The Reality of Steem Delegation

in #steemit7 years ago (edited)

Delegation was introduced with Hard Fork 18 and is still an underutilized feature. In this post, I'll discuss the basics of delegation, the pros/cons, and the reason reason most people use it.

What is Delegation?

Steem allows a user to delegate out Steem Power to other users. It essentially means you are letting someone borrow your Steem power. If you get Steem delegated to you, it means your voting and curating power goes up by the amount you are delegated. If you are the one delegating out, then you lose that same amount of voting and curating power.

Specifics

There are a few specific rules that have been setup to prevent gaming the system.

  • The person that receives the delegation can not power down that delegated Steem. It's there for voting purposes only
  • The person that sends the delegation can't power down that Steem while it's delegated out
  • The person that sends the delegation can end the delegation anytime they want to. Although, it takes 7 days from the time you stop for the Steem Power to be made available to you

What are the uses for delegation?

There are several talked about reasons and also a few reasons that are somewhat under the table.

  • Donating SP to curators you trust - Whales can choose to delegate SP out to groups that look for good content. Maybe the whale doesn't have time to search for content themselves, or maybe the curator is really good or maybe the whale will be busy in RL and won't have time to use their SP for a given period of time.
  • Donating SP to contests - If you are running a contest and need to raise voting power temporarily for that particular cause, you can ask people to delegate SP to you
  • Groups Voting - Several small accounts coming together to form a stronger voting account to help each other.

These are the feel good and more commonly talked about reasons for using delegation. Let's get into some of the other uses...and in my opinion, probably used more often.

  • Passive Investment - A whale or anyone wanting to get a passive return on their Steem Power can delegate out to those who want to borrow. The borrower pays a daily fee for borrowing the funds and there is usually an established time period of the delegation.
  • Active Investment/Side Hustle - A person that thinks they have something to gain by borrowing SP can pay the upfront fee to borrow SP for a set period of time.

What does it cost to borrow?

I have seen a few whales offering these services ad hoc, but the only mainstream service I'm aware of is via MinnowBooster.net/market

  • Borrower Rates
    • 1 Week Period: 52% APR
    • 4 Week Period: 26% APR
  • Investor Returns
    • 2 Week Period: 23% APR
    • 5 Week Period: 19% APR

Please note that these are not compounded rates, compounding them would make them a slightly higher APR. There are 2 reasons for the difference between the buyer and investor return APRs.

The first is because of the 7 day waiting period that the delegater has to wait before being able to use the SP that was delegated out from the time delegation stopped. For example, let's say you delegate out 100 SP for 4 weeks to Bob. Bob pays 4 Steem upfront and gets access to 100 SP right away and has it for 4 weeks. At the end of the 4 weeks, Bob loses that 100 SP power. You get your 100 Steem power back after 5 weeks (4 week delegation and 1 week wait time for delegations).

The second reason for the difference is that there is a 10% fee to use the MinnowBooster.net service. If the person that is borrowing SP pays 10 Steem as the fee, MinnowBooster keeps 1 Steem and the person delegating gets to keep 9 Steem.

There is also an additional Investor Service that MinnowBooster offers. You can delegate SP directly to the Bot. The bot earns SP by selling it's voting power to users for 1 SBD per post. It's a great service...it almost always pays out higher than the 1 SBD cost. It also has restrictions of 1 SBD per day per user, and you can't use it to upvote comments. Feels like it has eliminated the bulk of the abuse with those restrictions. If you delegate to the bot your returns vary depending on what the bot earns. I have been trying it out for 4 days now, my returns are the following:

  • Delegated 5153 Steem Power
    • Received 4 daily payments so far equaling 7.26 Steem (after converting SBD received to Steem at today's rate)
    • That's an APR of 12.8%

The best return for the passive investor is the 2 week delegation (1 week to delegate + 1 week waiting period to get SP power back) at 23% APR with the 5 week not too far behind if you want to avoid the hassle of finding the next delagetee. Delegating to the bot doesn't offer much of a return, although I'm only looking at a 4 day period so far. I'll give it another week and see what it does.

Reasons for Active Investing (borrowing SP)

I have mentioned all the feel good bullshit reasons above already. Let's get into the reasons why I believe most people are borrowing this SP. Obviously, they want a return on their investment, but what types of return?

  • Curation Rewards - I strongly believe that human curators will not get a higher rate of return from curation vs what it costs them to borrow. By strongly, I mean that there is no chance in hell you can get a 26% APR from curating as a human. Bots could certainly get that, but I don't see how a human can. This doesn't mean people aren't borrowing SP to try to get a better return...but they are just wasting their money.
  • Gaining Followers - A good way to get noticed by other users is to upvote their post and leave a comment. Someone with 1 cent upvote power may not get noticed. Upvoting your own comment on a busy thread with 1 cent upvote power won't even get you above the SPAM comments. Having 25 cents or a $1 certainly will get you in the conversation. I'm not suggesting that having SP is the only way to get noticed, I'm just saying that it helps.
  • Self Upvoting - People are borrowing SP via delegation to self upvote the shit out of their own comments. I would be shocked if this isn't the number 1 reason to borrow.

Can you make money by borrowing SP to self upvote?

There have been many posts explaining that self upvoting after the last hard fork allows you to double your SP in 180 days. That's a 300% annual return. Let's assume with the payout fade it has fallen to a 200% annual return. You can borrow for 26%, so the arbitrage opportunity is easy to see and take advantage of for the person who has time to self upvote.

Conclusion

The purpose of this post was not to encourage you to go borrow SP to start self upvoting. The purpose is to show you what really is going on with delegation today.

I was up in arms two weeks ago when @calamus056 posted a list of users he believed were abusing the system by self upvoting. He had me on the list because I had gained $135 SBD the previous month from self upvoting my comments. I was self upvoting a lot of my comments that month to get my comments high up on trending and hot posts. Writing a thoughtful comment on a busy post to have it sit and rot on the bottom with no reply is a buzzkill. The reason why getting $135 SBD is meaningless is because I had over $20k of Steem Power...that's an annualized rate of return of 9.6% on my Steem power.

Villianizing an active poster and commentator who spent $20k USD worth of Steem and got a 9.6% return from self upvoting comments is just plain ignorant. 9.6% is not abuse. I have already shown you that I can get a passive return of 23% by lending out my SP to users who will self upvote the shit out of their own comments. Do you really think those minnows doing the borrowing aren't looking for a return on their investment?

What will drain the reward pool more? A person getting $135 SBD from self upvotes or a whole bunch of minnows using that same SP to generate $1k to $2k of self upvote rewards?

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I think those who are borrowing to self vote are actually invested in the platform and looking to build up their SP. Now those spam commenting and upvoting themselves are a nuisance that need to be dealt with.

that explains why my account and sp power decline because of that delegation

does anyone know how to stop the delegation out ?

Hi jiren, there a few posts that answer this question. You can find one of them here: https://steemit.com/steemit/@djmalith/how-to-cancel-a-delegation-on-steemit-or-tutorial

delegate 0 steem to undelegate

@jiren
Yes...i will be writing blog about undelegation....stay connected.

Agree. This is a kind of cheap tactics people follow. It is similar to clicking our own ads of google adsense which is resulting in no profit to the company.

Posted using Partiko Android

Yeah, I'm not against self-voting at all. How can you get mad at someone for playing by the rules of the game, which are financially incentivized in such a way.... Plus, I bought a ton of SP because it of the yield it can bring... This is why there is a bid for SP in the first place.

@financialcritic this is a well written post about delagation, upvoted. I agree with you with regard to making money from your investment. How else will those who borrowed the steem power make money? will they post 20 times daily? they will actually upvote their comments. Even though there are some bots that downvotes those comment , I still believe that people are here to make positive ROI and thus there will always be self upvoting.

Yeah, that's what people do....whether or not it's the right thing to do is a different discussion.

Nice self upvote to get to the top of the thread. I'll add an upvote to it!

Haha the self vote is a demonstration of support to you against haters haha...
Feel free to see my latest post about how I exposed @dan ´s secret plan to take over the world. More success to you.

So I have a question then , I thought we was suppose to like(upvote) our own comments and post , are we not suppose to? @financialcritic

Guess the return on delegation will stay juicy for quite a while, as it's more of a "poweruser" thing right now.

Re. self voting:
It's actually not that bad to give people some initial incentive to invest in steem. Also, the focus needs to be on making it more enticing to use your power on others, not "regulating" it. People who want to abuse the system will find a way, they vast majority does not.

When you can no longer selfvote, you'll just have a seperate voting account. This will only make it more obscure, hurting everyone in the long run. At least now the people abusing the system is out there, in the open.

As always, great post!

Yeah, it is more of a power user feature right now since it's not on Steemit via any menus. Would be good to get that added in though, so more people can use it.

Guess the return on delegation will stay juicy for quite a while, as it's more of a "poweruser" thing right now.

Hmm poweruser really? It's seems silly to me to think of someone as a power user even if they literally only made an account so they could delegate a large amount of Steem to SmartSteem and then log in once every couple of weeks to withdraw their earnings.

Re. self voting:
It's actually not that bad to give people some initial incentive to invest in steem. Also, the focus needs to be on making it more enticing to use your power on others, not "regulating" it. People who want to abuse the system will find a way, they vast majority does not.

People need to understand how the system actually works. It's not abuse or a loophole if they literally designed it to work that way. You have all these people that think the problem isn't just involved with self voting and involved with vote-bots, but that problem itself IS with self voting and vote-bots.

I don't understand how this meme that "self voting" is a loophole or an abuse of the system can exist, and for so long, when the devs literally programmed in a check box to automatically upvote yourself when you post a new blog post.

From what I see, most peoples logic about what's an abuse of the system would also cover the very basics of the system! This would be ok if they realised that because then we might get somewhere.

We could blame it on a lack of education of how Steemit works but I think it really comes down to the upvote being thought of in the same way as Reddit upvotes, YouTube thumbs ups, or Facebook likes. Consequently it's very easy to think it's unfair and "cheating" just using the system as it was intended. The reality is Steemit's upvote is hardly anything like a Reddit upvote or YouTube thumbs up except superficially. With those, every upvote or like is worth the same as each other and so can be used to know what sort of content is popular.

On Steemit the element quite literally making a post of a higher value isn't based on any variable that has anything to do with peoples opinion of the content itself. You're shown how many votes and the reward figure, but only 1 of the voters could be responsible for the entire reward while the rest of them could have flagged it. Upvotes in Steemit are much more like advertising which we don't expect to reflect quality or popularity, even if they spent a lot on it. Only it's not just like advertising either as advertising is an expense which insentivises people to not spend money promoting things that wouldn't end up being considered more valuable than what was paid to advertise them. With Steemit it's like advertising that not only pays for itself, but which is also the reward at the same time!

We know that when we see reddit posts with thousands of upvotes trending or Facebook posts with dozens or more likes that we expect this to reflect a number of peoples opinions about it. We'd know that's not going to be the case if technically 1 person could be responsible for all the upvotes or 100% of the likes.

In short we haven't figured out what the upvote really stands for, and its superficial similarity to something else we're very used to which it has very little relationship to otherwise is leading to a lot of confusion.

I think delegating power is a killer feature of Steemit as long as Steem Power difines voting power. I hope this will change in the future but as long as it works it is a great system. Whether or not someone uses that to self-upvote or not is irrelevant because others use it for community projects for example. I think it is a fun way to game Steemit.

Agree, it's a killer feature.

Which is why I want to eliminate the upvote as part of the open API.

As part of open API? Does that mean it would still be available to programmers who can access the blockchain? Seems counter intuitive...allow the bot creators to profit even more while restricting regular users?

I would say, it would be only allowed on STEEMit.com and possibly certain phone apps that were approved by the witness.

Basically, the bots couldn't use it. It has to be part of the API, but it is restricted to the app. I would prefer it only be STEEMit.com, but I know that would upset a lot of mobile app users.

Oh gotcha. And I assume you mean only self upvotes? That would def reduce a lot of the abuse.

Yup.. I think the apps are useful. The ones that provide information. I think the bots hurt the system.

This wouldn't work at all. You started by saying the solution is to not allow voting, then you had to backtrack because obviously that's a rather significant and important element but you're now really left in the same place you started with. If the problem is voting then even if you were to actually make it so that services like Smart Steem couldn't work (no idea why you think you'd be able to stop that ) you've not stopped most of the ways people could use the system this way.

When you said you want to eliminate voting the only way it starts to make sense is if you were proposing a whole different sort of system, where the value of a vote wasn't dependant on how much Steem Power someone has.

I didn't back track.

When you register an App to an API you get keys, just like your wallet on Steem. The API can determine which keys have access to do upvotes.

Everything else would work, except for upvoting, which is the biggest issue on steem after comment spam. If there was a community method for determine which apps outside of Steemit had the privilege to use the upvote calls in the API, I would be open for that. As long as the community could remove that privilege if it was found to be abused.

Okay, I went over to MinnowBooster.
I see there are two options

  1. Delegate to the Bot
  2. Fill a Market Request

So, the Delegate to the Bot apparently doesn't earn you any more than what you would get upvoting yourself, but the Market Request will earn you more? But, there's a 10% fee?

OKay... I think I calculated things.
Currently I can do $0.06 * 10 votes for 7 days = $4.20
But, if you fill the 200 SP order, then you only get $1.8

Not sure if I am figuring out all the costs of upvoting myself.

Self upvoting wins hands down vs all of those options. You can get something like 200-300% return annually by self upvoting. The best of those delegation options is to fill the 1 week market requests...that gets you 23% annual return.

So, if you didn't want to waste time making posts and had a ton of SP, filling the Market requests would be the way to go, even if it is 1/2 of what you would get if you did 10 posts a day.

Yup, exactly.

@financialcritic You're twisting the numbers. You self-voted 60% of all the money you gave out. It's not about annual return.

Clarification for you and everyone else:

It's not really abuse, it's just not smart to do as self-votes add no value to the platform. It's good for people to realize this while the protocol still allows it. Until the problem within the protocol is resolved, the only chance to success is if everyone stops self-voting as much as possible.

Self-voting doesn't give you a better return, it just gives you more tokens while decreasing the value of the tokens. When you withhold payouts from content creators they might produce less quality content, leave the platform or worse; spread negative reviews about SteemIt and scare away many users and potential investors. The best promotion for SteemIt is Word-of-Mouth Advertising, so the stupidest thing to do while investing in something is doing things that hurt your investment.

Annual return is everything

The money I earned was chicken shit compared to what I could have if I was really out to abuse the system. You are still missing the point that I could have earned $1k to $2k in that 1 month period by self upvoting if I wanted to abuse the system.

Nope it's irrelevant.

It's only about the relative amount of money assigned by self-votes. It doesn't matter if you assigned 6 cents out of 10 cents or 6 million out of 10 million, it's the same percentage.

The way the system works is that when you don't use your voting power, the $ amount that others can assign out of the reward pool increases, when you do vote, their $ amount decreases. So when someone does vote, it's highly preferred to add value to the network (by either voting on high quality (preferably even under-rewarded) content or flagging bad content).

This is no personal attack against anyone that self-votes, because the system allows it. It's just to raise awareness that the system is flawed and that self-votes aren't beneficial to the platform in any way. The sooner the flaw gets fixed the better, but until then, the only thing we can do as users is change our behavior.

I agree with you that self-votes generally hurt the system and the system is flawed. My point is that the majority of the hurt is being caused by bots and people not on your radar.

Also, annual return is extremely important in the crypto world. Everyone is claiming to be a day trader or investor in crypto. They are absolutely looking for a return. You should try to understand that the return drives the motivation of a lot of people on here...you don't have to agree with the behavior, just asking you to recognize it's importance.

None of that will help so long as a vote is not equal to someone elses.

Yes I think the main reason everyone borrows SP is because they want to upvote themselves a lot. And I understand that. You borrow SP and you want to get some return from your investments.

Yup...just natural behavior.

You are a good friend. I was looking into these numbers, and lo and behold you put it all together for us. ✊️

Happy to be the guinea pig and test it!

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