Justification for 104 week Power Down
Power Down Delay Slows Price Discovery
Price is the balance point between supply and demand at any given point in time. The Power Down restrictions have the impact of holding Supply off the market. Much of this supply wants to sell at today's price, but cannot. The reason it wants to sell is because those doing the selling have earned a massive profit in a short period of time. Their costs are next to nothing. They will continue to sell until the price falls low enough that it isn't worth selling.
If Steem Power were liquid, then the price would fall toward this equilibrium faster in a race to the exits. The people that dump first win (in the short term) and the rest lose (in the short term). There will always be a market value and the price will never go to 0 so long as there is at least one person who believes in the potential value of the platform. My experience with BitShares and dozens of other cryptocurrency projects is that nothing with any community behind it will fall to 0. Even simple Bitcoin clones that have been around for years and offer relatively little innovation with non-existent development teams (Doge, Peercoin, Namecoin) continue to be traded with $100K+ in daily volume with marketcap in the millions.
Power Down makes Cashout more Fair
With a power down system, everyone is forced to "dollar-cost-average" their selling over 2 years. This means that whales that might have cashed out $1M dollars at the height of the bubble were only able to cash out $50,000 at the high prices while they have watched their remaining Steem Power fall in value to $200,000. Their average "cashout" price will not be the height of the market, but the market average over 2 years.
This has pros and cons. In some sense it limits the ability of speculators to buy and sell over periods of a couple of months. Anyone speculating over more than a couple of days is paying a very large inflation tax. The loss of this speculative capital impacts the liquidity and potentially the price. We live in a world where traders want the ability to move to the next big thing and having capital tied up in the last big thing is a much riskier proposition.
Author Rewards
Author Rewards are also designed to delay cashout by paying in Steem Dollars. You could sell immediately at a loss, or you could "trust and wait" and make more. As the price falls, the market value of the immediate author rewards also falls, but this is OK. Authors looking for a quick buck need to go elsewhere. Meanwhile, those who stay and work to grow the long-term value of the platform will gain in Steem Power. When the value of the platform finally grows as a result of years of effort they will be the new whales.
You may only get $10 worth of Steem Power for a post today. It might not even seem to be worth your time, but if you and others stick around and grow the value of the platform then one day your $10 will be worth $400 if we grow the platform to Bitcoin scale. If we grow to Facebook scale it will be worth $4000.
Starting a Company
Those who start a company are paid in shares that are worthless. They cannot be sold on the market until one day in the distant future the company is successful and has an IPO. The present value of the shares isn't what the entrepreneurial employees care about, it is the future value.
Likewise, a farmer who spends millions of dollars on land, equipment, and seeds works day in and day out in the hope that his farm will eventually produce a crop worth enough to justify his time and effort. The farmer is in the red clear up until the day he brings his harvest to market.
Don't join Steemit for the quick buck. Be glad there is someone willing to pay such high prices for a stake in Steem today. Don't fear the fall in market value, look at the incredible amounts people are still earning. Don't look at what you have today, look at what you could have in the future.
Steem is in the early adopter phase, those who work hard and help pull this platform forward will reap what they sow.
Changing the Power Down Period
If we were to reduce the Power Down period from 2 years to 1 year or even 6 months, this would dramatically increase the net present value of Steem Power while simultaneously increase the amount of liquid Steem on the market in the short term. The end result would be faster price discovery, but no one can say whether the new price will be higher or lower than the old price.
Some people speculate that value that is 2+ years in the future is discounted to near 0 value today (especially in the world of cryptocurrency). This means that longer time horizons have diminishing marginal utility when it comes to encouraging voters to behave in the long-term best interest of the platform.
Emotional Response
Despite all the logic in the world, humans have irrational feelings with respect to profit and loss. Slow steady growth feels much better than rapid rise followed by slow steady decline even if both curves end up at the same final value (long term growth). I for one prefer a slow steady rise, but that isn't possible until after the rapid rise has fully corrected and realigned. This will take time and won't happen until after fear, desperation, panic, and despondency set in.
Those who know about this emotional roller coaster can ride the waves and maximize their profit, but most people give in to their irrational emotional side and buy high and sell low. My preference is to sell high and buy low.
Don't let the market price set your opinion on the value of a platform, instead make rational buy / sell decisions that factor in both short-term trends and long-term value. This applies to any investment you might consider.
Steemit is brilliant and I thank you for everything you have done to envision and create it. I happen to disagree with some of your recent suggested changes, which appear to be short-term attempts to control people and restrict the money flow in what should be a free economy. I would much rather the team focus on ways to improve demand, give people reasons to come and stay here, and make it a user-friendly experience.
The next part sounds like a broken record, because I kept saying this in BitShares. We need to stop the constant changes, give it some stability/predictability, and let this thing grow organically. Please don't tweak it to death again. It's time to think about building the other pillars of the Steem ecosystem.
That said, I cannot even believe that you would write this article, which I think is unnecessary. (Your view is correct, but the post was not needed.) You are addressing one of the dumbest ideas I have seen presented (the fast power down, which is basically the equivalent of eliminating Steem Power). That idea was justifiably being ignored and it could have died an easy death if you guys had not given it this kind of attention.
You are definitely right about one thing: we need long term thinking. I want people who understand this is a long, hard slog, and that steady growth will come if we keep building it. If you don't believe in it, sell, and I'm buying more Steem. I am spending most of my time mentoring authors and helping several whale accounts find worthy, deserving content creators who have not gotten the rewards they deserve. Others are doing far more than I am to make this a better place. Let's keep building.
There are still lots of newbies who don't understand the logic behind this system, so I think it's great that @dan has time to explain basics to them.
Also doesn't hurt that the post made over $700.
I've been thinking this too. I don't mind my SP being locked away for 2 years under the current rules, but I have no idea what the rules will look like a month from now.
If making changes to the site took 104 weeks, we might find more people willing to buy SP.
lolo :))
Nobody forced you to power up. That was your choice.
I also chose to power up half the amount I originally considered, largely because I don't have any assurance the goalposts won't shift.
I understand steemit is in beta, so I'm not having a whine, just sharing my experience and reasoning.
Nail. Head. Thanks for that.
"Please don't tweak it to death again"
I share the same sentiments
Thank you for this btw! If more of the larger players had this attitude it would foster an environment where the site is a lot more likely to retain it's users instead of having them sign up and leave after several weeks of posts that don't earn a thing as they are ignored by the big players always voting for the same authors...
I like this guy!
I'm curious in what way you mentor authors @donkeypong?
Judging by how the price of Steem acts right now (going down almost every day), I for one am glad that there is no more supply hitting the market! I think the ones voicing the loudest are looking to cash out...
And those who are the quietest are accumulating for the future.
Yep!
The Steemit ecosystem is made up of a few thousand users , a single wallet service, and few exchanges. We are not mentioning the potentially revolutionary off-shoot projects that could be inspired in the next 104 weeks. The price of steem is falling, yes, but the technology will stay on.
For an economic experiment born a few months ago, it has achieved remarkable success. We just have to think how to bring as many users as possible and keep them happily stick to the site. I read about a Bar yesterday by stellabelle, amazing thought! The possibilities are just endless as steem very very mainstream.
The possibilities are indeed endless for Steemit and it is very exciting to be in early. As you mentioned, the most important for Steemit to become a permanent success is to keep existing users and attract new users who create good content. I am on steemit for a few weeks now and I am happy to see that work on the platform is progressing, this shows already that we are on the right track to success.
"Steem is in the early adopter phase, those who work hard and help pull this platform forward will reap what they sow."
I think this is what people seem to be ignoring right now. The potential here is so huge that even in the early adopter phase people are earning large amounts of money.
Zactly!
If Steem gets the level of Bitcoin, then the posts that earn 1 cent now will be earning $4, according to the figures given in this post. At that point I don't see why anyone wouldn't be on Steemit, earning $20 or so per day just for writing crappy posts, and much more for writing good content. And as those billions of people flock to Steemit, the market cap should rise to the Facebook level, and you'll be getting $40 for your crappy posts.
lol, that sums it up nicely. Here's $800 in future Steem for your comment. ;)
Why, thank you! It's not every day that someone just gives me a potential $800 for making a comment.
This is exactly what I said in my post "Should You Leave steemit ?" with the farming analogy and everything! I am working my plot and todays Steem price does not matter to me. I am not selling for today, I am trying to grow a better tomorrow.
Thanks for making me sound smart. I just wish more people had read the post. I was responding to another minnows post on how he was despondant about the future here and it wasn't fair that whales made so much blah blah blah. So I turned that comment into a post to let people know that if you think you could throw a few seeds in the ground and make a huge harvest, you probably should leave.
thanks for this! a lot of ppl are sure worried about the powering down... i for one am looking forward to much more to come :D great time to buy some SP!
Firstly I wish to make known my reverence and veneration for Steemit ; herein has given me my own little pool of Stock Market type shares in Steem. Never did I dream of owning a shares portfolio and best of all it only cost me my free time , not hard cash : )
So with my devotions of loyalty out of the way. Why can we not have a different type of power down voting system ? Some persons somewhere decided upon 104 weeks = 2 years. Maybe this is for some unseen reason that could be advantageous to certain Steem holders but remains clouded and unseen by little fish like myself.
Why not have a purely random method that alters days per power down. Currently a power down takes 7 days (once per week) as part of the 104 power down cycle. Change it to a completely random model . . .
A coin toss ; nothing is more random than a coin toss , keep the computers and random generators out of it. If people are electing to power down if the coin shows TAILS the power down occurs 8 days from the last toss.
If the coin shows HEADS the power down occurs 4 days from the last toss. This makes the power down cash out function totally unable to be manipulated by anyone whether they be a minnow or a whale. The four or eight day power down cycle would not affect anything overly compared to the current system , but it would make even the current system more trusted.
People would not be able to cash out suddenly and affect the law of supply and demand to much , but also people would know that no one can predict with any certainty where the market would be aimed toward in 104 weeks. I myself like the power down , but I would prefer it over a year ; but obviously everyone has an opinion . . .
Using a coin would increase the novelty value and integrity belief that the system cannot be easily manipulated : )
/ hugz ; )
See you on the BlockChain : )
I am for giving whales with more than 1% in the system the option to powerdown immediately and sell without a minimum price everything... This way there would not be the continuous selling pressure for 2 years and everything had a clear sky from there on...
Bugger them, if you let the 1%+ sell immediately this lets them profit immediately; why not make them work and wait like the mere mortals have to.
If they sell out today you still have 9,999 other Steemians all powering down every week and selling something so the selling pressure is never quite relieved at all . . . Make the damn whales work for their shares like the rest of us ; lol : )
/ hugz ; )
I see 2 years of clouds hanging over steem... I prefer to have them away... and this way we could grab some really cheap ones... instead of buying at a marketcap at 100 million we could buy at a marketcap of 500,000... ;)
Well I agree with you , I see years of uncertainty ; but I just want a level playing field . . .
You probably understand all this crypto-stuff far better than a newbie like me. Six months ago I could not spell cryptocurrency , now I am a shareholder . . .
So maybe you know when and how to buy and sell this internet barter coin , little old me I am just along for the ride to see how it all turns out : )
May your investments follow your plans and more steem power or more gold to you , for me ; I am uncertain of my analysis of what occurred last week so I have no hope of predicting the future like a trader tries to do : )
/ hugz ; )
I am here for the journey ; I must travel along for the journey since I have absolutely no clue what the expected destination is likely to be : )
I look at Steem Power as an annuity that I am building for my future. I understand that new markets are always volatile and so when looking at an investment for the long term you must look at the platform's potential. Steem has that potential, not just with Steemit, but other paradigm disruptive side chains that could be developed for Steem. Steem is so much more that Steemit.
Great post.
The main issue is (in the crypto space) people think they're investing when they're really speculating on coins they think may go up (x2 or x10) in value, over the short term.
Thus investing on something for 3-5 years scares them shitless.
Eventually the right type of investors (and investment) will gravitate towards Steem/ Steemit as long as the the community keeps growing and delivering things of value, as it's doing.
Thank you for this post, this morning I was thinking about stopping my power down, and this post sealed the deal. My power down is now stopped and I will begin to power up the steem dollars I have over the next 10 days, as I think the steem price will go lower each day.