My Journey Peeling back the Economic Layers of the Steemit Onion...
Let me tell you about my journey into discovering the true value of Steemit, it will combine my background as a trader, investor, economics student and most importantly my experience as a Steemit user as we peel back the economic layers of the Steemit onion to find out what's really going on below the surface…we'll go deeper and deeper into Steemit…
This is a relatively long read, hopefully I can engage you enough until end, but as a compromise I've annotated a chart which summarizes my journey.
I'll explain each area from my perspective, until we finally reach what I think the real value of Steemit is.
Click here for a larger image
…let's get started…
The first layer... a speculators opportunity
My very first post here, was entirely from the frame of a speculator, I looked at what appeared to be a good trading opportunity…. prior to the 4th July
I saw low Steem trading volumes on the external exchanges and thought reasonably fairly that an increase in the supply of Steem Dollars that could be converted to Steem would result is a huge sell off that I could pick up some cheap Steem.
In my head… 'the result'… on the 4th of July = sheer panic in the markets, a huge overreaction where I could pick up some Steem at a low price.
I didn’t take into account the economics of the platform, I didn't understand the internal vs external market or the relationship between the Steem Dollar and Steem.
…Steem went up on the day of the pay out, BIG TIME, something like 67% at its highest point.
The second layer...an arbitrage game of cat and mouse
So I couldn't buy Steem cheap, what was going on?… what other opportunities were there?
I saw something… an arbitrage opportunity!
I could buy the Steem Dollar for less than a dollar and then wait for it to get closer to the value of a dollar, exiting for profit.
I posted about it here and then got involved.
I had some Steem Dollars, but I was all of a sudden on the other side of the trade 'buying Steem', not getting into Steem because of its value as a network, not even caring about the price, only caring about the difference between the internal and external market. I was like 'this is it!' this is the secret sauce….
...this is what will contain any selling pressure in Steem...genius...
… basically the over eager Steem Dollar holders sell their Steem Dollars for a discount and the arbitrageurs come in.. when the discount gets too big people stop selling their Steem Dollars for Steem the discount is reduced and the arbitragers take their profit and wait for the discount to widen again..
The third layer… the price of the steem dollar stabilizes
..I didn't see it coming…
@dan posted this…
Steemit's Evil Plan for Cryptocurrency World Domination
…a total paradigm shift occurs…
..steemit was just the 'tip of the iceberg', the real value was in the application and use of a stable currency, the Steem Dollar...
Yesterday @andrarchy conceptualised this point brilliantly in this video...
Steemit Vlog: Why Steemit is the Tesla Motors of Social Networks
... in making the 'big reveal' @dan acted almost like a central banker, central bankers usually provide clues or 'guidance' for future events... the markets adjust before those events take place in anticipation..
...it took less than 24 hours for the internal and external Steem Dollar markets to converge much closer to $1.
Why? …
…It's not only arbitrageurs and speculators that demand Steem to cover the payouts...
It's regular people, it's 'everyone' providing that demand for the Steem Dollar, a stable currency that they can use to purchase things on Steemit or anywhere else - such as a decentralized market place.
That's just one application, there are potentially limitless 'industries' and sources of demand that could be created out the stability and interest provided by the Steem Dollar.
Given that information @andrarchy was spot on with his parallels to Tesla Motors.
The parallels are accurate in the process, but start to diverge in the outcome.
Tesla Motors created a 'product'..
Steemit has created a 'currency'... and with it...an entire economic system.
The fourth layer… Steem rises to accommodate a new economic system
Consider the implications of this so far and the way the markets have reacted, the markets are telling the real story.
...the money supply is provided by the Steemit site.....which is created based on meaningful contributions of value
...the demand for the Steem Dollar and Steem is provided by the sidechain 'apps'
...the monetary policy, which can be changed is the interest rate of the Steem Dollar...
...a form of delegated government we choose based on voting for witnesses ... that determine how the platform grows over time
It's an Economic System.
A quote from wikipedia
"An economic system is a system of production, resource allocation, exchange, and distribution of goods and services in a society or a given geographic area"
This is truly one of the most brilliant innovations and ideas I've ever seen in technology and economics.
There are only 57600 Steem being produced per day, which at 43 cents is $24,768... it was at 30 cents yesterday, around $17280.
If Steemit can really bootstrap a currency to create a virtual economic system, that facilitates trade, is decentralized and opens the doors for more sidechain 'apps' and innovations...
...do you really think a supply of $24,768 per day... will be enough?
The markets have already figured out it won't be, it's all in the price...
EDIT: Half of the Steem created daily will be allocated as Steem Power, only half will be immediately exchangeable as Steem Dollars. Some people will be powering down, while others will be powering up.
The liquid money supply will most likely be lower than 50% of the Steem produced daily as the incentives for holding Steem Dollar, Steem or converting into Steem Power are currently very attractive.
very well-written.
the financial dynamics behind the Steem crypto model is a bit complicated, though you've done a great job of helping simplify & break things down to grasp more easily.
keep up the good work. content like this is valuable, as it helps people understand the system better.
Thanks for such an encouraging comment. I've been working on just what that economic system might look like in the future. What ive written is far too technical and I need to break things down properly into analogies people will understand. Hopefully I'll be able to get it out this weekend or the next.
Keep at it. The community needs vision like yours - and articulated in such a way as this, to help others see and understand the vision. It will help alot to bridge the gap between here & there - enabling others to fill in missing pieces in their understanding and see entitely new possibilities for what can be built out on this platform.
And give me a head's up when more writing like this comes out of you, as stoked to read... :-)
Great post homey. Definitely helped further my own understanding of this endeavor. It's amazing how intuitive the value is, we find ourselves being fascinated by this thing despite not fully understanding, at least not on a conscious level. As your article proves there's still plenty I don't understand about steemit, and that's OK, the point is it still "just works."
Do you feel a bit stupid too? I read this and I'm wondering if i'm already too old or smth but it;s so difficult to understand...
I was really confused when I first viewed the site, it took me a while to get a handle on everything. I still have loads to learn though.
If you read through some of my previous articles it might give this one a bit more context. Rather than reading this one which is a culmination of my experience so far, plus a couple of new insights based on the information from @dan s article.
https://steemit.com/@wingz
Thanks, man. I'll follow you for future stuff...although so far didn't figure where i can see the ppl i follow...
not quite implemented on the site yet, but everyone you choose to follow now will once that feature gets added :)
Thanks buddy. It was good to get it out there, I had these ideas floating around my head for a few days before I could properly express them. I still feel like I've only scratched the surface.
It 'just works' - that's all the majority of mainstream users will ever have to worry about. As an investor in Tesla, I'm sure you can relate, you have to really drill down into something and fully understand it before you put money on the line, especially in something that's so innovative.
Hopefully we'll have a lot more discussions in the future.
Great article. Of those 57600 new steem produced every day - at least half is given as Steem Power. So the actually supply of new Steem hitting the market will be even less. And furthermore, many people in "the other half" will power-up with that steem.
What I think this means is very little new Steem hitting the market and a huge amount of demand rushing in as the network keeps growing in value. There were 480 new users yesterday!
Thanks for reading and pointing that out, I'll edit it in. I guess we can never really know the true value of the actual money supply in a given day. There are power ups, power downs, people using the steem dollar as a savings account, others maybe trading their dollars for cryptocurrencies, using the Steem Dollar as a base.
We start to get a little closer to the complexity of an economic system. Without even beginning to look at Smart Contracts and SmartCoins.
Truly exciting potential.
Really nice article and great analysis, I'm sure I'll regret getting rid of the SD I have already; but I just needed to.
CG
I "cashed out" on the first day I could, and ended up buying more a few days later. I just wasn't sure if it was going to disappear over the weekend. I am so used to things looking awesome, and then turn up as crap, in the crypto-sphere. I should have known it would work since @dan was behind it.
Thanks! I regret not seeing it sooner, but hey I guess thats another benefit of this platform.
While thinking about how to present this article, I formed all the arguments in my head and went long Steem.
The plot thickens....
Large link here:
https://postimg.org/image/vun1vmold/
I've converted the majority of my Steem Dollars into Steem, and bought some externally.
The market is waking up to the implications... big time