In this post, simplified examples are given to help understand the basic money flows of Steem.

## Assumptions

- The market cap of STEEM is fixed to $1 million
- No moves(power up/down) between STEEM and Steem Power
- Annual inflation rate is 100% (approximate to the real number)

## Basic Scenario

I will first explain a basic scenario in which 90% of STEEM exist as Steem Power and only 10% is liquid STEEM. The total supply is 100k STEEM, so a unit price of STEEM is $10. Let's assume that a Steem Power supply measured in VESTS is 1,000 M(illion). Since 90% of STEEM is in the VESTS fund pool, the exchange rate is 90 STEEM/VESTS, and hence the VESTS price will be $900.

- Total STEEM supply: 100,000 STEEM
- STEEM: 10,000 STEEM
- Steem Power: 1,000 M_VESTS (Fund pool: 90,000 STEEM, so the exchange rate is 90 STEEM/VESTS)
- STEEM Price: $10
- Steem Power(M_VESTS) Price: $900

After a year, with a creation of 100,000 more STEEM, we can find 90% of newly created STEEM went to Steem Power fund pool and 10% went to Rewards fund. With the doubled supply, the STEEM price will be halved to $5 ($1 million / 200,000 STEEM). However, since Steem Power fund pool increased to 180,000 STEEM, the unit value of VESTS does not change ($5 * 180 = $900). Additionally, we can see that $50k (or 10k STEEM) rewards are created. So where does $50k come from? The answer is STEEM holders. Their wealth decreased by $50k, while contents providers and curators got $50k.

- Total STEEM supply: 200,000 STEEM
- STEEM: 10,000 STEEM
- Steem Power: 1,000 M_VESTS (Fund pool: 180,000 STEEM, so the exchange rate is 180 STEEM/VESTS)
- Rewards: 10,000 STEEM equivalent
- STEEM Price: $5
- Steem Power(M_VESTS) Price: $900

## What If All STEEM Is in Steem Power?

In this extreme case, 100% of STEEM exists as Steem Power. The exchange rate is 100 STEEM/VESTS, so the VESTS price will be $1,000.

- Total STEEM supply: 100,000 STEEM
- STEEM: 0 STEEM
- Steem Power: 1,000 M_VESTS (Fund pool: 100,000 STEEM)
- STEEM Price: $10
- Steem Power(M_VESTS) Price: $1,000

After a year, we can find that the value of Steem Power decreased by 5%. That is, under higher Steem Power ratio than 90%, Steem Power holders pay for rewards (Surely STEEM holders too).

- Total STEEM supply: 200,000 STEEM
- STEEM: 0 STEEM
- Steem Power: 1,000 M_VESTS (Fund pool: 190,000 STEEM)
- Rewards: 10,000 STEEM equivalent
- STEEM Price: $5
- Steem Power(M_VESTS) Price: $950

## Too Many Liquid STEEM

What happens if exceed amount of STEEM is floating around? I assume that 50% of STEEM is liquid and the others are in Steem Power.

- Total STEEM supply: 100,000 STEEM
- STEEM: 50,000 STEEM
- Steem Power: 1,000 M_VESTS (Fund pool: 50,000 STEEM)
- STEEM Price: $10
- Steem Power(M_VESTS) Price: $500

After a year, interestingly, Steem Power holders obtained more wealth (in total $200k) and contents providers got $50k. This money comes from STEEM holders pocket. Their wealth a year ago was $500k but now its only $250k.

- Total STEEM supply: 200,000 STEEM
- STEEM: 50,000 STEEM
- Steem Power: 1,000 M_VESTS (Fund pool: 140,000 STEEM)
- Rewards: 10,000 STEEM equivalent
- STEEM Price: $5
- Steem Power(M_VESTS) Price: $700

## Conclusions

In these simple examples, we discovered that rewards mainly come from STEEM holders by depreciating a unit STEEM value. But if Steem Power has exceeding weights (more than 90%), Steem Power holders also pay for rewards. It should be noted that if the ratio between STEEM and Steem Power (in terms of STEEM) is under 90%, there is a incentive to convert STEEM into Steem Power until the ratio gets to 10:90. Currently, the ratio is about 96.4%, so I expect there will be more Power downs until it's balanced.

*Hopefully this post helps!*

merlinscat (58)· 3 years agogood post, look forward to more

poseidon (51)· 3 years agoAn suggestion... In my post I went into why any one would use it. And why I guess some Bitcoin users dismissed it.

https://steemit.com/steemit/@poseidon/why-would-someone-hold-steem

joelinux (57)· 3 years agoNice explanation.

side note I am trying to promote a fellow steemer check it out: https://steemit.com/photography/@joelinux/we-have-a-talented-steemit-photographer

fiveboringgames (61)· 3 years agoWith STEEM trading on exchanges I could easily see more than 10% been held in STEEM. Do we have current numbers for STEEM vs SP?

clayop (73)· 3 years agosteemd.com

current_supply

128,841,759.340 STEEM

total_vesting_fund_steem

124,289,368.075 STEEM

124,289,368.075/128,841,759.340 = 96.5%

senseiteekay (66)· 3 years agoBookmarked for future reference.

Great post @clayop

You've gained a new follower.

royalmacro (72)· 3 years agotoday I know a much about steemit from your post. thanks :)

joele (54)· 3 years agoI need to boomark this and reread 50x

nathanbrown (54)· 3 years agoLol, totally!

thebigweb (49)· 3 years agoReally informational. Well done!

profitgenerator (68)· 3 years agoGood post, but inflation is more trickier than that.

The supply can double, but it doesn't manifest the price if it's not liquid. In other words if the new money doesn't enter circulation, then the price of STEEM won't halve.

Given the incentive with STEEM DOLLAR, as it gives interest ; and STEEM POWER gives interest and long term stake , we can conclude that if more people hold, which they are incentivized too, most money created won't make it to the exchanges.

So there will be a difference between monetary inflation (the amount of money created) and price inflation (the effective inflation rate observed).

Inflation is tricking down assimetrically, the same way as in the fiat economy. In fiat, it takes about 1-2 years for the inflation to fully trickle down.

nathanbrown (54)· 3 years agoI agree with your analysis, but the biggest issue I see missing from your analysis and the original authors is in relation to SMD. The money supply is also inflated by the SMD interest rate and that is liquid and not being included in the analysis.

profitgenerator (68)· 3 years agoI will have an upcoming article about SBD, currently I am researching the SP system.

phoenixmaid (62)· 3 years agogreat post, explains it without causing further confusion.

ulfa (47)· 3 years agomy little bingun with what you say.

could you explain a little more detail and brief?

how2steemit (52)· 3 years agoSteem's money flows is great and strong ,so this will be the largest cryptocurrency community.

powercouple (63)· 3 years agoThanks a lot for this post! It really helped me figure all this out :)

pery (58)· 3 years agoThis makes all the steem things clear for me, thx a lot ;-)

bitkominer (25)· 3 years agoGood information, but I think I need more hashpower to understand it correctly... :)

paco (63)· 3 years agoLoving the conclusion part. Wow! thanks

faraz (47)· 3 years agoNice to sharing @clayop

gikitiki (58)· 3 years agoThanks @clayop, I like your use of diagrams to explain. A picture says a thousand words.

nathanbrown (54)· 3 years agoWhat are vests? I don't remember seeing that jargon in the white paper.

Also, why is there an incentive to convert Steem to SP if SP is less than 90% and why is there an incentive to convert SP to Steem if SP is more than 90%?

steemitqa (62)· 3 years agoGreat post. Going to have to bookmark this also.

g-dubs (70)· 3 years agoThanks for the post! Is there any way to track the STEEM to SP ratio?

dona.apriyanti (3)· 3 years agobtcbtcbtc20155 (56)· 3 years agoThanks, I noticed the price of steem is dramatic decreased value and steem dollar is holding up and increased in USD value. I think good holders are cash out.

nathanbrown (54)· 3 years agoHow have SMD increased in value? They are supposed to have a one to one ratio with USD.

etcmike (75)· 3 years agoVery well written, illustrative, and informative post. I am now following you and looking forward to any future analysis or explanations you do.

Steem on,

Mike

edgarsart (71)· 3 years agoGreat, thanks for the info

ninzacode (62)· 3 years agoI translated this post in Korean. If you want to see click the below link.

When I worked about this, @clayop helped me. Thanks for your help! :)

https://steemit.com/steemit/@ninzacode/steemit

dispenser (4)· 3 years agohttps://steemit.com/art/@dararzhv/one-of-the-squad-s-most-manipulative-members-by-dararzhv

Take a look at yourself.

lukestokes (74)· 3 years agoExcellent post, thank you. This stuff is complicated, and I think I just need to see example after example to really let it all sink in. As an audio/visual learner, your blocks helped me a lot.