Easy as pie, episode 2, explaining: the Steem distribution per round

in easyaspie •  2 years ago

This post is aimed at those who are somewhat new to things like 'blockchains', but like to know how things work. In this part I'm going to explain, simplified where possible, how Steem is distributed after it is created. It might help if you read the first 'Easy as pie' episode, if you haven't already. This post will not go in detail about the exact way STEEM is created every round. This proces of STEEM creation will be summerized as being done by the blockchain network. That proces is something that would fit it another episode about mining and minting.

As a content provider here at SteemIt you might have noticed that if your post gets upvoted sometimes a value appears at the bottom, with a '$' sign in front. When you click the dropdown arrow you might see things like 'potential payout'. And maybe you already had a 'payout' and saw the Steem, Steem Power and Steem Backed Dollar in your wallet. The first amount of Steem Power you got for free the minute you got an account at SteemIt dot com. Getting payed to become a member, not a bad deal. And the possibility to get more Steem by posting and curating other posts. But where did that Steem come from and how does it get divided among the accounts?

The Blockchain Network creates the Steem

Under the hoot of the SteemIt social media platform lies a very powerfull blockchain 'motor', known as: Graphene. It makes sure that information gets locked in a chain of data blocks secured by cryptography. That is a clever piece of programming using complex math. For this to work it, 'Graphene', needs a network of computers that are very good at crunching numbers and handling large amounts of data very fast. And while they do this, at a speed of one block of data every 3 seconds, they also create value. This value is called VEST on the lowest level of the Steem on Graphene blockchain. Now this VEST can come in very large numbers, which might make it somehow hard to relate to.

So all you need to know, is that VEST, as in inVESTment, can be anything, that is what the Graphene blockchain technology provides. Like it does for Bitshares. But it can do more, actually any kind of information could get stored on the Graphene based blockchain. And so a Social Media platform came to life, called SteemIt, blogging on a blockchain. With a reward system that is made possible by the technology under the hoot. The Graphene motor generating VEST as the computer network adds new blocks to the blockchain every 3 seconds. And the VEST created in that proces can represent anything. For SteemIt dot com it became STEEM.

Every round a lot of STEEM is created and distributed

Now using those extreme large numbers that come with the VEST realm might be convenient if you are a computer. Human beings tend to prefer to shorten things relatively. Meaning every few thousand VEST can be calculated into STEEM and vica versa. And even then a lot of STEEM is still created every round. Where the length of a round is determined by the blockchain network rules. For simplicity sake I will refer to this as a 100% of STEEM created every round. And that 100% of STEEM gets divided into two main parts. One part will be used for the curation system, the pot filled with STEEM to be used for reward payouts. And the other part is for the distribution of Steem Power, to the holders of Steem Power. (Remember, at the blockchain level this is known as VEST.)

The way it is divided first is that 90% gets into the Steem Power distribution pot and 10% goes into the reward pot. This means that 10% of the total amount of STEEM created is used to be distributed through curation. Where about 80% goes to the content creators and about 20% is divided among the curators. And this reward distribution system gets refilled every round, depending on the blockchain network settings. The 90% that is reserved for Steem Power distribution will be divided amongst Steem Power holders. In a way that those who have more SP in their wallet will get a larger part of the pot to be shared every round.

Holding more VEST will grown Steem Power

Having more Steem Power actually means having more VEST, on the blockchain scale. So the system rewards you for holding more VEST. This translates into earning more Steem Power, just by keeping it in your Wallet at SteemIt dot com. Now every Steemer will have some Steem Power, so everybody shares in the distribution of it every round. And besides that it is possible to earn more by posting and upvoting posts of other Steemers. This is the way the other part of the created STEEM gets distributed. And a large part of that also will become inVESTed as Steem Power. Making your Steem Power be able to grow even more.

Only a small amount of the created STEEM (known as VEST under the hoot) will actually become liquid. Meaning that it can be exchanged and traded right away. Because Steem Power is a long term inVESTment, it takes a total of two years of weekly payments, 104 in total, to power down. This actually will keep the liquid STEEM available quite scarce. Also because a lot of SteemIt accounts choose to Power Up their STEEM, meaning it will become a long term inVESTment in Steem Power. And of course there are accounts that do Power Down, making liquid STEEM available on the market. Which could flood the market with Steem, in effect lowering it's price.

And there is the Steem Backed Dollar, this is a token that represents an amount of STEEM that tries to match the value of a USA Dollar. Still, it is backed by STEEM. The lower the market price of STEEM, the more is needed to create the value for 1 SBD token. So there has to be a reserve in the form of STEEM, that can match the value of the Steem Backed Dollar to be payed. Meaning for instance that it can take up to 3 STEEM, or more, to back the current value of a Dollar. And that is a difficult proces to guarantee a 100% value match all the time. So the actual value will be lower, it is an approximation of the value of a USA Dollar.

The potential payout value changes a lot

Although the amount of STEEM, created by the Graphene blockchain work, is 100% every round, the actual potential payout changes all of the time. Well, the actuall value is symbolicly shown as '$', and this depends on the market value of STEEM, on average, taken over a period of 7 days. So the representation of this is what the reward in STEEM would be calculated according to the index value of how many STEEM would be needed to sell for a USA Dollar in worth. And as this is determined by the market price, this will constantly change the potential payout '$' value.

And also the amount of posts and replies that get curated will change the distribution of STEEM per round. Meaning that the potential payout could slowly drop during a full round because other posts get more upvotes. In the current reward system that means upvotes with a lot of Steem Power behind it. And after the round is completed the potential payout is locked into the real payout. Where about 20% will be shared among the curators, relative to the vote share they have (So therefore I vote at 100% all the time.) And 80% of the actuall payout is given to the post creating account. This reward is split up according to the current network settings, where part is in liquid Steem and Steem Backed Dollar and part becomes inVESTed as Steem Power.

The difficult part in this might be that the final payout value also contains the curators reward. And that the virtual '$' (Steem Backed Dollar representation) value is calculated and split at payout. What if this would be split like 40(SBD)-20(SP)-20(STEEM) and the actual locked payout would be 120? The first 20 '$' in value would go to the curators. Then the 100 '$' left would be go to the wallet of the content creating account as follows: 40 in Steem Backed Dollar. That is the easy part...

Now asume that the value of STEEM on the market, at 7 days average is $ 0,50. The value in '$' left is 20 to be payed in STEEM and 20 to be given in Steem Power. That would mean 20/0.5 = 40 for both. So the wallet gets 40 STEEM and 40 SP. And if the account holder decided to Power Up the 40 STEEM? Another 40 Steem Power added, right away. Because Steem Power is just STEEM that is inVESTed for the long term. (This works the same for the curators payout.)

This was a complex one, congratulations if you got this far

The largest part, 90%, of the STEEM pie that is created every round is distributed amongst all SP holders. So, the more Steem Power an account holds the bigger the share it gets every round of STEEM creation. That can be seen as dividend for the STEEM stockholders. And allthough new Steem accounts are opened a lot, chances are that they do not have much SP right away. So, that could make inVESTing in SteemIt quite lucrative. Because the amount of Steem Power will grow every round, even when an account is Powering Down. But the dynamics of that are maybe something for another 'Easy as Pie' edition.

Thank you for getting this far and I hope that you came to understand a bit more about how the blockchain network created STEEM is getting distributed every round. And if you understand that most of the STEEM created becomes Steem Power, even that from the rewards, than you might have got it.

Did my best to explain an apparant difficult matter of the SteemIt realm somewhat simplified. It is not ment to be an exact representation of the current situation. And if you think I have made a mistake, or painted a picture that could do with some improvement, then please do reply and explain.

Steem On!


Image cc-by-sa @oaldamster

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I've made it to the end. You explained things nicely. I would recommend to every steemer to read this.

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Thanks, I appreciate it!
Good that you made it all the way to the end it is still somewhat complex.

Thanks for the follow, followed you in return.

Thank you for posting @oaldmaster. Steemit mysteries explained bit by bit is appreciated to be sure. It is an elephant....one bite at a time. Cheers.

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Thank you @bleujay, glad I can be of service.
Have a good day!

But can we actually accurately calculate interest rate for SP holders ?
If so, how the rate likely to change in future ? Is it up to witnesses to decide upon ?

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No, it does not work the same way as with Steem Back Dollar. It is a distribution of Steem, in relation to the amount of Steem Power an account has.

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Well, from what I can see in my wallet I can roughly estimate that ( excluding rewards) SP grows about 10% monthly now. I wander if more sufficient estimate could be done.

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It will depend on the way Steem Power is spread amongst all accounts. Maybe it could be quite stable for a longer period of time.

As far as I can see it will be difficult to calculate. But maybe somebody knows how it could be done.

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I think it was sayd that the total amount of Steem produced will double every year. It seem to be enough to guarantee the same stable interest rate. But I wonder if that could be changed any time or it's fixed in blockchain.

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That is correct 100℅ every year. or double the amount.

As far as I know the ratio 10-90℅ could be changed. Just like the total amount of distribution of Steem per round. It would be changed through a fork.

Just like the payout method was tuned recently to keep the Steem Back Dollar price stable.