Do You Know Your Steem Power Interest Rate?

in steemit •  2 years ago

Have you noticed your Steam Power going up without you doing anything?

Welcome to the wonderful world of STEEM mechanics!




If you're not familar with the difference between Steem, Steem Power, and Steem Dollars, go give @donkeypong's fantastic steam plant analogy article a read. Now let's go a little deeper.

We're going to pick on @dantheman here and use his wallet as an example. If you've ever been to the fantastic steemd website, you've probably seen the term "VEST" (though I've been told the whitepaper has been edited to remove the term). At the time of this writing, Dan has 5,916M Vests. Vests have a conversion rate of 1M VESTS per 1 SP. I used to think "SP" stood for "Steem Power" which really confused me, but now I think of it as a bitcoin (1 SP) and a satoshi (1M VESTS). In order to go from VESTS to Steem (Steem Power and STEEM are 1:1), you need to figure out the current conversion ratio of SP to Steem. That's what this number over at https://steemd.com/distribution is all about:



Here are the relevant sections of the white paper which explain this (page 8 and 9):

Because Steem wants to encourage long-term growth, it is hardwired to allocate 9 STEEM to Steem Power (SP) stakeholders for every 1 STEEM it creates to fund growth through contribution incentives. Over time this drives the ratio of the total STEEM value of Steem Power balances to the total of STEEM balances toward 9:1 . (It seems likely that the ratio will be somewhat greater than 9:1 due to continued net Powering Up of the newly printed STEEM.)

and

STEEM is constantly increasing in supply by 100% per year due to non-SMD incentives. Someone who holds STEEM without converting it to SP is diluted by approximately 0.19% per day.

and

The majority of inflation is actually an accounting artifact rather than true reallocation of wealth. 90% of non-SMD inflation is distributed back to existing holders of STEEM proportional to the STEEM value of their SP balance, making inflation more of a “split”. Only about 10% of non-SMD inflation redistributes ownership in the network.

Want to see it in action? Check out Dan's wallet at https://steemit.com/@dantheman/transfers and note the total Steem Power. Now hit refresh. Did you see it go up? Pretty cool, huh? That's an investor being rewarded for long term investment in the success of Steem!

As more people find out about Steem, we're going to hear many more questions like, "But how does it create money from nothing?" Many people don't understand the dollar bills in their wallet are actually certificates of debt which are essentially created from nothing as well (but that's another story). For people to feel confident about something they might consider an investment or a money-making opportunity, we should be able to explain the mechanics to them.

If I calculate the interest rate per hour and per week for my Steem Power balance, it's a pretty compelling investment! Makes me want to dump everything into Steem Power! But, can I count on that interest rate? How much does it change over time? These are things I wanted to figure out.

Nerdy Code Warning

I'm a PHP developer, and I wanted an excuse to play with @xeroc's awesome Piston python library and command line tool. Just to get my feet wet, I thought I'd try figuring out what the current interest rate is. Knowing the interest rate can hopefully help me decide if I should buy some STEEM, sell some STEEM, or power it up. Not only that, the change in interest rate is important because if it goes down too much, I can't bank on future increases of Steem Power based on my current balance.

So here's what I came up with:

➜  php-steem-tools git:(master) ✗ php steem_rate.php dantheman
Sleeping 1 minute...
.
--------------------------------
Interest Rate Per Hour: 0.034620102305655
Steem Power Per Hour: 432.32445121743
Interest Rate Per Week: 5.81617718735
Steem Power Per Week: 72630.507804528

It's a PHP script you can find here on github: https://github.com/lukestokes/php-steem-tools It retrieves a user's balance in VESTS, then the current exchange rate, then waits a minute and gets the exchange rate again. From that it calculates the interest rate and return projections. It requires Piston be installed on your computer along with PHP. If enough people find this useful and would like me to explore it further and/or host it somewhere, please let me know. I'm also considering the possibility of building a payment gateway integration for Foxy.io which would allow merchants of FoxyCart to accept Steem Dollars or STEEM.

You can use any steem username you want and for more debugging information, include a true argument like so:

php steem_rate.php dantheman true

I had fun playing with it. Go ahead and check it out. Try runing it a few times for your own user and notice how the interest rate changes over time. While developing this tool, I saw the rate going down quite a bit. I began to wonder, if I convert my STEEM to Steam Power, will that rate keep going down to the point where I would have been better invested in Steem Dollars? Interesting questions and I was tinkering around with this script to find some answers.

I hope you enjoy this tool and this little journey into the mechanics of Steem Power interest rates. Please let me know if you'd like to see more.

Special thanks to @smooth for helping me understand this stuff better and once again to @xeroc for his great work on This.Piston.Rocks. After you're done here, head over there and give him a well deserved upvote.


Edit:
Thankfully @dantheman brought to my attention an important point in the white paper here:

Steem by contrast will achieve an instantaneous annual rate of approximately 12% after just 1 year (not including the effects of SMD operations).

That means the high interest rates we're enjoying now will only be around for another 9 months or so as it tappers off towards 12% a year (as mentioned in Dan's comment below).


Update:
I also put together a little PHP script to save your current Steem Power balance to a text file every five minutes. Very handy for keeping track of the change over time.

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Following😀 I'm a new steemian and i was doing a search for articles to help explain vesting and this one popped up from last year. It was very helpful and i can't wait to read the rest of your content!

Rate will fall until it hits a min rate in about 9 months.

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Thanks for the reply Dan! Can you explain a little more about what the min rate is and how it will play out over the next 9 months? If there's a relevant section of the white paper I missed, feel free to send me that way. I'd love to make edits here if anything I said is incorrect.

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Ah, I think I got what you mean. I edited to include that note. If that's not right, please let me know. Thanks!

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There is a section of the whitepaper that gives the long term percentage growth rates.

From what I read Steemit has a 13.5% inflation rate by now, and 15% of that inflation goes to steem power holders. So thats only about 1.5% interest.

is something changed since you wrote this article?

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Yes.

"Interest rate" was never really the right word as it was more a share dilution protection by giving newly created STEEM to existing Steem Power holders. The rate at which this happens used to be really high which was causing too much inflation. That has since been changed and the rate is much lower now.

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The inflation rate (new Steem created) is about 13.5% per year.
The interest rate for Steem Power is now about 1.5% per year.
That's since hardfork 16.

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any idea what the rate is now?

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Thanks that's just what I wanted to know!

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how can we find the rate now?

Great article. Cloning php-steem-tools as I write this.

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Sweet! I hope to be playing around with some more tools down the road. Unfortunately, I also have a company to run, so I haven't been getting much sleep lately. The code there is rough so far. I'd love some contributions and additions. Would be great to get the #PHP community on Steemit working together.

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I'm right there with you on the "haven't been getting much sleep lately" part. Unfortunately, I'm far from being a php coder but I did get the script running and am enjoying the data insight.

Thanks again!

Thanks for the guide! Unfortunately I can't run it, so one way or another it would be great if I could somehow find it online. But I believe the wallet page will be made more noob friendly at some point, right?

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Might be interesting to have it in the wallet page for the next 9 months before it drops down to the 12% annual rate (if I understand that correctly). Here's what I got running it for your account:

Interest Rate Per Hour: 0.0340%
Steem Power Per Hour: 0.19792565758507
Interest Rate Per Week: 5.712%
Steem Power Per Week: 33.251510474292
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aww, thanks so much!

still dont know why my wallet is empty

Someone in Slack just mentioned this great article by @donkeypong about powering up for the long term. I thought it goes well with this article. Enjoy! https://steemit.com/steem/@donkeypong/would-albert-power-up-you-need-a-long-term-plan-also

Very good man, its nice I can just give anyone who asks me these difficult questions your post and they can just read it themselves instead of me trying to explain it to them. hahahaha

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This post is very out of date. You can find more up-to-date information here: https://steemdb.com/

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Thank you for the link, what means the currently 7% interest? Is ist for a 30 day period? Does it mean my SP rise by that rate even i do nothing just waiting?

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It's annual interest. The 30 days is about the distribution between authors, witnesses, etc over the past 30 days. And yes, the ratio between VESTs and STEEM is changing so that you Steem Power holdings will increase even if you do nothing. STEEM is being inflated all the time with new currency creation so holding Steem Power is a way to protect against that inflation somewhat (so it's more inflation protection than interest).

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Oh thank you for clarification! I think i got it. Number of Steem Power remains the same in my wallet without any rewards but the ratio to inflated STEEM is changing constantly or the value of STEEM is declining through inflation. There is no such thing like mining or POS which would increase my number of SP.

Even went into banking a little there, nicely done I enjoyed the read, thank you.

This posts was very helpful. I'm new to Steem and found this article through tags and google search. Thank you

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Many things have changed in the last year and a half. It's helpful to read the bluepaper and whitepaper (both are in the menu on the right) to really understand the details.

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Thank you for this useful little tidbit (blue/white papers).

Thank you for this post, it helped to explain the system of Steemit to me!

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Just keep in mind, many things have changed in the last year and a half. It's helpful to read the bluepaper and whitepaper (both are in the menu on the right) to really understand the details.