least it can work as an effective way to handle the expected abuse.
    
    

Conclusion

Let’s go back to the metaphor of the gallery owner. You happen to own a multi-million dollar gallery, but you are too busy for your other job, and you never had any experience curating for a gallery before. The best option for you is to hire professional and trained curators to select the best arts to display for the gallery. But to find a good curator is not easy either, you cannot be sure of a candidate’s ability by looking up his/her resume. Also, switching the curators based on their performances is very difficult. Your better option is assign the entire curation process to a more larger professional and organized agency. Now, you don’t need to hire or fire anybody, and you can just monitor the performance by different curators, and give the final decision to the agency. But you realize a few of those curators are actually bribed by some corrupted artists. Now what? You contact the agency to make sure those curators are not given work at your gallery. This is pretty much what I am suggesting with this market-driven curation system.

While a market-driven curation system may work more efficiently than the current system which relies on a small number of SP owners’ personal ability and capacity, it is not easy to control and optimize all related factors and to set the optimal conditions and parameters for such a system. We may need to conduct more experiments and simulations before finalizing a more comprehensive plan.

Also, this new internal revenue stream generated inside the ecosystem will improve the system’s market value externally. The annual total rental revenues can be used as the fundamental basis of system’s market valuation. The profits of the system would be paid by rental income, and not only by the following investors’ vests.

#steemit #steem-power #rental-market #curation #voting