The Mathematics of Steem: Explaining Vote Value

I've seen a lot of confusion lately about this little number:

^{Yeah, I chose a post that has been Curied.}

Which makes sense, because that number is confusing. I've seen a lot of confused people who see the $ and think it represents United States Dollars (USD). I've seen other confused people, including some official voting bot support reps, who think it represents Steem Dollars (SBD). Neither of these is accurate, as the number is a mix of both. As far as I can tell it doesn't have an official name; I call it Vote Value (VV). I'm going to teach you about it, tell you how to convert it to USD and SBD, and talk a little bit about how to use it when working with fixed-value voting bots.

But first, some history. When Steem was created, the intention was that SBD would be pegged to USD. You can still see some evidence of that around the Steemit interface, like this explanation in the wallet:

When 1 SBD = 1 USD then 1 VV also equals 1 USD, making the interface simple and make perfect sense. People accustomed to thinking in fiat can look at the number below your post and think of it as USD. People who prefer to think natively in cryptocurrencies can look at the number and think of it as SBD. Easy, simple, great. But it didn't work out that way. The market decided that SBD value ought to match the value of STEEM, the peg to USD broke, and now everyone is confused. But some simple math can bring us back to understanding.

When a post pays out, the value is split in two and each half is paid out differently. (Assuming the default 50/50 payout, which you should always use as long as SBD is above 1 USD.) Half of the Vote Value is paid out directly in SBD. The other half is paid out as if it were USD, but converted to Steem Power (SP) based on the USD price of Steem. (It's actually based on the feed price rather than the live price but let's not overcomplicate things too much.) So that $70.60 post above will pay out 35.30 SBD directly and 35.30 USD converted to SP. (Not all to the author, but we'll talk about curation another time.)

That makes figuring out the USD value of a post pretty easy. Half of if is already USD, and half of it is in a currency we can easily find a USD value for. So the equation for changing vote value to USD is:

VV * (1 + SBD)/2 = USD

Where SBD is the price of SBD in USD. Multiply that by the number on your post and you'll see how much it's going to pay out in USD.

If you don't use voting bots that's probably the number you most want, but if you do use voting bots then you're also interested in knowing what the Vote Value is worth in SBD. That's a little more complicated, because SP is denominated in STEEM, and we have to convert between three currencies. But we can do that.

Half of it is already SBD, so that part's easy. In order to get the SP value of the other payout we take half of the Vote Value and divide it by the USD price of STEEM. Then in order to convert that to SBD value we multiply that result by SBD/STEEM and get the more complicated equation:

VV * (1/2 + SBD/2STEEM²) = SBD

Now if you don't need to be precise it's entirely reasonable, with the way market conditions have been, to suppose that SBD/STEEM is likely to be 1. This gives us the more reasonable calculation:

VV * (1/2 + 1/2STEEM) = SBD

Although you're still probably going to want to do that in a spreadsheet rather than in your head.

So what does all this mean for using voting bots? I'm going to stick to fixed-value bots here, because bidbots are a whole 'nother kettle of fish. (Or whales.) But you can use this to determine the profitability, or lack thereof, of bids just as easily.

Fixed-value bots generally say "we will return x% of your send in our vote." Right now rates tend to be between 180% and 265%. But it's important to realize that while your send is denominated in SBD or STEEM, the vote is denominated in Vote Value. In order to determine how profitable a bot vote is, we have to convert that to SBD. And because that depends on the USD price of STEEM, it fluctuates. A vote that's profitable now might not be profitable if STEEM and SBD rise against USD.

(It's worth noting that @minnowbooster has a new system this week which appears to calculate its vote in SBD value, which is great. I hope they add some documentation soon.)

Using the SBD math, we can come up with an equation to determine when a particular voting percentage breaks even. The simple equation for when SBD = STEEM is:

.5P/(1-.5P) = SBD

Where SBD is the breakeven USD price of SBD and P is the voting percentage expressed as a decimal. (So 180% = 1.8.) I've listed some of the multipliers I've found around the Steemiverse in the image below:

As you can see, a vote value at or above 200% is always profitable for the post, which makes sense - half the vote value is paid out in SBD, so at 200% the post pays out as much SBD as was put in. But is it profitable for the author? Curation makes things more complicated, as you can see in the two later columns. With full curation taking away 25% of the rewards on votes that come in after thirty minutes, the math changes considerably. Now some of those lower votes have become questionable. The number in the far right column is the maximum USD price of STEEM/SBD (assuming they're matched) which allows the vote to break even. If SBD is below that you'll make profit. If it's above that you'll take a loss.

Some common vote bot percentages are no longer profitable now that STEEM is trading above $3, if the vote is in the full curation period. Others are worthy of some concern if prices continue to rise.