(Credit: unknown author @ Blogspot)
Most of the changes proposed by Dan in his recent post Proposed Changes to Steem Economy make sense and are going in the right direction. But the 3-month power down could well be a giant mistake. Let's have a look at each change.
Liquid STEEM 100% p.a debasement with 90% pay back to Steem Power holders was essentially an accounting artifact to discourage holding liquid STEEM. STEEM wasn't really meant to be perceived as valuable, VESTs were, with STEEM being as its name suggests, pretty volatile and leaky.
Although the idea was excellent on the paper, it turned out to be wildly misunderstood as being hyperinflationary and discouraged investors from the get-go. With the new inflation redesign, we are still at the same effective inflation rate (actually 5% smaller, with 9.5% effective inflation vs 10% ealier), but the accounting artifact that was used to discourage holding liquid STEEM has been removed.
My feedback: this was the right thing to do given the widespread misperception
75% of inflation awarded to reward pool
That's an increase of the budget allocated to rewards. So far, rewards were allocated 50% of the 10% effective inflation, or the equivalent of 5% dedicated inflation. Under the new scheme, rewards represent 75% of the 9.5% effective inflation, or the equivalent of 7.125% inflation. This is a 42.5% increase of the rewards budget.
My feedback: content and community projects are the life blood of Steem. Increasing the relative amount of budget allocated to it is good.
15% of inflation awarded to Steem Power
This is a reduction of the dilution experienced by Steem Power holders. Under the original scheme, Steem Power holders were diluted 100% and getting back 90% of the newly issued STEEM which corresponds to an effective 10% dilution. Under the new scheme, Steem Power holders are diluted 9.5% and getting back 15% of the newly issued STEEM: this corresponds to an effective 8.075% dilution.
My feedback: less dilution is good news for stake holders, and makes it a more attractive investment
10% of inflation awarded to witnesses
Full time witnesses used to be paid collectively 19/21th of 34% (according to @smooth) of the 10% effective inflation, or the equivalent of a 3.07% dedicated inflation. Under the new scheme full time witnesses are paid 19/29th of 10% of the 9.5% of the effective inflation. That's a 0.62% dedicated inflation, or a 80% salary cut.
My feedback: this is what I was calling for in this post. Although this will likely face a strong push-back from witnesses given their vested interests in current system, this was the right thing to do. Witnesses can now keep their salary as their personal compensation, and raise funds for their projects on the community platform like everyone else is doing. No more conflict of interest about how to allocate the funds. More transparency and accountability since witnesses will now have to communicate to raise funds and justify their needs.
Price feed median period and Steem Dollar conversion delay change from 7 days to 3.5 days
The original 7-day window was meant to prevent price feed manipulation and arbitrage. But it turns out that 7 days introduces a lot of latency. 3.5 days will reduce the latency and make the conversion more practical. We will see if it is still sufficient to prevent manipulation and arbitrage.
My feedback: why not...
Reduction of the power down time to 3-months
So far, Steem Power holders had to wait 104 weeks, or about 2 years to power down their stake. With the new system, this delay is reduced to 3 months. There are really two aspects to this change.
In the one hand, this change makes Steem Power more attractive. It's true that for many potential investors, tying capital for two years was a deal breaker: in crypto, two years is a lot of time. And the alternative of holding worthless and highly volatile liquid Steem was equally bad. Reducing this delay from 2 years to 3 months and making the alternative asset, Steem, less inflationary will do a lot to encourage investors to put money in the system.
In the other hand, the 2-year vesting schedule was the only thing that was containing the flood of short sighted insiders taking profits, and as we have seen, even at the rate of 1% per week, short sighted insiders powering down at full rate still led to a massive price crash. Now, what will happen if we open the flood gates? Some whales that have been powering down and dumping their STEEM on the market may step back and reconsider. But will this be enough? With a 3 months schedule, 8x more STEEM can be dumped on the market every week. That means that, just to keep the same (very high and unsustainable) selling pressure as now, let alone decreasing the selling pressure, you would need 7 whales out of 8 turning around and cancelling their power down, or 8x more demand overnight. What are the odds?
My feedback: this change in its current form is a massive blunder.
From the day of the hardfork, the 82 out of 200 top stake holders who are still powering down in spite of the recent announcement will likely be powering down a 8x the rate. Meanwhile the increase in demand that changes of Steem economics are expected to create will take time to materialize, as can be observed from the fact that the price of Steem is still falling a few days after the announcement. Under these circumstances, the most likely outcome following the hardfork will be an even stronger downtrend, leading the SBD peg into critical territory.
How to avoid that? How to reduce the Steem Power holding time without opening the flood gates? The answer is obvious: insiders should not be made eligible to this new power down scheme on equal footing with new stake holders. After all, insiders and early steemians have benefited from a fast increase of their Steem holdings under the old scheme, an opportunity that is no longer available to new stake holders after the hard fork. Allowing them to liquidate this position within 3-months now would amount to allowing them to have their cake and eat it too.
There are many ways that this could be implemented, some being more fair than others to existing stake holders and to new ones. One solution that would be balanced and fair to everyone would be to compute power-down time as a function of the average age in blocks of the Steem Power position in VESTs. Say the hardfork happens at block Z: an account that powered up one block earlier would only have a power down time of 3-month + (Z-(Z-1))/Z * 21-months = 3-months whereas an account that powered up everything on day 1 will have to wait 3-month + (Z-1)/Z * 21-months = 24 months. And account that powered up 100 VESTs at block 1, 200 VESTs at block Z/2 and 300 VESTs at block Z-1 will have to wait 3-month + (100 * (Z-1) + 200 * (Z-Z/2) + 300 * (Z-(Z-1)) )/ 600 Z * 21-months etc. This power-down time would decrease by one day every day following the hardfork (or one block every block if counting in blocks) so that after 21 months, all accounts will be eligible to 3-month power downs.
(Credit: Agape Geek - "Tender Plant")
This would allow to prevent earlier stake holders, who benefited from a fast increase of their Steem holdings under the old scheme, from taking advantage of the new power down rule to dump their stake on the market and destroy irreversibly the fragile economic recovery that other changes and a shy return of investors will have made possible.