Reward Pool Analysis (Why your Rewards are Dropping and When it May Turn Around)

Gold Rushes Come and Go

The value of rewards on the Steem blockchain has been volatile since the beginning. In July of 2016 huge rewards were given out which sparked the interest of thousands in Steem. After Hard Fork 19, there was another spike in rewards as the increase in voting power and change in rewards pool management unleashed a virtual gold rush. Now that the rewards are decreasing, there is a rising concern that something is going wrong ... let's take a look:

Rewards Pool Balance and SP Payouts

The above chart was limited by the data I was able to pull mostly from @jesta's api (thanks!). I have tracked SP payouts by the blockchain back to the beginning of April when the rewards pool was still filling after Hard Fork 18. While I was not able to find actual rewards pool data from that period I will assume that the rewards pool was gradually filling to the point where my data picks up on 24 May. I've also plotted the daily active users but we'll get to that later.

Reward payouts are controlled by the size of the rewards pool and cumulative claims (votes) against the rewards pool over the past 30 days called 'recent_claims'. Remember, that the blockchain releases a fraction of the rewards pool each day depending on the volume and weight of votes. We can simply this to the following formula (this was outlined by @bilphil in this post).

reward_per_rshare = reward_balance / recent_claims

Back to the above chart. The month of May was fairly calm with slowly increasing SP rewards as the rewards pull filled and user growth was low. In June, user growth increased which increased the pull on the rewards pool and caused it to start draining (remember that recent claims looks back over a 30 day period so it reacts fairly slowly). This is how the system is designed and it worked correctly as it prevented existing users from having their rewards quickly diluted by the influx of new users 👍.

Then we come to Hard Fork 19 where votes are now 4x more powerful and the recent claims variable was manipulated to purposely partially drain the rewards pool (~1.6 million STEEM was a little overkill so I agree with this call). On the above chart it is easy to find where HF 19 hit (look for the SP Payout spike and change to the rewards pool rate of change, 20/21 May ). The second spike you see on the SP payout line is the 'gold rush' as users started madly posting to take advantage of the higher payouts (it occurs 7 - 8 days after the HF due to payout delay).

The declining rewards experienced by individual users from the gold rush forward were influenced by a combination of three factors (I'm ignoring the declining price of STEEM because that's covered in my Daily Investor Report: increasing recent_claims, decreasing rewards pool, and increasing daily users and posts to spread the rewards over. If you look at the above chart you can see the three factors converging (not actually a relevant fact but I'm a chart nerd so I thought was cool while I was writing this).

The natural next question goes something like:

Thanks for telling me why I'm getting less, but when do things get better?

Using Regression Analysis to Predict the Future

Before we dig into the we have to start with the universal rule of predictive charting:

Past performance does not guarantee future results.

I've gathered data on the rewards pool and recent_claims over the past 3 weeks and used that to produce a regression analysis to project the future path of both values. The projection shows that recent_claims will top out around 29 July (2 weeks from now). While I discovered that the rewards pool is declining is currently declining in a logarithmic decay I expect it to break this trend close to time that recent_claims tops out. A logarithmic decay would not stop going down which has not happened in the past and while I will keep an eye on it, I don't expect it to happen this time.

Therefore, I would expect rewards to be lowest around 28 July

Note: The above analysis is based on Steem Power payouts. The primary factor impacting total rewards is the price of STEEM and the SBD which is currently controlled by the greater Crypto trends.

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