Why There Is No Such Thing As "Draining The Reward Pool"

in steemit •  3 years ago  (edited)

One of the recent discussions on Steemit focused around the fact that some projects are “draining the reward pool” by taking out a significant percentage every day. There are two dimensions of this topic: one is philosophical, and relates to free will and the inherent uncertainty of life (there’s nothing inherently good or bad, correct or incorrect) and the other one is economical and relates to the perception of value.

In this article I will focus on the economical dimension.

How Much Money Is In Steemit Every Day?

Steemit, as a currency-based content creation platform, is built around an inflationary model. Every day a certain amount of Steem is minted (or, if you prefer the fiat currency model, printed) and it is allocated to specific areas of the platform. According to the latest change in the economical model, implemented at Hardfork 16, here’s the breakdown (if I’m wrong, please correct me in the comments):

  • 10% goes to witnesses (maintainers of the network)
  • 15% goes to Steem Power (basically interest to SP holders)
  • 75% goes to the reward pool (authors and curators)

The annual inflation is 9.5%.

As far as I know, the total number of Steem allocated to the reward pool every day is around 46,000 (that's an approximation). At the current price of Steem ($0.155) that makes a total of $7,130. This amount is further divided into SBD and SteemPower, but we’re not going into that amount of detail.

I want to stop here and remind you of the 2 most important numbers. Please focus on them for a few seconds:

46,000 Steem and $7,130.

That’s the reward pool. Now, if a certain project, like a curation guild, or a certain writer, gets $350/day, that will be 5% of the reward pool. If the project or the writer are doing whatever they do constantly, and they get that amount constantly, the perception is that they “drain the reward pool”.

This perception is wrong. And it stems from the misunderstanding that the reward pool is limited to the $7,130. Like it’s hardcoded to be only $7,130. It is not. It’s not like somebody said: “I’m going to give $7,130 every day and that’s it, split it as you want.”.

It’s very, very different.

The reward pool is limited only by the price of Steem. That $350 representing 5% of the rewards pool is a consequence of Steem trading at $0.155.

Think what happens if Steem trades at $0.3. Suddenly, the value of the reward pool is $13,800. And $350 will be just 2.5%. Doesn’t sound like draining anymore, right? Let's put the numbers in perspective, again:

46,000 Steem and $13,800.

Let's see now what happens if Steem trades at $0.5. The reward pool is $23,000. At that price, $350 will be 1.5%. Again, let's look at numbers:

46,000 Steem and $23,000.

Some people have seen Steem at $4. I don’t know when this will happen again, but it did happen. It may happen again and the beauty of the situation is that we do have some control over the process. The Steem ecosystem is not just a currency, influenced by supply and demand, like Bitcoin. It’s also a content creation platform. If you can write compelling content, people attracted by your content will drive the price of Steem higher. It will not be instantly and it may not be a visible surge, but it's an influence and it's something over which, we, as "shareholders" in Steemit.com, have control.

The real problem with “draining the pool reward” is a wrong perception. The focus shouldn’t be on a limited amount of USD, but on a potentially unlimited value of the underlying currency of Steemit, Steem.

The reward pool isn't fixed. It's influenced directly by any action you take inside the ecosystem. Every move you make moves the price. If you bring in more people, you create interest around the platform, the price of Steem may go up. If you power up consistently, limiting the liquid supply of Steem, the price of it may go up. If you create projects that are driving consumption of Steem and bring in new people, the price may go up.

If Steem price goes up, everybody wins.

But if Steem goes down, everybody loses.

Since we did some positive calculations above, let’s see what happens if Steem is traded at $0.05. The entire reward pool will be $2,300. Let's look at the numbers again, side by side:

46,000 Steem and $2,300.

Do you really want this to happen?

image source - Pixabay

I'm a serial entrepreneur, blogger and ultrarunner. You can find me mainly on my blog at Dragos Roua where I write about productivity, business, relationships and running. Here on Steemit you may stay updated by following me @dragosroua.

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In case anyone is interested in the math:

  • 230,348,857 STEEM currently in circulation
  • 9.5% inflation = 21,883,141 STEEM generated per year
  • 75% of that to rewards pool = 16,412,356
  • Divide that by 365 - 44,965 STEEM per day.

When you factor in compound interest, this number will go up slightly over time.

Precisely, thanks for clarifying the numbers. I was just using approximations, 46,000 is an average of what we should expect for the next 1-3 years, I guess.

When you factor in compound interest

I think you might be wrong here. the "interest" is not compounding. because the rate of inflation is declining.

That is to say, the 21,883,141 STEEM is fixed amount, but a progressively smaller percentage of the money supply.

That's a good point. I haven't done the math to see if the rate at which the inflation is decreased is <, >, or = to the rate at which new STEEM is generated. It would be an interesting thing to know!

yeah well. the thing is that "drainer" - which sincerily it is a thing, although nice argument - he's not getting money, the upvotes he gets, usually from the same whales will net him more money, someone who drains today for 200$, used to drain for 1000$ when steem was 1$.

If the Steem goes up, everybody wins, but those on auto upvotes win more :)

  ·  3 years ago (edited)

With the ability to downvote, as was possible in the past, it would be possible to limit what might seem like obscene amounts of reward going into one post. I think it is a necessary balance to the Steemit ecosystem.

It may even be necessary to retain authors. Look at the Charlie Shrem post just recently. His post concerned the bandwagon effect that occurs everytime he posts and his sense of being over rewarded for his posts. He could decline payout, but I'm sure he feels that some reward would be nice. Just not the crazy amounts he gets at the moment. From this perspective, being able to downvote his posting, would bring some balance again.

I agree that 'draining the rewards pool' is a scarcity mindset. It comes I think from that lack of control that people feel over the process. Let's put that control back into the hands of the miserly and let them have their say. :-)

Define "obscene amounts of rewards going to one post".

  ·  3 years ago (edited)

That's the subjective judgement each individual would exercise by using the up/downvote. Everyone decides for themselves what 'obscene' is. Thereby feeling like control is, at least theoretically, in their hands.

If it's subjective, then it's not "correct". The term "correct" means "free from error; in accordance with fact or truth."

  ·  3 years ago (edited)

I'd simply say, I disagree with your definition of the value of subjectivity.

A subjective judgement can be 'true enough' for the purpose of moving forward in a pragmatic way, given an existential condition of 'not knowing'. We do what we can with the information we have. We discriminate. We make judgement calls. That is how we move past fear of the unknown and progress through a life of infinite potential for suffering and chaos. We act by instinct and conditioning. Subjectivity does not equate to incorrect. It implies a limited perspective and that is an existential condition of humanity.

We can choose for ourselves what is obscene, without being hindered by another's subjective objectivity.

I'd simply say, I disagree with your definition of the value of subjectivity.

I just pointed out that subjective does not equal "correct", which is the claim of people complaining about "draining the reward pool". All I'm saying is that their claim is based on false assumptions.

For what is worth, I think there is only subjectivity, because we're inherently limited. There is no universal truth that we can understand, unless we transcend our current condition.

Followed :)

That is related to the second dimension of this thought train, the philosophical one, which I will try to address in an article later today or tomorrow.

From an economical point of view, though, the value of the rewards pool is not fixed, and it cannot be "drained". It's variable and we have some control over it.

I generally call "draining" a post that has no value whatsoever for anyone but it' s upvoted undiscriminately by the same whale. That is draining because this person is not looking at good post to upvote but votes "his guy". His guy takes the money and runs. If you think: well, that's legal right? It is, but it hurts us all.

But, if you allow me, I could write a post about the philosophical "draining" as well, from a different perspective :D

Of course I allow you :) You don't even need me to allow you anything, it's a free world. I'd be curious to see your perspective.

As for my perspective, it stems from one simple understanding: life is not fair, because fair is entirely subjective, and different from person to person. Will elaborate later on in my post.

Looking forward to that post!!! :) love that the comments (once again my favorite interaction!!!) brought about further discussion :)

I can't wait to read BOTH of your posts about it!!!! Following you to make sure I don't miss it :)

If someone is getting $300/day under the current STEEM price, the concern is that they'll get $9,900/day when the STEEM price is like it was in July.

So what?

exactly my point above :)

Nicely explained.

Thanks. :) Feel free to spread the word if you think it will benefit others. Way too many people are mistaking Steemit for Tsu, or other content paying platform which has nothing in common with what Steem does.

Could you elaborate on that?

In Steemit there is not, yet, the concept of tipping, nor is any advertiser that pays directly. So money comes from inflation. It's pretty much what I already described in the post :)

I meant.... what is Tsu... what's the difference there hahaha I was specifically asking about what makes Steemit different than Tsu (which i am unfamiliar with) but how is Steemit different than Tsu - or any other similar place... (not sure if i'm asking this clearly)

Another thing about Tsu was that you had to amass $100 of reward before you could cash out. With Steemit, you can cash out as little as a fraction of a cent's worth of Steem at any time. With Tsu, I never made it to $100 so all the months of work was for naught. However, there were a few early adopters who made it to the $100 cash out level.

Tsu is a defunct social media platform that used to pay people to post. Allegedly, money cam from advertisers (as far as I know).

Can't reply below... but why did it go down? Answer I guess more importantly ... is steemit making better choices than Tsu? ... and what wouldn't be some warning signs that Steemit would be heading in the same direction as Tsu? Sorry for so many questions... lol but it's how we learn ;)

Steemit has a completely different approach. Please read again the article to understand the differences. Probably the most important one is the fact that Steemit is backed by a real crypto-currency.

The dollar denominated rewards are relative to the price, but the amount of Steem is set according to the algo. In that sense, I could see one making an argument about various rewards being "drained," but it still seems that is borne out of envious whining.

Quick question, where do you get the details regarding the latest forks and updates to the code (i.e. hf 16 that you mentioned)?

People are thinking in terms of dollar denominating rewards and that's what drives the scarcity mindset.

As for updates, there you go: https://steemit.com/steem/@steemitblog/final-review-of-steem-economic-changes

I would also suggest to follow @steemitblog, @dantheman and @ned accounts, they are posting updates about the platform.


I never understood this mechanism. Thanks

You're welcome :)

Very well explained.

Itis however hard to me to understand the initial complain. Anyone will always be happy that some articles or projects get rewarded, and unhappy that others don't. In short, frustration will always be there no matter what, depending on the interests of the different users...

Yeap. Frustration is unavoidable, whining is, however, optional. :)

Thanks for clarifying it, though a lot of people complaining are well aware about how it works. Their complaints are that certain projects get X% of the Steem reward pool. It's a fair complaint, though of course of dubious value, this being a free market.

My perception was that people complaining are doing it from a scarcity mindset: "If some guy takes out $200/day there won't be much left for us". This obviously means they don't really know from where the money comes.

The validity of the complaint stands true only when you look from a percentage perspective. "It's unfair that someone takes 10% of the reward pool". And as you said, even that is not valid, since it's a free market.

But in absolute terms, in fiat money, the reward pool "size" can be increased by increasing the value of Steem. I think that's where we should focus.

If, for instance, Steem trades at $1, there will be a $46,000 worth of rewards pool. Even with 10,000 blog posts / day (from 1,500 where we are now) this should guarantee an average payout of $4.6/article (I know average doesn't work here, it's just theoretical). There are content factories which are charging $5/article as we speak, so this would be aligned with the market place (by the way, in absolute terms we are at the same level, slightly above, with $4.8/article at the current price and community size).

But from that moment, the "attention economy" driven by a much higher number of participants at the game should kick in and things could spiral up, in a positive way.

  ·  3 years ago (edited)

But in absolute terms, in fiat money, the reward pool "size" can be increased by increasing the value of Steem. I think that's where we should focus.

this will happen when the value of steem increases.

Which will happen (as you correctly point out) when good content attracts new users and investors.

Which will happen when people are encouraged to publish good content based on their perception that it is likely to b e rewarded.

If, for instance, Steem trades at $1, there will be a $46,000 worth of rewards pool.

Yes, and projects like curie (using that as an example because of @liberost commenting above) will drain 6x as much. Thats the thing..., the "drain" is not a fixed dollar value, its a percent based on the support of their voter base. If SV, curie, TIL, etc etc take 50%=3550 of a 7100 reward pool, that doesnt mean theyll take 3550 out of a 46000 reward pool, it means theyll take 23000 out of a 46000 reward pool,

When steem was at $4, We decided to give hundreds of thousands of dollars to authors like rolandp guerrint, stellabelle, their cohort, and nothing or practically nothing to out other writers. The result: they all percieved their content was not valued, and they left. this:

this should guarantee an average payout of $4.6/article (I know average doesn't work here, it's just theoretical).

is precisely what didnt happen. And precisely the reason, imo, that we lost most of hte people interested in the platform at the time.

Thank you for the explanation.

You're welcome!

I understand your point, but when people who already know this mechanism complain "draining reward", they usually imply inappropriate reward distribution as well. The inappropriate distribution is caused by continuous and favorable (in the worst case, collusive or abusive) upvotes from certain voters with large voting power, takes rewards from other users, and consequently is likely to hinder growth of our platform.

I think this comment of yours relates more to the philosophical part of the problem, since you obviously have all the technical expertise. I answered this in a separate post: https://steemit.com/challenge30/@dragosroua/compassion-versus-crab-mentality

Hope this clarifies more my position on the topic. Thanks for commenting, by the way, appreciate it :)

It does. Thank you!

bit if STEEM price jumps by double wont his 300 a day become ie 600 a day and % stays the same ?

Yes, the % stays the same, but the reward in $ doubles. Is there a problem with that?

what i mean is - if somebody thinks people drain rewards of others, then when STEEM is more expensive they will still drain by same %