The Demand That Drives Steem

Recently, I had a discussion with a friend about the value of Steem. I tried to justify why Steem had value, and I went in circles. I wanted to boil down my exploration into what I've come up with. I'm sure most of you are going to say "well duh", but as I've searched in the past I see lots of people going in circles around the value, as I did.

What gives Steem its value?

Steemit's FAQ has a short and sweet analogy to offer. Paraphrasing a bit: Steem is a freemium game where people compete for attention and rewards. Within this game, Steem (specifically Steem Power) is a token of influence that can affect the rewards. Thus, I added "freemium" since it costs nothing to play, but you can buy tokens to help you get further more quickly.

But what is this token worth? As with anything else, pricing is driven by supply and demand. Supply is determined by the programmed rules, more or less, with some nuances coming from having three kinds of tokens. The economic post from last year outlines inflation at 9.5% and slowly reducing over time.

The focus on this post will be more on answering "Why Steem has non-negligible value". Right away, I want to discount value driven by pure speculation, because demand driven by speculation is based on what they guess might be the future value, and not on real demand. So we ask, "What are the non-speculative contributors to demand?"

Steem as a Freemium Game

Note that many people are perfectly happy to go the route of not paying anything and just receiving tokens through participation: these are the free-to-play folks, and they do not drive value. Value will be driven from people that want to increase their influence in the game immediately and are willing to exchange money to do so.

This leads us to the following question: Is the game fun?

We have comparisons for this. Reddit, a fully free to play platform, is very popular, with roughly 1.58 billion visitors in the last six months. Reddit is like Steemit without the money, right?

There are communities being built around Steemit organically, as evidenced by various steem chat rooms on steemit.chat and discord, and the late SteemFest. Personally I've already met quite a few interesting folks through this game. This game is fun enough, alright. And when the game is fun, you'll find whales willing to go pay-to-win!

Steem as an Advertising Platform

I'm not talking about banner advertising, which is a topic of exploration on e.g. this historical post. In my opinion it's not even necessary. Remember that the goal of advertising is to build brand awareness, and social media itself has already proven to be such a platform for doing so, as long as adoption is there. Here's a recent article discussing exactly such examples on the currently popular platforms.

For an effective campaign on Steem, a brand advertiser would engage with users via creating a post targeting a topic of interest, and promoting via the native promoted section or simply spending on upvote bots. I'm sure with demand there may be other enticing ways to introduce advertising, hopefully as a non-intrusive natural engagement and not as eye-sores, of course. There are plenty of current social media advertising examples to draw from.

Note that significant demand driven by this component has not even happened yet, as Steem does not have the eyeballs for it. I think to some extent it is already happening on a small scale, individuals building brands (not unrelated to the social game discussed in the last section), and probably some smaller product / service providers. The big fish will come all in good time. I suspect speculative price is waiting for this to be realized.

Steem as a Currency

This is an obvious one, but I feel it isn't so well understood. It's not like people are clamoring for another currency: they are perfectly happy with Fiat for the moment. Even in cases where they are using it, bitcoin and others are dominant. Steem of course has nice properties as a crypto-currency, for example scalability, easy of use (web wallet), and having no fees. Utility by itself isn't enough, though, obviously adoption is key for any currency. But anyway, it does not seem that people are coming for the currency, so I believe it is not driving the demand for Steem currently.

However, within the platform, Steem (or the more stable SBD) is the perfect way to pay another Steemian. Just imagine paying another Steemian in their native currency! That in itself will be reason to hold the token, and people may even transfer from Fiat to pay for services in Steem. As more and more innovative products develop on the Steem blockchain, the effect of Steem as a currency may prove to be a driving force for the demand of Steem.

Summary

Steem demand is speculative, but it's important to identify what people are speculating on. Here we've identified three potential sources of demand:

1. Social Game (realized on a small scale)
2. Advertisement Platform (realized on a small scale)
3. Currency (unrealized)

So Steem has a ways to go, and I'm very excited for its future! Let me know if you have good references for learning more about it that I may have missed!

By the way, you'll note I did not discuss pricing in this post. It's very hard to tell what has been priced in by the market, but there should be ways to measure what could be! At some point I'll dig further into this topic and compare what others have already analyzed. I'm sure there's all sorts of crazy things being thrown around for that.

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