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RE: Ned's Making $700k+ Every Week: Is the Steem Power Interest Rate Too High?

in #economics • 8 years ago

Thanks for the reply, Alex!

By 12%, I mean this number mentioned in the white paper:

Steem by contrast will achieve an instantaneous annual rate of approximately 12% after just 1 year (not including the effects of SMD operations).

Which I talked about here. Are we talking about the same numbers? This stuff gets pretty confusing because there are so many moving pieces involved.

As for the whales making money, I have no fear at all there. I also hope they make $10M a week! But back in reality land, I don't think a new start up can increase the size of the pie that quickly in real terms.

I think we might see a correction in the price if the user base don't grow fast enogh.

This is exactly why I don't think the current interest reward of $700k+ a week supported by the current price makes sense for a social network which has (comparatively) few users right now.

That said, I'm very hopeful for the future, just cautious about my friends jumping into this financially. It could be that this is really cheap STEEM right now and it will rise to challenge Bitcoin as the most useful cryptocurrency around. It also could go back to $0.20 land and be left alone by the pumper/dumper alt-coin fans.

Thanks again for your insight.

8 years ago in #economics by
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     8 years ago (edited)

    As per the whitpaper:

    At first glance, 100% annual increase in the STEEM supply may appear to be hyper-inflationary and unsustainable.

    Because 90% of all STEEM created is distributed back to holders of SP, the result is similar to having a 2:1 “split” every year rather true inflation. The total rate of expenditures used to reward contributors is about 10% of the market capitalization per year, a rate well below what Bitcoin sustained for the first 7 years after it launched.

    As of May 1, 2016, over 98.49% of all STEEM has been converted to SP. This demonstrates that demand to hold long term dominates. In this environment both liquid STEEM and SP are diluted to fund rewards.

    We need to differentiate Steem and SteemPower.
    Steem on the exchange will increase by 11.51% (12%) a year. That is what he refers as instantaneous rate. But your interest rate on your Steem Power will be close to 90%/year.

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     8 years ago 

    It's kind of misleading to use these terms uncritically without understanding all the implications of a rapidly increasing money supply. We should be careful about giving the impression that a 90% return on investment is somehow built into the economics of Steem.

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       8 years ago 

      Shhhh.... Shush now... TO THE MOON!!!

      Heheheh. :)

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         8 years ago 

        Am I missing something?

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           8 years ago 

          It can be confusing but it's not badly worded in the white paper as to being misleading. I understood there isn't a 90% return of investment and I think most understood it as well but I agree we should be careful not to give the opposite impression.

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             8 years ago 

            Very interesting. Makes me wish I took economics classes in college =(

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