Does the 13 week powerdown period prevent investing in STEEM?

in steem •  last month 

In a recent post @thecryptodrive is proposing to reduce the power down period from 13 weeks to 4. He justifies the proposal in the following way:

The premise behind this change is to reduce the barrier to entry for investment into Steem and PoB SMT's, currently it is daunting for investors to lock-up their capital for 13 weeks.

At first glance the proposed change in the code seems reasonable. But is the premise for it a proven fact or is it just a reflection of the desires of one group of stakeholders?

I think that the problem is framed incorrectly. The real question should be how do we increase the value of the steem network? If reducing the power down period helps to accomplish this then we should go ahead and make the change.

And here lies the crux of the issue...there is no data to backup the assertion. Has a study been done that proves it or a professional poll conducted among a group of investors that mentions the lock-up period as the main barrier to entry?

The answer is no.


Source

First, let's start by looking at lock-up periods in general. From Investopedia:

There are two main uses for lock-up periods, those for hedge funds and those for start-ups/IPO’s.

Hedge fund lock-ups are typically 30-90 days, giving the hedge fund manager time to exit investments without driving prices against their overall portfolio.

For start-ups, or companies looking to go public through an IPO, lock-periods help show that company leadership remains intact and that the business model remains on solid footing.

The Hedge Fund market was valued at 3.53 trillion as of November of 2018 according to 2019-Preqin-Global-Hedge-Fund-Report.

It is worth noting that Withdrawals may also only happen at certain intervals such as quarterly or bi-annually..

So having lock-up periods plus limited withdrawal intervals does not prevent the Hedge Fund market to dwarf the whole crypto space. We can conclude that in general those two characteristics are not obstacles for investors. What investors look for is how much ROI can they obtain from commiting their money into a particular enterprise. The ROI comes from the underlying value of how the funds are allocated on the specific investments.

This brings us back to the question that I consider to be fundamental how do we increase the value of the steem network?. It is my belief that it doesn't matter if we reduce the power down period (or if we remove it at all) if the value of the network does not increase. For this we need adoption through various use cases. I can not presume to know which use cases can help us in this quest.

Also, we probably need to question if having a powerdown schdule is a good fit for STEEM. Maybe it is maybe not.

There are other issues to consider, alot of them were discussed in the post from @thecryptodrive and I encourage you to read them. The main concern that I have is that reducing the powerdown to four weeks (or even worse to only one) is that it can incentivize exchanges to flex their muscles (so to speak) and takeover the main witness positions and dictate the governance of the chain.

To conclude, this proposal if implemented will change the economics of the network and it should not be taken lightly. We need data and not take decisions based on our desires alone. Before commiting to this we need to justify it so probably it would be best if we use the SPS and fund an independent study (preferably by a non-steem entity to eliminate bias).

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Good points!

I think it's important to differentiate investing in Steem aka buying and powering-up/staking of Steem.

The latter is needed if a person wants to be able to earn passive vesting-inflation, as well as being able to participate in the voting-game, which includes earning of curation rewards. Last but not least, staking is also necessary to participate in the witness-selection/blockchain governance. All of this requires the participant to accept a 13 weeks powerdown timeframe.

Now, the 13 weeks powerdown period is only preventing people from investing, who would only buy Steem if they could stake it with a lower powerdown time. However, I'm betting that the majority of people who have a problem with 13 weeks, will have a problem with 8 weeks, 4 weeks or even 2 weeks.

It's also important to note, that a certain powerdown timeframe requirement is good and necessary. Voting for witnesses for example, should be for those who have skin in the game and not just for exchanges that are using their customers funds to vote (which is happening on EOS). But also from a security perspective, having your "investment" being locked away for 13 weeks (while only 1/13 is available each week) is a great security bonus. Now, I obviously get that this is not for everyone, most people don't have a huge chunk of Steem in their wallet. Which brings me to the point I was making all-along within this subject:

Dynamic Staking Pools & Powerdown Periods

Look, if you want to stake Steem aka power it up and be able to power it down within 3 days, you should be able to do that, but with restrictions. For example you would only earn a fraction of the passive inflation. You wouldn't be able to vote for witnesses or the SPS. And you wouldn't be able to vote for content.

All of these different Steem espects could have their own minimum required staking period. For example: the passive inflation would grow depending on the locked up period of the user. (1 week = 0.1%, 3 years: 5% ~rough example) or voting for witnesses could require a powerdown period of 8 weeks. Voting for content could require a powerdown period of 2 weeks and the earned rewards could require a powerdown of 1 month, to reduce sell-pressure.

I obviously get the point about making Steem not too complicated, but this is the job of interfaces like Steemit.com, Steempeak, Esteem, etc.

If the question is: what is preventing investors for investing in Steem? and what can we improve to change that for the positive?, then the answer isn't just: let's reduce the powerdown period to 4 weeks. Sorry, but the answer to that is far more complex and will most likely require some kind of dynamic system which isn't enforcing one time/rule for everyone.

Instead of higher APR from staking for longer period, what do you think about witness and SPS voting power multiplier?
For example we can stake for 1 week, 2 weeks, 3 weeks, and so on with upper limit.

STEEM staked for 1 week has x1 voting power multiplier for witnesses and SPS
STEEM staked for 2 weeks has x2 voting power multiplier for witnesses and SPS
STEEM staked for 3 weeks has x3 voting power multiplier for witnesses and SPS
up to the upper limit

This will be very simple to implement (at least compared to separate inflation pools or multitiered privileges you propose above and I proposed before on thecryptodrive's post, vastly simpler than Dan Larimer's proposal while solving the same problems) and comes with completely custom stake periods. Power down will need a rework like example below:

  • An account has 100 STEEM staked for 2 weeks and 20 STEEM staked for 3 weeks, they start a power down.
  • After 1 week passes since power down is initiated the account will have 100 STEEM staked for 1 week and 20 STEEM staked for 2 weeks.
  • After 2 weeks passes since power down is initiated the account will have 100 liquid STEEM and 20 STEEM staked for 1 week.
  • After 3 weeks passes since power down is initiated the account will have 120 liquid STEEM

All of my thoughts are very practical, so I'm not completely certain which way is the best to introduce the least overhead for Steem/the developers.

Whether we have separate inflation pools or one inflation pool with separate individual staking rewards (2 months = you get 5% of the pie, 6 months = you get 10% of the pie), as long as the end result is that stakeholders will have the ability to decide on how long they want to stake their Steem for, in return for benefits (increased APR, witnes & sps voting rights - maybe even with a multiplier, etc.).

This will result in a far more stable outcome, which can even be marketed in a really good way: Invest in Steem on your own terms, as if we'd go the quick and dirty road of changing the power-down absolutely.

Thank you @therealwolf and as long as I am able to stake my Steem for 13 weeks without anyone being able to withdraw my funds in less time, I'd be okay with people who were also able to take advantage of a shorter power down timeframe via your dynamic power down idea 👍

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I think incentives drive behavior and it really depends on which type of crowd you want to attract. Having a long power down period will likely attract longer-term users/investors. On the other hand, reducing the power down period will invite more short-term speculators.

The ideal scenario will be to have a few lock-up options with different duration. Of course the longer you lock-up the higher the ROI. Loom Network is one such crypto project which is doing this.

Yes, just any bank around the corner would provide literary dozens different options to stake for its customers. And why? Because there's demand for those different options.
The arroganse of blockchain developers who are sure they can go on ignoring peoples needs is astonishing.

I think incentives drive behavior and it really depends on which type of crowd you want to attract.

Incentives always drives behaviour. Steem didn't have a rush of low-quality spam content by random. Now that we have semi-free downvotes, this is slowly fading away.

But you're very correct in your thoughts that Steem needs to cater towards different types of people: users, developers, entrepreneurs, investors, heavy investors, etc.. Just because Person A thinks the powerdown period is too long, doesn't mean a real investor wouldn't mind locking his stake in even longer for a bigger share of the pie. Steem isn't just going to magically change in 13 weeks. Things take much more time, but obviously people are frustrated when each and everyone has to stake it for the same time.

The current content creators, witnesses, etc. are already selling steem faster than investors are buying. Therefore 13 weeks is currently not a long enough lock up period.

Just my 0.02 steem!

Maybe we should just cut the inflation rate in half so that it equals Bitcoin's (at least before the halvening)

I feel like it needs to be dropped down by a lot. EOS set industry standard to 3 days, and we are wayyyy higher than that.

The "industry standard" has led EOS to be in a position where exchanges can (and have) used their customers funds to have a monopoly of the top witness positions. For this reason Dan Larimer himself is proposing to have multiple staking pools, the longest one being 10 years.

The question annoys me more than anything else. We are asking ourselves if we should greatly change our economics without even testing them out for a single market cycle.

Every time the price of Steem naturally loses value due to massive volatility we're going to try to greatly change the fundamental qualities of the blockchain? It shows a great lack of restraint and patience.

Hello, SPinvest is a steemit investment club that is 100% backed by STEEM POWER.

It offers anyone the chance to earn STEEM POWER rewards without the silly 13 week power down.

Many conflate 'investors' with 'traders'. Anything longer than an instantaneous power down will not attract anyone actively trading crypto. Also, what percentage of day or swing traders would actually power up and use their STEEM power to participate, if they know they will likely sell it in the short term? What about delegations and their cooldowns? Odds are this proposed 'steem investor' wanting a quicker powerdown might want to actually delegate and get a return. Do the powerdowns for delegations also get shortened for the same reason? What would be the consequences of that?

It’s always important to care more for people who speak quietly because the loud well... we already know their opinion.

@onthewayout You have received a 100% upvote from @steemguardian because this post did not use any bidbots and you have not used bidbots in the last 30 days!

Upvoting this comment will help keep this service running.

To the question in your title, my Magic 8-Ball says:

Without a doubt

Hi! I'm a bot, and this answer was posted automatically. Check this post out for more information.

alternate solution: Allow Steem Power to be outright transferred, with a 7-day cool-down that starts upon transfer. This would create a secondary market where buyers who plan to power-up could get a discount from someone fleeing the platform, and someone could transfer steem power to their friends instead of delegating it to them. This might have a deflationary effect during times of FUD. The upside for many is that they would not have to power down for 13 weeks to move Steem power between accounts, which happens a lot given that a lot of users can generate their own account tokens. Allowing steem power to be transferred would eliminate a lot of power downs for the reasons stated above, and then we could have more realistic power-down data available for information purposes.

Just a thought coming from a different lens.

This is not much different than an almost instant power down. In light of the EOS governance issues that stem from their short lock-up period I am not much in favor for it.

To answer the title, yes.

Short and to the point...lol

Were you around when power down took 2 years? People invested in Steem then. We need investors who take a long view, not those who will drop in and then then clear off as soon as they feel they made enough profit. I think the period is reasonable.

Yes I opened my account on July 10th 2016 so I have pretty much witnessed everything that has taken place here. In my view trying to appeal to more short term "investors" is not the way to go. There is nothing wrong with speculating but the main issue that we need to address is getting adoption of the steem blockchain. If we had 10 million users each needing about 30 steem for RC no one would be complaining about the lockup period. That is what we need to aim for.

As I mentioned in the post having a lockup period is not a problem for investors in the "real" world. You can make the case for a shorter period (like in the proposal) but saying that it's daunting for investors and is one of the causes for the stagnation of the price is a distraction from the fundamental problem that we need to address.

If someone can show actual data that proves the premise then we should go ahead with the change. Maybe it's not a big deal in the end but the case made for the proposal is weak.

  ·  last month (edited)

In my view trying to appeal to more short term "investors" is not the way to go. There is nothing wrong with speculating but the main issue that we need to address is getting adoption of the steem blockchain. If we had 10 million users each needing about 30 steem for RC no one would be complaining about the lockup period. That is what we need to aim for

If you work out the numbers on how much new coin needs to be absorbed each day just to offset inflation, you will easily see that we are at least one or two orders of of magnitude away from this (ignoring that net user growth is negative so in fact we are infinitely far away).

For the foreseeable future, we absolutely need investors putting in new funds if we want to avoid the obvious inflation-induced price declines, which can easily (and probably have) become a self-reinforcing death spiral. The economics of Steem just do not work without appealing to investors.

I don't think it helps us at this point to be picky about some investors not being the right ones because they are too short-term focused, even ignoring the obvious fact that this represents a huge portion of the cryptocurrency investor market. Nor do strained analogies with IPOs and hedge funds (who have lock ups for entirely different reasons we don't need to get into here, and I'm pretty sure you know what they are anyway) help us. Given overall weak investor interest in Steem, we need whatever help we can get. For that matter, even many existing Steem users and investors have expressed a view that they would be more likely to power up or invest with a shorter lock up. I've never once seen anyone state they would prefer to power up or invest with a longer lockup.

Reducing inflation more quickly is an alternative approach (i.e. reducing the dependency on outside investors and inflow of outside investment). That's probably a more productive path, and it too has its supporters, but one which is certain to be at least as controversial if not more so.

My main gripe is not with the proposal itself but with the premise behind it. It may be a valid avenue and we must explore it but we must keep the focus on the real reason for the decline in price. My opinion is very clear on the matter...we need organic demand and this has to come from the utillity of steem as a source of RC.

If we do not address this it doesn't matter if we reduce (or even remove) the powerdown period from the protocol. We will just be kicking the bucket a little further down the road.Unfortunately this is not something that can be achieved in a short timespan.

  ·  last month (edited)

The organic demand is exactly what you say, a source of RC. The problem is that the numbers demonstrate clearly that for such demand to support the price in a viable way requires a scale of growth that is probably years away at best and may not happen at all. (Alternately, the price of RCs would have to rise enormously, which we could theoretically arrange by drastically/arbitrarily reducing the resource pool sizes, but this too would kill growth and is not a viable path.)

It is exactly (speculative) investors that fill need to fill this gap by betting on whether that demand will happen some time in the future. There is zero chance that there will be enough demand for RCs in the present directly to support the price, but at the same time if there isn't enough value in the platform to support continued development, support for the infrastructure, etc. then we will never get the chance to grow enough to where it potentially could. Again, it is only investors/speculators who can possibly fill that gap.

Even the original white paper was pretty clear on this. Most of the the demand for Steem in the short term has to come from speculators, not fundamentals. If we make the product unattractive to speculators (and indeed, the original design/white paper got this very, very wrong; it is probably not a coincidence that EOS launched with 2 day lock up and not anything like the 2 years or 13 weeks in Steem), then in the short term, speculators won't buy it, and if they don't (again, in the short term), no one will.

Similar comments can be made about inflation and investability, and likewise relationship to EOS and other newer projects (and older more successful projects) that are better accepted by the market, and so forth, but that's a bit off topic here.

I have to agree that the market dynamics are not in steems favor. In light of that I think that we should consider cutting the inflation rate in half (controversial as it may be). Over time that would have a greater impact on the price (programatic selling issues aside).

That is quite possible. On the matter of programmatic selling, I think I mentioned above but not sure: Programmatic selling is about 1/3 of inflation. Even if inflation were cut in half, it would still be larger than programmatic selling, so such a cut would be quite significant.

I agree that there should be empirical evidence before implementing a change like this. Also, it's configurable in steem-engine tokens and (soon) in SMTs, which means different solutions can be tried and compared. Finally, setting @likwid as a beneficiary makes it effectively, 0 days anyway (minus a small fee). I can't imagine why this would be a priority for anyone.

Actually, it can't be configured in SMTs...but aside from that the main point is the lack of evidence that reducing the powerdown period will increase investment. I guess we can make the argument that making the change will increase the pool of potential investors. But without an increase in the value of the network that potential will not materialize.

Another counter argument for the proposal is that having a large portion of the supply locked-up gives day traders some insurance against large dumps on the market and that helps wih liquidity but I did not consider that as important overall.

Actually, it can't be configured in SMTs..

Oh, I assumed that was included in the configurable parameters. I think there's a strong argument to be made for making that configurable in future updates.

8 weeks will be ok.

My honest opinion.

Yes it would be nice to have those funds available quicker if you have alot more invested.

But would that not affect the price? As the market would be flooded with steem every time the price gets a spike.

I think that we can all agree that reducing the powerdown period will have the potential to increase volatility since there could be a larger volume of tokens on sale in a shorter time span.

  ·  last month Reveal Comment