How Long Does It Really Take to Power Down?

in steem •  2 years ago

You Can Never Fully Divest

While it is often said that it takes two years to power down, in a previous post, it was shown that we can never get our Steem Power down to zero.

In this post I am going to look at the question of how much value we can actually get out, if/when we decide to power down and divest from Steem.

I ran a simulation with the following assumptions:

• We make an investment of 1000 Steem into Steem Power, and start powering down immediately.
• Every week we can power down 1/104th of our Steem Power, and we power down the maximum we can.
• 90% of new Steem is distributed to Steem Power holders each year.
• The amount of Steem doubles every year (100% annual inflation).
• The market cap of all Steem stays constant in Dollar terms.
• 1 Steem is worth \$0.40 (the approximate current rate).
• We are not curating or authoring.

With inflation at 100%, and 90% of that compensated to Steem Power holder via interest payments, I refer to the difference as uncompensated inflation. That uncompensated inflation is used to pay those who curate and author. As we do not curate or author in this simulation, we do not get any of that.

Simulation Results

Starting with 1000 Steem Power (worth around \$400 at this time) we can power down 9.61 Steem after the first week, but gain 12.42 new Steem Power from interest. We now have 1002.80 Steem Power. In Dollar terms, Steem lost some value due to inflation (and the market cap staying constant in our simulation), our steem power is now worth \$395.74. We have extracted \$3.79 worth of Steem the first week. We also lost 47 cents to uncompensated inflation.

After the advertised 104 weeks (2 years), our remaining Steem Power is worth \$131 and we have managed to power down a total of \$239 worth of Steem. That represents nearly 60% of our original investment value, while nearly 33% is still stuck in Steem Power. The rest is lost to uncompensated inflation.

It is only after 216 weeks that the value of our remaining Steem Power drops below 10% of our original investment (below \$40 in our simulation). That is more than 4 years! At that time we will have withdrawn 80% of our original investment, and 10% will have evaporated due to uncompensated inflation.

In the table below, we can also see that it will take 280 weeks to get below 5% (\$20) and 431 weeks go below 1% (\$4) of our original investment. At that time we will only have extracted 88% (\$352) of our original \$400 investment.

WeekRemaining Steem PowerPowered DownInterestRemaining SP in USDExtracted in USDTotal Extracted in USD
01000.000000-0.000000+0.000000400.000000-0.0000000.000000
11002.804453-9.615385+12.419837395.739132-3.7945423.794542
21005.616771-9.642351+12.454668391.523651-3.7541227.548665
31008.436975-9.669392+12.489597387.353074-3.71413311.262797
261075.530168-10.312715+13.320553302.784840-2.90325186.575556
521156.765143-11.091636+14.326657229.196648-2.197651152.109970
1041338.105596-12.830418+16.572577131.327758-1.259235239.267708
1511526.350635-14.635404+18.90401179.388898-0.761220285.522178
2161831.094691-17.557441+22.67829839.577204-0.379486320.976725
2802190.539261-21.003973+27.13005719.942585-0.191219338.462456
4313343.530991-32.059427+41.4099793.958050-0.037952352.697581

Conclusions

It is clear that we can never power down all our Steem, but at some distant point in the future the remaining value will become insignificant.

Continue to Curate

If we continue to curate and author, we can compensate (at least partially) for the uncompensated inflation, but that will not speed up the powering down process. It is important to note that that is a reward for work and effort, not a recuperation of our investment (although the investment helps to reward curation work).

If we do want to get the most out of our investment as possible, but don't want to spend the time authoring and curating, it stands to reason that we should set up a voting bot, or delegate voting to a good curator, during the entire powering down phase.

Fully Divesting Takes Too Long (IMHO)

Two years would already be a very long time to exit from an investment, but as we see, it takes much longer than that to fully divest.

I have suggested we introduce a minimum power down allowance, which would allow smaller investors to divest in a more reasonable amount of time. I believe that it would encourage more small investors to invest in Steem Power if their investment were not going to be stuck in Steem Power for half a decade.

Sort Order:

I'm never powering down. When I get old hopefully Steemit is the "go-to" spot for social networking and my SP is worth Millions. Then I can gift my account to my children

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Ha, by then the government will have devised a 100% Steem Hijack Inheritant Tax (SHIT).

So does this mean not to invest too much?

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I'd think so.

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Thanks for the observation.

Only thing I can think of that could change the outcome of your analysis is that you can't count with SP inflation when divesting. It's called divesting also cause you are withdrawing vests, and they don't inflate themselves. Which means for an account that doesn't curate or post and receive vests from the daily pool divided in SB/Steem/SP, their divesting % will remain the same, steem will inflate during the whole time but the % of divesting will be constant thuse making every steempower divest bigger than the previous one.

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If that's the case that would indeed change things for the better.

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BTW, the whitepaper says:

SP can only be converted back to STEEM over 2 years via 104 equal weekly payments.

This kind of suggests equal payments of SP/STEEM, i.e. not Vests. But maybe the whitepaper is a little out of date, and it could also be that SP refers to Vests in this sentence.

So can someone please explain the real purpose for powering up?

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Everything you put in SP is some kind of long term investment due to the low payout rate. If you want that money you have to power down.