RE: Fixing a Problem in the Economics of Steemit
I disagree. The so-called "interest" really isn't. It's more akin to a stock split than interest. Analogize steem to a Corp. Each unit of Steem Power is analogous to one share of stock, and SP holders are the owners of the company. Even if 100% of the distribution went to SP holders, this does not mean that they earn more "interest" than now. Yes, they own more shares but all else being equal each share is now worth proportionally less than before the "split". Just like a stock split.
The reverse is also true: depriving SP holders of the current 15% allocation does not cost them any "interest". What it does do, however, is increase compensation to workers at the expense of shareholders being diluted at a greater rate.
Corps can compensate workers with cash or with stock. Steem does the latter by allocating most of the recurring stock split allocation (so-called "inflation"), or 85% of it, to posters, curators and witnesses. If we instead allocate 100 percent of the split allocation to the workers and none to existing shareholders, then we are simply giving those workers a raise, that's all (assuming the size of the split remains unchanged).
So the idea that the 15% is currently being "wasted" or used inefficiently is just not true. The real question is simply whether workers currently need and deserve a huge raise for their services. Personally, I don't think they do. Steem has been a huge success to date and workers have been rewarded handsomely.
Steem gets its market value in large part because of long term holders. If we dilute those holders more rapidly, their incentive to hold diminishes. The market value of Steem drops accordingly. And the new "stock" awarded to workers via "inflation" is worth less than before. Holders (and the market price of Steem) are thereby harmed and workers are only marginally benefited (if any).
I understand your analogy between this currency and a stock but I think the distinction is arbitrary. At an abstract level, even interest gained in a fiat currency on some level is merely earning a 'split' and takes a part of the inflation. There is no true distinction be it fiat currency, stock or crypto currency, they're subject to market forces. If you feel that there is a difference between the two as fiat currencies have an arbitrary inflation rate compared to profits in a stock, than here Steem is more like a fiat currency. Either way, this analogy is not very elucidating.
I feel that the disagreement here is that you deem the 15% going to stakeholders is a benefit, irrespective of whether it appears trivial or not, and redirecting it to developers would mean a loss on the part of stakeholders. This is true, I am not arguing against that.
I am arguing that there are certain forms of wealth distribution, such as the reverse lottery example, where total utility is reduced. I think taking $800,000 a year to provide a 1.5%pa and shrinking benefit to an asset class with a daily volatility that's about 4x that amount is one such example. Even leaving aside whether the developers deserve it or not. I feel without question this amount would make more of a palpable different if it's put entirely into the rewards pool, or just taken off the inflation entirely.
In theory the market can perfectly take this into consideration and reach the same equilibrium. But in practice market failures such as asymmetric information will play a part. Psychological biases will make it very difficult even for the most rational among us to properly value a 1.5% pa payment of an asset class with a daily volatility 4x that amount.
As to whether the developers deserve some of these funds, if I'm unable to persuade you in the article, I will be unable to persuade you here.
Your criticism is a sound one, but I hope you put some thought into my reply too
You're all making great points but what I'm repeatedly finding confusing in this discussion, is the comparison between a 1.5% pa and 'daily' volatility. Isn't this comparing apples and oranges? Isn't this conflating the daily with the long-term? I mean, if one is holding long term, what do they care about the daily percentage fluctuation? They are holding long term.. They are happy for whatever 'long term gains' made by steem, and ostensibly they are happy for the 1.5% to sweeten the pot. I just find this repeated comparison confusing.
Very good question
Best way to describe this is that the market generally views that there's a financial cost to assuming volatility, as volatility is a form of risk, and all other things being equal, people are risk adverse. I'll copy a excerpt from the wiki page:
If you look at the Black-Scholes model, the financial formula used to calculate prices for all derivatives, volatility has a relatively high price. I think in an intuitive sense, this basically means that generally, people who look at the price of Steem and notice that it zoomed from 20c to $4, plummted to 7c, then pulled back up to 30c within a span of 10 months and are still honestly considering it to be a worthwhile investment, are highly unlikely to be swayed one way or the other by the extra 1.5% yearly interest payment. That is to say, they've assumed the extraordinarily high risk of a high likelihood to lose all their money in the hope that they make a killing, and deem, I think quite rationally, that an extra 1.5%pa interest won't save nor deter them. Yet this 1.5%pa payment is coming at the cost of $1000,000 a year now, which I think is a waste as it provides next to no added incentive.
I sort of know what you're coming from, volatility can seem like an isolated issue that I'm confounding with interest in an attempt to trivialize the latter. That if two things have an expected value that is equal, in the longer term it doesn't matter and any interest on top of it is a separate benefit and should be seen as such. But generally the market does not see it this way. An interest payment on something with low volatility is worth far more than the same interest payment is on an asset with high volatility, even if the expected return of those assets are equal. It is a little arbitrary in the sense that it's not a law of physics but an aggregate measure of human desire. Interest payment is exactly the same, generally we're partial to having money today rather than tomorrow which is why positive interest incentives are necessary. Just as generally we're partial to low rather than high volatility. If we all woke up tomorrow valuing delayed gratification more than instant gratification and higher uncertainty over lower uncertainty, the numbers in the models will change to reflect this market.
I hope the example above sheds a bit of light on this. I'm not a finance/econ expert but hit me up on chat if you have further questions and I'll try to answer them.
Thanks for your reply. That was very insightful. I'm nowhere near a finance/econ expert, but since being in crypto I've learned far far more than I ever thought I would about these topics.
Thanks a lot for keeping an open mind =)
The closed one won't open anything.. ;)
My take on the matter - 1.5% increase in SP remains to be an arbitrarily low number used to make it seem like there's a point to holding SP. I'd venture that curation works can easily top this 1.5% increase per year just by using the platform, and increase in curation rewards is the better reason to accumulate SP. A 1.5% increase is also negligible for the passive stakeholder, in which such capital could work way better elsewhere if that's the case. The number is so small that if removing that could net the entire network an extra ~$800,000 per year to channel to stuff that are more functional than a placebo-like perk, why not? It doesn't have to be raising the wages for workers or allocating budget for marketing, etc. Can be anything at all, especially stuff that makes Steemit special. Might not be a popular opinion since they're quite costly, but I really think that relieve efforts / charities / meetups / Steemfest type of deals are something to be reckoned with.
Well said, I completely agree, it was different at the beginning when the purpose of the allocation to steem power holders was to reduce the inflation impact and reward steem power holders. That benefit is now largely gone anyway and it might be better use to use this money somewhere else. I love your suggestion to spend it on something that makes steemit special.