Steem is in the red (unprofitable) and we must change this

in steem •  3 months ago

@lukestokes made me aware in his most recent post of a little known underappreciated metric called the deposit to withdraw ratio. If we understand how businesses work or lifeforms in general then we know it is about growth. A business grows when it has healthy financials. This general means when revenue is calculated to be over expenses then the business is financially healthy. Businesses call this the Operating Expense Ratio.

Operating expenses are costs associated with running a business's core operations on a daily basis. Thus, the lower a company's operating expenses are, the more profitable it generally is. Over time, changes in the OER indicate whether the company can increase sales without increasing operating expenses proportionately (i.e., if the business is scalable). In real estate, companies can compare properties by using the ratio.

That quote highlights the importance of the OER for business. In Steem we have the deposit to withdraw ratio. In Steem because we have to measure things differently we can track the health of Steem by looking at whether the amount of USD value being taken out is greater than the amount of USD value being put in. The deposits have not been keeping pace with the withdraws which shows that the ratio is unprofitable. As much as people jump on others for "reward pool rape" and other accusations we have to understand the fact that Steem as an ecosystem is currently unprofitable.

Unless Steem becomes profitable the reward pool is going to shrink forever and all arguments become moot points. So the real question is how can Steem be made profitable? The developers have been saying for months (years) that communities are coming, that oracles are coming, that SMTs are coming, but we still haven't seen any of this. As a result the demand for Steem has diminished greatly now that the hype surrounding crypto has gone down. Primarily speaking the current holders of Steem realize Steem is not profitable and rather than simply holding to receive in some cases 10% yearly interest the choice is being made by many to sell into USD or into BTC with the expectation that BTC is going to rise.

Let me be honest, even if BTC does not add as much utility or value as Steem it is likely going to get a higher price rise than Steem. If we look at the trend we see the BTC value of Steem has been going down for most of the 2 years that Steem has been online. This indicates that in BTC value Steem has never really been consistently profitable but in USD value Steem has had moments of profitability.

In my opinion this can change and should change. First the mindset in my opinion has to change and that is how can we make Steem profitable? We know Steem is adding value but we also know that if we look at Steem as a business that the business is failing. In other words it's unsustainable unless effort is made to change the trend and soon because we also know Steem 2.0 is under development for EOS.

  • SMTs may make SP more attractive to hold but I suspect people might not understand the value SMTs bring.
  • Third party developers can make apps but these apps have to create supply sinks for Steem.
  • Third party developers also have to figure out how to make their apps "profitable" in the context of BTC value not just USD value.
  • Steem core developers have to create the tools and platform to allow efficient value and wealth creation. This includes the sort of features that would make it in a person's economic interest to want to hold a token long term. At the moment delegating Steem Power, curation guilds, and similar features do actually make people want to hold Steem for the passive income. At the same time Steem isn't even mentioned for being available on Coinbase or the major exchanges yet Cardano is? It's important that Steem be put on Coinbase particularly with a million+ users and the largest community in crypto.
  • Finally Steem developers have to inspire people. Now is the time to release at least some of the ideas of where Steem will be going in 2019. We need to know that if we hold on that not only will we get SMTs, Oracles, Communities, but that there are plans going all the way to 2020. We know Dan Larimer and EOS think long term, and we know Ethereum and VItalik also think long term.

References

  1. https://steemit.com/exchangereport/@lukestokes/exchange-transfer-report-7-22-2018-to-7-29-2018
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It's quite simple, to make steemit profitable you have to attract more people than the current developers are scaring away. Easy!

  1. Reduce the 2.5 c dust cap threshold to attract AND retain more users.
  2. Stop pissing users off with new "law bots" which will improve retention rates.
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Law bots? Can you show me what those are?

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Check my recent comments for more details on law bots, thank you.

Law bot = any bot that appears at the bottom of your post with a mystical rule of your supposed wrong doing.

Usually has a poorly thought out name and an even worse set of thought out rules.

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They can't be stopped. You have to stop the accounts themselves to stop them which would require a hard fork. This is not as easy as you think.

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Laws are written. If it's an unwritten rule it's not law. It's the opinion of whoever wrote the bot.

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Dear Sir, it's hurting now when we spend hours here and in return only gets cents maybe due to this the enthusiasm of new members and minnows are demoralizing although we are still viewing it as an opportunity and hope of better tomorrow in coming days.
Maybe I am wrong but it's really hurts its my personal opinion.
fThank you or your valuable and bias and most true review.

I think you may be misunderstanding that graph a bit. A low number is a really good thing. It means fewer accounts are withdrawing. When the ratio changes so that more people are depositing Steem into their wallets from exchanges and less people are withdrawing from their wallets to exchanges then we'd see that ratio dip negative and the graph would have to be inverted. Make sense? I've commented on the withdrawal to deposit ratio quite a bit during the history of my reports. I'm not yet convinced its a completely valid metric since many individual humans own multiple accounts and one big whale deposit or withdrawal has far more impact on token price than some small accounts. Example, if one whale withdraws $1M to an exchange (and dumps), it has far more impact that 10,000 small accounts depositing $1 into their wallets which they bought from an exchange.

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Thanks for explaining. Can you tell me why the BTC value of Steem has been consistently decreasing since 2016 though?

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That's entirely true. It has had some moments of life, as you can see here. Granted, many other coins have done better. Maybe it's just that speculators fear utility.

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Honestly speculators tend to be short sighted which is the problem. Steem is one of the few technologies in the crypto ecosystem which I can be sure can be here in 10 years. It's a community, it has people, people might use other platforms but will still use Steem.

Twitter, Facebook, even Myspace, are still used even when new communities like Snapchat release. This tells me that Steem can be here for 10 years and the only thing missing is what is the long term vision for Steem? Dan Larimer has that kind of vision but we haven't seen that since he left.

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Yes. Because STEEM is an inflationary currency. It is just inflating into a bear market, so it seems to be going up. Over the long run, it will always go down compared to BTC.

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Steem is more like a stock than a currency. It being inflationary isn't really the problem. The actual wealth of the network increases as new users join and new content is produced. The problem is the economics of the platform don't make sense and aren't properly monetizing the value the platform generates.

Think about how much value Steem generates for the crypto community? More value than Bitcointalk, more value than Slashdot, more value than Facebook which censored crypto ads, more value than Google which censored crypto ads, yet the price of the Steem stock (or token or however you want to think about it) keeps going down.

Bitcoin is far more inflationary but the price of Bitcoin goes up. Even EOS is going up over time without even having apps yet. There are projects like Tron which got many billions of value from BTC to flow into it for no reason and that project isn't producing anything of value so far.

The problem in the crypto ecosystem is that it's basically a gamblers paradise. There are a lot of scams which suck up billions of dollars with just a whitepaper while actual value and utility barely can get 300 million market cap even with over a million users?

Now I'm not saying it's 100% the fault of speculators either. Steem is in this position because the developers didn't take the economics and financial sustainability part seriously enough. Assuming they are taking it seriously they don't release much details as to how they will turn around the obvious trend which shows BTC value slowly draining from the Steem ecosystem consistently.

This is equal to seeing a company which loses money for investors year after year? Who would buy that stock? Exactly. And that is why they must turn it around one way or another or Steem will eventually fall to the competitor which does have a profitable ecosystem.

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The main metric I'm concerned about is the BTC to Steem value ratio. Steem is losing value in the crypto ecosystem even while adding value and growing in user/community size. This is the main issue I think because as the Steem price measured in BTC decreases then the reward pool shrinks. The Steem price is the ultimate metric (measured in BTC) and that is going down.

BTC or not, the business model of Steem is what we need to consider.

The community and the technology will remain around for a long time. Steemit as a business needs to take a long hard look at itself because it does not have a clear cut business model. I have mentioned this many times earlier, that for blockchain companies to succeed their biggest power is that of the community.

any service we yield must be as a community. then our value is unstoppable. but if we are an infrastructure (like ethereum) then we dont have any consumer connect and hence we dont know what the consumer really wants.

It looks like we have taken a call that we are better off as an infrastructure for other blockchain wannabes (atleast as far as SMTs are concerned).

In the SMT case, our end customer is a business (eg: steem hunt) and we have two positive possibilities:

  1. steem hunt is itself intensely profitable
  2. steem hunt is great at aggregating consumers from outside of the community

if neither of the above is happening then Steem business model is flawed anyway. I think that for better or worse, Steem's success will come from Steemit or some other app that will use the power of the community fully. If we want to make Steem profitable, we must find a business model where Steem's value is linked to Steemit's (or other's) success as a DAO.

Steem's value relative to USD and BTC has nothing to do with its inflation rate. It doesn't have the marketing, hype, and probably price manipulation that many of the other cryptos do. Also most big crypto investors don't invest in STEEM because they don't like SteemIt, Inc. Trust me on this.

Steemit.com is the face of STEEM, for better or worse, and it is at best a poor product. I know SteemIt Inc is focusing on the blockchain technology, which is great, but that by itself is not good enough. The big money does not believe in the future of this platform or the team behind it.

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The big money does not believe in the future of this platform or the team behind it.

ding ding

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dear @yabapmatt plz check your steem chat i waiting your reply and and check memo in your wallet

I love STEEM, but honestly how much is it really worth? As long as some whales continue to rape the Reward pool for short term gain, it’s likely to remain under $10 indefinitely (with perhaps the odd spike beyond that). Which is too bad.

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It's not about the whales or the reward pool. In a company like Reddit for example the biggest shareholders are the whales. When the share price is rising everyone is rising together along with the whales. On the other hand if the share price is dropping year after year then it's a rush for the exits as the whales and everyone else is trying to sell.

Do you see the problem Steem faces? BTC value of the Steem token going down is what creates the pressure to sell. Who wants to hold their Steem as a whale if they could trade Steem for BTC? Even if Steem creates more value than anything else in the crypto ecosystem it is still BTC which is likely to go up with 47% dominance right now.

If the market were about value creation and wealth building we would see the Steem platform doing at least as well as Ripple, Ethereum, Cardano, EOS, etc. We can make the case of course that EOS, Ethereum and Cardano can offer more long term utility due to being smart contract platforms but right now Steem is near the top in users, in developers, in utility.

STEEM works only because of the prevailing circumstances.
We are looking at a inflationary crypto-curerncy in a bull market. Or more appropriately, in a early adoption phase market.

At any other time, say if cryptos were in common use everywhere, than STEEM would just flat die. It has no income, it isn't creating anything.

Right now, it is going up because the markets that it is in are going up rapidly. Hugely. The market is going up faster than STEEM is going down.

Hopefully before we reach 50% adoption of cryptos, STEEM will work out a better business model.

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Steem is creating content and providing value. This much for sure is clear so we cannot say Steem isn't creating anything. For the ecosystem we can say Steem is the only social media platform which is creating value for crypto. Over a million users, and crypto ads aren't banned on Steem like they are on some other platforms.

I do think Steem needs to improve their business model urgently though. It's not enough to create value for the ecosystem if the value flow is only going from Steem out and nothing coming back in. Eventually Steem will stop functioning just like anything which is starved of resources or they will turn it around.

Thank you fo sharing...

@dana-edwards I gave you an upvote on your post! Please give me a follow and I will give you a follow in return and possible future votes

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The only way to make steem go up in value is to make companies advertise on steem by buying votes. Now if you want your post to be top post you need to get approx 1000 USD of upvotes, for that you need to spend 1000 USD in steem to buy votes.
If we had 100 companies doing this everyday, that's 100K USD per day of buying pressure on the market.

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Advertising isn’t going to do shit when 99% of the users are unhappy here.

Posted using Partiko iOS

99% of the users on here are unhappy, disengaged and begging. The only things that can save this platform are activity points, User Authority and new management.

Posted using Partiko iOS

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What are activity points? Is that like SMTs? I agree participants are unhappy but that is because Steem isn't evolving fast enough to keep the ecosystem fun and growing (for users). Developers seem focused on providing features for other developers which is on one hand great for developers but without retention of the content producers and other participants the best technology in the world is nothing without a community.

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Activity points are baked into the Partiko app, and they will be able to be exchanged for upvotes as far as I heard. You get 10 points for logging in each day, 30 points for writing, 5 points for upvoting someone’s post etc. it’s how Steemit should have been designed from the beginning

Posted using Partiko iOS

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What I learned recently is that Ned and Steemit inc never really intended to make a user friendly app or site. Steemit was only made for an example and they didn’t care about users and their happiness. I talked with the Partiko app developer, who works for AIRBNB and also have been analyzing users retention and happiness ratings while using this app. They have good retention. For me personally this app is the main reason I’m back to posting. It has made a big difference in my sentiment. For this reason I’m willing to educate as many people about it as possible. Also I’m doing it voluntarily and i don’t get any rewards or referrals for doing so. It’s the app that I had hoped Steemit had made last year, this is it.

Posted using Partiko iOS

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To focus on sentiment is something every company should do by default. The customer being satisfied is the purpose and function of a company. So when we think of management of a platform like Steem the most important thing should be to keep the community happy. The problem is how do we measure this sentiment?

We can look at retention data, we can look at blog posts to get some indication of sentiment by way of sentiment analysis (just as is done in Twitter), and from that there can be an effort to save the platform. But the problem I see is that the platform is not sustainable because wealth leaks from the token over time so that the reward pool deteriorates. That reward pool has been made the center of gravity because it fuels the entire ecosystem. So now it is like a central point of failure where if it is not sustainable neither is Steem.

To make the users happy I would focus on gamification (make the platform fun). This is achievable but expensive. Once again we return to the fact that if the Steem token loses value over time then paying developers to make upgrades becomes harder and harder. The developers get paid by the same reward pool as all other participants.

Gamification was something promised but which we never got. The UX still hasn't improved enough in my opinion which is one of the issues for why Steem isn't fun and has low retention. The management issue wouldn't be an issue if SMTs and communities exist but because these haven't been released we can't effectively fork into multiple communities and governance models.

Killer conversation! ...so, just a tangent but, THIS kind of interaction is why I think Steemit has a future. People from around the world continue to have discussions, debates, share ideas, etc. in a free platform that rewards both the contributors and curators.

Is the system perfect? NO! But neither was Bitcoin as a monetary vehicle. Yet it has been successful because of the participation and adaptability. I believe Steem can be the same.

The true measure of value for Steemit is not the amount of dust accounts, people complaining they are not rich, or the moment-in-time invest/divest ratio. Rather, the strategic value it is the continuing willingness and participation of people to express their ideas and viewpoints in a constructive way. This is a social site.

Only for now I'm not worried about it.

Actually, Coinbase is considering Steem for custodial holding. And Steem was almost mentioned by name in a recent interview with the CEO. Check out this video https://steemit.com/japanese/@coolenglish/iscoinbaseceobrianarmstrongbullishonsteem-puo9h38wxq

Hopefully it happens soon.

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If that does happen it will be good news for Steem.

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Yes. And with HF20 allowing apps besides Steemit to onboard users, I think Steemit itself will soon become irrelevant. This has never happened before, AFAIK. Allowing thousands of developers to compete for the best interface to a social media database is new territory. Some of those are going to find a way to pump value back into the system, whether by advertising or some other means.