The unpredictable puzzle of risk and reward

I wrote a post yesterday about getting what one pays for and wanted to add a little extra to it because there is not just the idea of quality in that statement.

The world of human is supply and demand based and there is seemingly no limit to what can be supplied if there is a demand for it. While we might like to think of supply and demand in the more traditional sense of consumable products and services, elephant ivory, used panties and Thai child prostitutes are all subject to the same economic model. If no one demanded them supply would dry up, but if someone demands and is willing to pay the price, someone will create a marketplace of supply.

This is trade and participants are always looking to minimize their exposure to risk. You don't see too many pedophiles that take advantage of the poverty in Thailand to fulfill their sickening desires with children forced into sex slavery, advertising what they do publicly. Not everyone goes there for the beaches and surf unfortunately.

Let's say I had 100 SBD today and wanted to trade it on the markets to increase my holdings, I would be exposed to risk because the marketplace is filled with other traders that I have low to no visibility on and who are all trying to increase or sell their coins on the same market. I might get lucky and the value will go up, I might get unlucky and the value will go down. I would try to limit my risk by understanding the markets and trying to predict what others may do, so I can benefit.

On Steem for the last two years, the bidbot model has reduced the risk considerably on this process for purchasers as in general, most are going to make a profit because the profits come out of the pool, it is not a direct trade among participants 1:1. The risk in purchasing has come through fluctuating market prices, the bid auction process and of course, the newly labelled downvotes.

The last however hasn't been very effective at creating risk because there has been no incentive to downvote as it cost the ability to upvote. An upvote makes gains for the voter, the downvote - does nothing. Well, nothing significant and nothing directly other than attract revenge downvoting, if a downvoting account posts. So, this bidbot supply is a direct result of demand for low risk earning and while there is little chance of making large profits on a bidbot purchase, it does return a steady percentage back.

However, once HF21 drops (I am confident it will), downvoting adds a layer of risk to the marketpalce previously not seen. While some people might see this as a negative r a positive, the risk means that vote trading becomes riskier as it opens it up to community visibility due to the incentive to downvote - with the incentive being the ability to use stake to return rewards to the pool for redistribution without it costing the ability to upvote equivalently.

With all the changes in numbers of the protocol, it is the downvoting factor that is impossible to predict as it is reliant on human behavior and some individuals will choose not to downvote, some will. Some might target only bidbot users, some might target only plagiarists or scammers, some might have personal vendettas if they are immature enough. Who knows?

What this means is that while there are going to be opportunities for people to earn more or less or whatever, there is the potential to have it all run through the upvote/downvote gauntlet for community curation. Some will gain positive votes, some will attract negative votes, some will continue to be ignored. Regardless though, there is the potential for the community to step up and take an active role in the governance of the blockchain.

For the entire time I have been on Steem there has been talk of quality posts and visibility and how Steem should be encouraging the support of content that adds value to the blockchain and community. The problem is that when there is not only no risk in earning from content that doesn't add value to the community or blockchain, but there is also profits to be made, there is little incentive to be a good Steem/blockchain community actor.

Just like in the trading marketplaces however, it is the participants who create the risk as it is very difficult to predict what any one individual is going to do at any one time. This makes the people the most important part of Steem, not the content, because it is the people who are going to participate. Content is just content - it is dead until read.

Once upon a time on Steem there was a lot of uncertainty in the voting and it had a much more lottery-type feel to it. Will this content be noticed by a @curie curator, will it pick up the eye of one of the whales, would they flag it? Since HF19, this risk has evaporated because there has been continually less incentive to participate in the curating mechanisms of Steem, and increasing incentive to take the low risk purchase/selling path. While no risk is great, it does take the life out of human since we are a species that actually understands risk to the point we are predictive of the future.

Even if we look at the stable circlejerk voted accounts, we will find that because they have a high degree of earning certainty, they generally don't engage very well on their posts as they do not need to actually cater for their audience to get the votes for the most part. They do not need to care about the little votes that come in because, they know there will be big votes anyway. As a result, they generally have very narrow networks and if they lose a few supporters, they lose a lot.

This actually happened when the bidbots arrived because it was more profitable to delegate stake to them than curate anymore at all and those large supporters in the circle abandoned their jerk and chased a higher ROI. Many of the early complainants against bidbots are those who thought they lost supporter who actually cared about their content - no, it was just the Best way to earn at the time. The bots offered higher ROI and less risk though.

What I personally am looking forward to is firstly, who actually cares about content and creators because they will be the ones downvoting crap or content with inflated payout past its worth and secondly, the return of the lottery aspect. If used, this makes Steem much unpredictable in many ways and while there will be some drama along the way, in time a healthier equilibrium could be found that encourages effort and interaction.

This lottery will also work in reverse with downvotes as what it will encourage is vote buyers to think about the content they buy on and the level they buy at and they should always have in the back of their mind the question - *Am I wiling to take a loss on this content? It reintroduces the market uncertainty that any trader would have to come to terms with. Some will risk it, some will look at the post and say, I don't want to take a loss, they won't buy. And every non-buy crates demand scarcity which will affect supply and that in turn brings into question the ROI for delegators.

It all makes for some interesting and unpredictable results and while as a whole there might be the tendency to not downvote, this time the health of the system is in the hands of the community and therefore, will only have the community to blame if nothing much changes.

Remember, this is supply and demand and your stake is your voice.

Taraz
[ a Steem original ]