STEEM Dilution Rate - MUCH higher than you might think…

11 months ago
68 in steemit

Highlights;

Current Rate of Steem Dilution (today): 0.95% per day
Rate of Steem Production on first day of Year 2 (from now): 0.21% per day
Minimum Rate of Steem Production (100% per annum rate): 0.19% per day
Dilution Rate of Steem, from now till 1 Year's time: 346%
Dilution Rate of Steem in Year 2: ~100%

After a second read through Steem White Paper (https://steem.io/SteemWhitePaper.pdf), and a reply from @dantheman on an oversight I made on a post yesterday, I have decided to explain the Steem dilution, so it is easily understandable for all.

So, first things first, the Dilution Rate not currently 100%. It will eventually get to that number (and stay there) over time, however Steem is still in distribution mode currently, so it’s is running at a much higher rate.

Steem is currently being created at a rate of 800 Steem per minute.

This is currently split in the following way;

Content and Curation Rewards: 40
Mining: 40
Steem Power Rewards: 720

Currently, the Steem rate of production is much higher than the 100% per annum cap. The 100% dilution rate (0.19% per day) will be hit sometime soon after 12months from now. Year 2 starts with Steem of 541,849,616 with supply for the @800 Steem per minute to be less than that at 420,480,000 (calculations to follow).

Here is the extract from the White Paper explaining how the Contribution Rewards Change;

  1. Curation rewards: 1 STEEM per block or 3.875% per year, whichever is greater
  2. Content Creation rewards: 1 STEEM per block or 3.875% per year, whichever is greater
  3. Block production rewards: 1 STEEM per block or 0.750% per year, whichever is greater
  4. POW inclusion rewards before block 864,000: 1 STEEM per block (awarded as 21 STEEM per round)
  5. POW inclusion rewards after block 864,000: 0.0476 STEEM per block (awarded as 1 STEEM per round) or 0.750% per year, whichever is greater.

From here on out, I’m pretty confident I’m close with the calculation, however I may have misunderstood some minor details, so if your a better educated user, and see a mistake, let me know and I will edit…

From this, I have calculated that, the generous mining rewards remain constant (in Gross Terms, diminishing in Real Terms) until (by my calculations) 2.8bn Steem are in circulation (Roughly 5 Years) (See Chart Below for further info). However Curation and Content Rewards Begin to increase in Gross Terms when 542m Steem are in circulation (Roughly 1 year from now).

For simplicity, I am going to provide some calculation so you can visualise the dilution rate for the next year…

What this essentially shows is that, the Dilution rate for Steem over the coming 12months will be 346%. This is however heavily weighted towards the present, with todays dilution rate running at 0.95%.

The first day of Year 2 looks like this..

Steem in Circulation: 541,849,616
New Steem Supply per day: 1,152,000
Steem in Circulation After Day 1: 543,001,616
Steem Growth Day 1 Year 2: 0.21%

The 100% Steem Growth Rate kicks in at 0.19% per day (0.19% compounded 365 times comes to 100%). Moving into Year 2, the Steem Daily Growth Rate will move slowly towards the 0.19% cap, and then stay at this rate moving forward.

Why is a High Dilution rate a good thing?

The sky high dilution rate is going to distribute Steem more evenly amongst users. The larger accounts cannot keep up with Creation Dilution, and thus this gives credence to @danthman stating that;

“Last analysis I saw showed money being distributed to more people and away from the top.”

Please see https://steemit.com/steemit/@hisnameisolllie/the-top-1-steem-v-the-real-world for further information on equality in the Steemit ecosystem and how this should change moving forward. Especially comments from @dantheman correcting me on a few oversights. There are a number of EDIT's that need to be done to this article, and it will be reposted over the weekend...

Sources

https://steem.io/SteemWhitePaper.pdf (Pages 35 onwards)
https://steemd.com (Right Hand side of Home Page)

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73
  ·  11 months ago

Remember that Bitcoin used a fixed 300 BTc per hr for the first 4 years. That meant it's inflation rate was on the same curve as steem.

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68
  ·  11 months ago

That's good to know. The information on $USD in the White Paper was very useful too. For anyone that missed it;

(Extract from page 36) https://steem.io/SteemWhitePaper.pdf

From August 2008 through January 2009 the U.S. money supply17 grew from $871B to $1,737B, a rate of over 100% per year and then continued to grow at about 20% per year for the next 6 years. All told the money supply in the U.S. has grown by 4.59x over less than 7 years. During that same time, the value of the dollar relative to goods and services has fallen less than 10% according to the government's price index18. This real-world example demonstrates that supply is only one component of price.

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58
  ·  11 months ago

i have a very small account but I have watched a $62,000.00 dollar SP account go down to $44,000.00.

I was thinking it was mainly because of the seven (7) day price reduction and average . I thought it would level off after the seven days, because the price was holding in a range. Now, if I am understanding correctly, what your saying is that this will basically continue to drop based on the dilution over the next year.

Sorry, I am a hard learner and there may be a few others....... Lol

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68
  ·  11 months ago

Based on the extract from the White Paper on USD, not necessarily (Dollar fell 10% on 459% Dillution). If demand outstrips Dillution, the price could in fact rise...

Lots of if's and but's ;)

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58
  ·  11 months ago

Thanks ... Still attempting to understand the dilution. Thanks for your time and response. :)

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60
  ·  11 months ago

This. Many people don't realize how inflationary BTC was and still is. The difference is that Steemit has found a much, much better way to distribute the inflation.

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63
  ·  11 months ago

But the thing with Bitcoin is we know how many will exist. The US government is still able to print money like paper.

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60
  ·  11 months ago

Yes, that is why BTC will become a store of value. All western governments are stealing value from their citizens via fiat, and Bitcoin will give people a way to opt out. Many of the smart citizens are already doing just that.

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64
  ·  11 months ago

Glad to have people like you filling us in who are newer to cryptocurrency. It's really reassuring to know that steemit is on the same track as bitcoin. Bitcoin is the gold standard, but steemit has the true potential to bring the masses to crypto and introduce them to bitcoin as a legitimate form of currency instead of only connecting it to the silk road and illegal activity and super volatility.

68
  ·  11 months ago

These numbers were much needed! You've done a lot of research for that post! I bet I wasn't the only want to wonder about those exact numbers. I also loved your previous article though I knew it was off for the first year. Thank you for this awesome article!

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68
  ·  11 months ago

Thanks for your kind words and interest @teamsteem

69
  ·  11 months ago

Yet another reason to be here from the start, right?
But many will say in year2 year3, that "early adopters" have an unfair advantage they were here when more distribution occurred etc etc but to get the most you need to be active on steemit and REALLY contribute so in a way it's fair. As dan said, a lot of accounts are not active so the ones that are deserve even more credit.

thank you for this amazing post.

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68
  ·  11 months ago

@razvanelulmarin Thanks for the reply. I agree with you whole heartedly.

68
  ·  11 months ago

I saw your post yesterday and wished to comment, but somehow forgot to. I have been running an analysis and had my first post up last week. Do go through my Blog, it's titled "Steem Power distribution trends". I deliberately tracked the "Active 24 hours" metric and it was clear what was going on.

I'm into the third week now, and the observation holds - Steem Power is indeed in massive (re)distribution, and a high creation rate is required to back it up. I shall post an update some time this month.

I didn't know the exact number, but 350% seems about right to me.

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68
  ·  11 months ago

Thanks for that @liberosist I will keep up to date on your posts.

68
  ·  11 months ago

This post definately puts things into perspective. New members should be notified. Nice job

65
  ·  11 months ago

You've upped your game in the value you can offer. You've come to conclusions and insights I wasn't even remotely aware of.

Thanks! I've got a whole swarm of ideas floating around now. Looking forward to your future posts.

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68
  ·  11 months ago

Thanks @wingz my bearded friend :)

66
  ·  11 months ago

Oh, I did enjoy your detailed analysis right there.

Req: Could you edit the post and include links to the places you got or derived the data from? I ask not because I don't believe but because it's a completely awesome post :).

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68
  ·  11 months ago

Thanks @faddat

Done. Only 2 Sources, but I've added them to the bottom of the Post with a little direction towards the pertinent information...

56
  ·  11 months ago

Oh, no. That means I should power up everything unless I believe the market cap to rise by at least 300%. Dilution of powered-up will be 35% the first year if I understand it right.

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68
  ·  11 months ago

If you think Steemit will be here for the long haul, and your not speculating on a short term basis, Powering up NOW is a good idea. Your numbers are right, but in real terms it's still 10%..

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50
  ·  11 months ago

First off, thanks for such a concise post that is written in a form that a n00b like myself can understand.

Im a new user on Steem, with no major intentions of being a content creator or the knowledge to actively day trade crypto currencies. All im doing is buying a few hundred potentially a thousand USD worth in Steam Power and wait. I do some light curating at night. I swear id be a billionare if I had boobs though. Those upvotes....

77
  ·  11 months ago

Hi,

Thanks for the great analysis. i started following you!
if you like my posts, pls follow me too

40
  ·  11 months ago

Thanks for the research, lots of good info in your post!

65
  ·  11 months ago

Nice post. It's my hope that the creation rewards are high enough that more distribution occurs; it worries me slightly that the Steem Power rewards are a tad on the high side.

I've got a new article out on inequality on Steem. Check it out if you're interested!

68
  ·  11 months ago

@hisnameisollie So the idea is that if you are a whale, and HOARDING steem then you are actually hurting yourself. Whales are better off spreading steem as much as possible so that the masses create a demand for steem making the steem the whales do hold/hoard/save after spreading/distributing to the masses more valueable in the longer term.
Any whales out there with input on this?
@streetstyle
my blog

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68
  ·  11 months ago

@streetstyle Overall, it is certainly in the interest of the 'Whales' to get distribution as equal and as wide as possible. Luckily, @steeemit account currently control well over 50% of Steem in circulation, which is the account used to reward new sign ups, and pay for Steemit developers....etc

This account will be the main distribution account to achieve the aims you mentioned, WITHOUT whales donations IMO

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68
  ·  11 months ago

Ok got it. The more I learn about the STEEM ecosystem, the more it makes sense. So there is at least one Virtual Whale, and that is the @steemit account. And it will be from this account that the "New STEEM" will be distributed either to new users or for site development etc. So at this point in the life of the STEEMIT ecosystem, it is life dependent for STEEM to be distributed as widely as possible to its current and future users.
Full $teem Ahead.
@streetstyle

26
  ·  11 months ago

Very useful information. Being new to cryptocurrency, I'm truly grateful for the few posts explaining things about how this all works :)

45
  ·  11 months ago

Great read. Thanks for the info.

71
  ·  11 months ago

excellent work on helping clarify these complex matters for the community. :-)

61
  ·  11 months ago

Yup, this was exactly what I was looking for, wicked like absolutely wicked post, took the time, thank you.

37
  ·  19 days ago

I remember reading £1 GBP in the 70's in 2012 think it was was only worth £0.08 from what I remember reading. This shows how money can become so inflated @hisnameisollie.

Thanks for adding to the facts. It is good to know how inflationary is an issue but often is workable as we find in our economies since the change from gold standard to fiat currencies backed by promise.

Something you don't cover, and I think perhaps it might be because this feature was added later than this post, but I am a new member so not sure. The promoted section requires payment and this is sent to @null which essentially helps ease the supply. As more people advertise then this helps reduce the supply. The ability to store and get back steem over time is also another way that can ease the flow. Also you don't factor in people losing coins and people not using steem or trying to earn but just using steemit.

These are all sieves which over the long term matter as those things remove coins. In the case of promoting that coins are not coming back into supply. It is only a portion that is traded, especially with prudence after seeing exchanges such as Mount Gox go down and I believe all these will factor in providing an ease in supply.

Overall, what I can see is that though supply is an issue, demand is also an issue. When I look at DOGE coin, it used to have a declining reward over time, however they changed that when I last checked where DOGE coin will continue to provide an ongoing excess. Now when I look at DOGE coin this infinite supply has not effected its price. In fact I still see it hit highs and lows as it had before.

Good observation btw. Always important to look at all different points.

Create a great day,
@kozan

74
  ·  11 months ago

Thanks for posting this. Some of these intricacies can be confusing and hard to follow particularly if it has been some time since reading the whitepaper.

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68
  ·  11 months ago

White Paper: Definitely worth a second read through for me. Everything to made no sense the first time through, now makes perfect sense...

25
  ·  11 months ago

Thanks for the great post! A lot of great information

54
  ·  11 months ago

Wait, so we are experiencing inflation? So, Steem does not have a set amount of maximum coins? We honestly need to start getting payment processors to accept Steem to get the value to compensate for the inflation.

64
  ·  11 months ago

Thank you so much for taking the time to make this article for everyone. As one who struggles with the numbers and inflation/dilution and economics behind steemit, I am glad I have a better understanding (It still hurts my brain trying to wrap it around all that has gone into steemit) of what the future may hold. Please continue to make posts like these that help educate everyone that may be confused from just reading the whitepaper.

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68
  ·  11 months ago

Thanks for the reply. I was confused by parts of the White Paper at first too. The more you use the platform, the more you read, the more everything begins to makes sense.

Give it another go in a few weeks... :)

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64
  ·  11 months ago

I agree at first steem, steem power and steem dollars were hard to understand, but the more I immersed myself, the more I understood. I will reread the article each day until it truly sinks in

71
  ·  11 months ago

Great analysis! Finally someone who took the time to write down the numbers to make it easier for the public to see what goes on under "the hood".

71
  ·  11 months ago

I don't often vote for posts which are already trending with high rewards, but I voted for this one. Very well done! When I first joined Steemit, I wrote multiple posts on what I incorrectly called the "Steem Power Interest Rate." I love that posts like this are getting out there to explain the share dilution in a way we can all understand. Well done!

59
  ·  11 months ago

I guess I need to buy more to take advantage

39
  ·  11 months ago

Nice information @hisnameisolllie

25
  ·  11 months ago

Great Research, I'd like to imagine that while steem grows, rapid dilution may bring about more great community members.

69
  ·  11 months ago

What effect does the planned 1:10 reverse split play into the total amount of steem created? Does not not lead to the dilution being effectively less?

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68
  ·  11 months ago

As far as i am aware, it plays no impact, as by such point, dilution is fixed at 100% per annum (In Gross Terms, a large reduction, but in real terms, no difference). I have only experienced reverse splits in the Stock market, however they usually have a positive impact on the share price of such stocks...

General observation I must say..

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69
  ·  11 months ago

Well if R/S in stocks have positive impact is that not because they would effectively be reducing the dilution of the total number of units? You go from a diluted state to smaller number of steems, only then to be diluted again? Maybe I just don't understand it well enough.

You are not talking crazy, keep drinking those beers man, its friday night!

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68
  ·  11 months ago

:) @justtryme90 You are correct, it is a psychological impact of lower gross prices per X, not a dilution (which remains the same) impact which has the impact I stated above. I would refer this to my reply to @dantheman above to get an idea of my thoughts...

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69
  ·  11 months ago

Cool, I think we are on the same page about this then, judging by your above reply to @dantheman.

At least I'm not off in left field with my understanding.

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68
  ·  11 months ago

I am too quite a few beers in the hole tonight, so forgive me if I'm talking gibberish ;)

53
  ·  11 months ago

totally agree with the post thank you for share

45
  ·  11 months ago

👍nice article and information to know... @hisnameisolllie

62
  ·  11 months ago

Thks @hisnameisolllie for making it simple and understandable. I agree it's not easy to grap all the details.

56
  ·  10 months ago

Are you sure about this:

Steem is currently being created at a rate of 800 Steem per minute.

?
I try to verify it but discover only 600 Steem per min: @fooblic