I am compiling a list cryptocurrency and documenting their potential for my crypto portfolio. Here are my notes regarding steem.

I am looking for feedback from the community and to learn from all of you regarding the investment potential of steem.

How does it Work

Steem is a social media network that leverages the blockchain to host its content. It uses DPOS consensus mechansm and has three types of coins. STEEM is a liquid cryptocurrency used for transactions and to pay for rewards, SP is vested (locked up) steem that give influence to its holders in the form of voting and curation power. SBD is a stable coin that is pegged to the USD by the blockchain via a smart contract. The three different coins allow this system to perform the different tasks of the coins more specifically and is a great advantage over other system that mix investment vehicle and currency. Steem has with SBD a real currency that is stable and with SP a coin that truly represents stake and influence.

The mission of steem is to attract the best online content by rewarding authors for their work. Steem creates new currency currently at a rate of 9% APR of current money supply, which will decrease to about 1% over time. The rewards are used to pay content providers (75%), witnesses (which are like miners in bitcoin) (10%) and pay interest to SP holders (15%). The content reward distribution is determined by the votes of SP holders on the content itself. The rewards are paid out exponentially, meaning that people with more SP votes gain exponentially more rewards, causing a concentration of reward payouts. Users also get rewarded for curation (voting on content) where the earlier one votes for more popular content the higher the payout is. This leads to creating an incentive of votes not representing what people like but what they think others will like and corrupting the essence of what a vote should be.
In essence steem is a blockchain that lets people post content that can be used for blogging, forum type discussion etc and get paid for it. It is the first main stream type application that has real use, from users that are not crypto fans. The blockchain itself also has many key features over other blockchains such as: free transactions, 3 sec confirmations, 10k tps.

50% of the tokens are owned by a company steemit, which develops and host the blockchain content via steemit.com The team has shown great innovation potential and implemented many changes and improvements since launch. They have also published an extensive roadmap, that includes a scaling solution that seems revolutionary.

Potential

Steem has much potential. It is one of the few applications that has created innovation that is only possible with a blockchain and re-invented how content can be monetized on the internet. Potentially it can become bigger than Facebook. It is currently the only social media blockchain app that is live, and used by 10k monthly visitors.

That said I see a few issues:

• The expontential reward system is very unfair, especially if the platform grows. Imagine youtube with exponential rewards, this would mean that a handful of providers would make all the money while normal users would get nearly nothing. As a result there have been many debates by the community due to a feeling of unfairlness. These feelings are driven by the exponential rewards and the leadership has not shown to understand that this even is an issue.

• The curation system totally corrupts what a vote should be. The mission is to reward good content in practice bots are the best voters. The two most important aspects of the platform rewarding content providers and voting are designed in a way that they work against the mission of the platform.

• The platform only grows via investments (when people buy steem and power it up or hold it) Authors then receive higher rewards via dilution. Steem need a more direct way of generating outside income that can be paid to authors more directly. This way the platform can grow without diluting itself. Bounties and advertisement could be a solution. The issue again to me seems that the management team has not understood this problem.

• The roadmap is very detailed, however does not adress the business side of things very much. I am worried that the team does not understand or look to understand why steem has a rentantion issue and what needs to be changed from a product management perspective to solve the core issues and make the product truly better. Instead it seem that there is a focus on minor features instead of dealing with the structural and strategic challanges. That said the steemit team and Dan in particular is maybe the developer that has solved major blockchain issues in the most comprehensive way before (i.e. free transactions, scaling, decentralized consensus, stable coins, mainstream appeal etc) .

Aditionally other ecosystem are being build on the blockchain. Example: steemsports allows betting in SBD on sporting events and might be a better prediction market than other solutions. The issue with steemsports again is that the 5% fee is not competitive with non-blockchain solutions.

The above problems can be solved and the steem team has shown the ability to adjust radical even to core principles of the platform when they don't work.