Steem Platform Proposal: Trade Vested Stake (SP) for Liquidity (Steem and/or SBD)

in #utopian-iolast year (edited)

Steem Platform Proposal: Trade Vested Stake (SP) for Liquidity (Steem and/or SBD)

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Steem Platform Proposal: Trade Vested Stake (SP) for Liquidity (Steem and/or SBD)

I hereby propose to add a facility that's currently missing on the Steem platform, being:

The ability to trade vested stake (SP, Steem Power) for liquid tokens (liquid Steem and/or SBD) via:
-a- anonymous market trades, and
-b- direct OTC SmartContract transfers between accounts A and B.

In the remainder of this Article Proposal I will discuss a number of aspects associated to it.

Current Risk of Vesting

Currently, vesting liquid Steem as SP is a mechanism that comes with both opportunities and threats. One opportunity of vesting is that SP allows for voting content which could bring author rewards (in case of self-voting or voting on a self-owned alt account) and curation rewards, as well as inflation (interest) rewards. However, a current risk of vesting capital as SP is that the market price can decrease more percentage-wise than the maximum ROI (number of tokens held in an account) via vesting, over the course of a full powerdown period (currently 13 weeks).
At this moment, it is unknown exactly how much "risk" is associated to vesting, which causes uncertainty and doubt, which in turn directly leads to less capital investments, less platform growth, lower prices / market cap, and directly correlated: less active users.

Why powerdown "waiting periods" (13-weeks) are essential

One possible solution to reduce the forementioned risk of vesting could be "immediate powerdowns". But this would bring bigger problems and is therefore not a viable solution to reduce risk. As a consequence, adding a (13-week) power down "waiting period" is crucial to avoid abuse. In case powerdowns on a blogging platform such as Steem would be instant, meaning it would be possible to split-second powerdown vested tokens to liquid tokens, the value of the platform would approach a zero market cap because the SPAM rate would approach 100% as self-voting would approach 100%. On Steem for example the optimum self-voting strategy is one 100% vote every 2.4 hours, meaning 70 votes per week. If an abuser would create 70 accounts, all equally vested, run a multi-account bot that auto-comments (could be something as simple as "very interesting!" or more advanced) on old posts that nobody looks at, and circle vote those comments, and another bot routine would continuously check if the votes are flagged by somebody, then at the moment an abusive account is discovered, the abusive account would be able to "insta-convert" at zero cost, transfer funds anonymously to an external market, create new accounts, and repeat the same process. As a consequence, there would be no direct financial incentive to vote on other people's content, ergo nobody would read other people's content voluntarily, ergo nobody would write "quality content" (because why spend time writing interesting material if nobody reads it?), and the platform itself would be worthless to use.

Internal Market: Improved Risk Transparency and Immediate Discounted Liquidation Options reduce Risk itself

If we add to the internal market on Steem two trading pairs "Steem/SP" and "SBD/SP", allowing for instant tradability of SP in exchange for liquidity (Steem and SBD), then that would both add transparency to the associated risk of vesting (its price reflects its risk) as well as incentivize vesting stake because the cost of immediate liquidation is known at all times and investors can adequately weigh their risk-to-return options. The ability to "convert to liquid immediately", at the cost of discounted prices, would lower the barriers of vesting in the first place. I assume that during a market uptrend in price, the risk of holding the vested stake (the Steem/SP price) is lower than during a market downtrend.
This mechanism would therefore increase demand, price, platform market capitalization and be more attractive for both content creators and curators / investors.

Direct OTC SmartContract Transfers

If it were also possible, via SmartContracts, to directly and instantly transfer between 2 accounts X SP in exchange for Y Steem or SBD, at a price agreed upon between the two accounts (for example account A offers to account B a contract to transfer 1,000 SP in exchange for 800 liquid Steem, which contract would settle at the moment account B accepts the offer, and disappear at cancellation or decline), then that mechanism would mimic OTC (Over The Counter) deals not directly affecting market prices.
Because the transfer price between 2 accounts is determined solely by those two accounts, the transfer price could also be 0 Steem in exchange for 1,000 SP, meaning it would be allowed to freely transfer vested stake (SP) from account A to B, both owned by the same owner, but the vested stake would not leave the platform. This mechanism would mimic "multi-wallets" held on 1 account, as well as a safe way to "sell accounts" without the risk of identity / reputation abuse. This mechanism is most certainly not identical to the forementioned abusive scenarios discussed with "instant powerdowns" because in this case, the vested stake still remains on the platform, it only changed hands from account A to B, meaning that if account A would be identified (by others) as "an abuser", and the transfer of vested stake from account A to B on the platform is still publicly traceable, than the actions of account B could be inspected and flagged when needed by others. Also, say account A would be an identified abuser, then account B would be less willing to buy at a high price from account A, because its stake would be "contaminated". This adds "an associated cost" to "being abusive" as well as an incentive to "do good".

Let me know what you think about my Platform Proposal, to add features to trade Vested Stake (SP) for liquidity (Steem and/or SBD), in the comments!

Thanks for your time!
@scipio

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Hello @scipio, thanks for contributing to the steem project via Utopian. From a user and an investor point of view, I do not think this is best for the ecosystem. This is because the moment SP becomes easily dissolved into steem/sbd or any other crypto, it might end up losing value, even though there will be a considerable loss converting from SP to Steem/SBD. I tend to agree with some of the points made by @ura-soul, this points are indeed substantial and should be taken into consideration before implementing this proposal.
If SP becomes easily exchangeable regardless the cost, one could easily invest million of $$ to buy SP, use his/her stake to self-vote for a complete month and finally instantly convert the SP into Steem. The cost of exchange would have been recovered in 3-4, and the rest becomes profit which apparently is still the case of the current system.
By the way, your contribution via Utopian was moved to the idea category as its more like a proposal and not a blog.

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Thank you for your review, @knowledges!

So far this week you've reviewed 3 contributions. Keep up the good work!

I think it's an excellent idea to add something along these lines. The concept of the "associated risk/reward" of vesting translating directly into its conversion rate on the open market is an elegant solution.

It would be interesting to see how whales that have spread their stake around to alt accounts for specific reasons or just "for fun" might "abuse" this system by confusingly moving their funds around.

I can think of one in particular that would be quite entertaining to watch.

I was just thinking about this:

It would be interesting to see how whales that have spread their stake around to alt accounts for specific reasons or just "for fun" might "abuse" this system by confusingly moving their funds around.

Alternatively, to circumvent such abusive behavior, we could decide to first only have Steem/SP and SBD/SP pairs available at the internal market, and no direct OTC option available between two accounts directly. As a direct consequence, "abusers" would not have a direct way to transfer their stake from alt account A to B.

I think it would be wise to start off that way. After all, it would still be a huge improvement in liquidity from what we have now.

Then UA will come to the rescue! ;-)

But more interestingly, by being able to "trade and speculate on stake", the ROI on trading stake, powering down to liquid, re-buy, would add for a better ROI than platform abuse!

I imagen that in this way SP would be a little bit cheaper. For those who want to cash out immediately and not wait 13 weeks. Could be a good posibility for some one who wants to increase SP, to get it cheaper. The market will tell how much cheaper, and is there a space for this kind of trading. Interesting idea. More possibilities :)

I also assume the price (ratio) of Steem/SP will be < 1, because it provides immediate liquidity and having it fluctuate over time allows to "trade vested stake" as well!

However, because if Steem/SP < 1, that means it is cheaper to buy SP from the internal market than to power-up liquid Steem, hence everybody would then acquire their SP at the internal market, provided any tradeable SP supply is available.

Also, it would allow for more business models to earn ROI on vesting and trading vests:

  • let's assume the price-ratio of Steem/SP at one point in time = 0.8, meaning you'd need to pay 800 Steem to acquire 1,000 SP
  • then if the buyer of those 1,000 SP would decide to power it down immediately, 13 weeks later he'd have 1,000 Steem liquid, meaning he then owns 25% more Steem than at the trade

Yes, you went well trough the scenario. It can deliver some nice trading oportunities if played well.

The thing is, untill it goes live, nobody knows the potential of the users who are willing to sell cheaper SP for instant liquidity. Maybe a poll?
Also I guess it would be a period of time for people to get humuliar with this option and start using it.

Well, we can poll in here!
Would you feel more comfortable vesting SP stake, if you were able to liquidate it via the forementioned mechanisms?

Absolutely :)

And so would I!

The issue of transferring SP from one account to another (or of directly selling SP) is one of security. I am pretty sure the Steem whitepaper explains that one of the features of the system is that should an account get hacked (as does happen from time to time) - the owner has 1-13 weeks to discover the hack and take action before all of their SP is drained away. By allowing SP to be directly sold/traded, this entire layer of security disappears - which in turn, removes a psychological layer of trust that people need before they are going to convert large amounts of money into a format that can be viewed (and potentially hacked) by the whole world on a blockchain.

If it were possible to transfer SP between accounts (as I mentioned in the OTC example), a stakeholder can reduce the risk of getting hacked by spreading his stake.

On the other hand, if "hack protection" is the only reason holding back the implementation of my proposal, then consider it's an even safer measurement to not put any funds in at all.

I am not saying this is the only downside, it's just the most obvious to me right now.
It is not a simple thing to assess the pros and cons of features that directly affect financial issues but also the usability issues of a social network. No matter how we look at it, if users don't have the 13 week lockout period, the security is lower.

Even I was thinking few days ago. As many people have invested in Steem Power ....it take them 13 week to get their investment back, but what in case there is some urgency happen to the user and they want quick money...there is no way that they can withdraw their invested steem power back so easily..

Looking at the OTC option ..it may help user to get the money back even if looks like a loss due to exchange between SP and Steem/SBD but atleast the user get some financial support of own, rather than begging or depending on others. ...thanks. @scipio i belive this is second best thing if implemented like UA.

Posted using Partiko Android

If it were implemented, would you feel more inclined to invest more of your capital as SP?

I do not have much capital to invest.....but having an open option to utilise our reward in best way is not harm i belive.
How do you think of people who have invested, do they wait for 13 long weeks to get capital back?

Posted using Partiko Android

Very interesting proposal. I see a demand in what you suggest when it comes to monetizing your stake for liquid funds. There would be indeed instantly a market for that. However, I am not sure that an average investor would be more incentivized to buy Steem because of that in the first place and that is ultimately our goal. Also, as @ura-soul mentions, we would loose the account recovery function because hackers could sell our SP instantly. That would be a huge loss of functionality in my opinion. I can sleep easiers with such a security layer on my most precious crypto account.

Great Idea, I think it is important for investors to have this kind of option when investing in SP. Generally the costs for holding SP are unknown and therefore this price discovery would add extra Value to the Steem economics. Does this implementation can be done by third party developers or does it needs the help of Steemit.inc?

I think it would seriously lower the barriers (= reduce risks) to vest as SP in the first place, which is directly causally related to attracting more capital, hence more users as well, to the STEEM platform.

I think this would need a HardFork patch, because I'm not aware of any current blockchain mechanism to transfer vested SP from accounts X to Y (as well as some Condenser / internal market frontend) additions)

As far as I know, there is already an escrow option on the STEEM blockchain but that is as far as the needle moves in this direction.

I've thought about similar ideas often, and pretty much agree with the benefits. It's all about creating a system of choices after all.

The being said, could this be implemented on a sidechain? Or does it have to be implemented on STEEM, because this would as we all know require a pretty disruptive fork.

I would love to hear some thoughts on this by steem devs, unlikely to happen, but it would be great.

Implementing my proposal, technically, boils down to "a simple matter of programming" (and of course witness consensus, in case of a hard fork). But that's in essence a bridge too far, for now.

I'm mostly interested right now in learning about any unwanted possible consequences I haven't thought about (are there any?), and of course learning about if and how people will use it.

Would you?
Personally, for me, if this were made available, vesting more SP would certainly be far more interesting!

Wowzers! Thx! :-)

 last year Reveal Comment

BTW, I like the fact you added "open source project" to your banner!

It’s an interesting proposal. The increased liquidity could make Steem a more attractive proposition for users and investors.

In particular it would most likely be easier to raise funds for projects from users outside the Steem economy. DApp owners could offer propositions out to the wider market with an attached yield - in a similar way that they do now for raising delegated SP. Although it would bring the additional risk of the SP/Steem rate moving against them.

I think that it might encourage continual “circular” powering down from users looking to take advantage of purchasing cheaper SP. However this is not necessarily a bad thing in itself as long as users are just providing liquidity between SP and Steem. The opportunity cost of powering down is likely to have an influence on the level of the discount in the price of SP (for example if there is no cost in powering down people will just circle funds and the discount will be close to zero).

You’ve asked for unwanted possible consequences so I’ve tried to think of a couple of potential challenges!

I don’t see how the “Discounted Liquidation Options” deals with the risk you raise yourself of abusive self-voting. If a short-term investor can buy discounted SP (say at 5% below the Steem price) and also instantly sell SP (assuming at roughly the same price) what stops a short term investor buying in, self voting for a month until flagged, and immediately heading out (even if they have to wait a little while to recharge their SP before selling)? I guess this leads to a wider point: Is this likely to attract short term investors and is Steem really a good fit for such investors?

More of a technical point - Not all SP is equal, due to associated voting-power and RC. Would there need to be standard terms applied to the market? I assume the trade could be for fully charged SP, with the trade permitted even if the seller was not at full power as long as the seller’s voting mana and RC mana were sufficiently high to absorb the exiting fully-charged voting mana and RC mana.

Very thought provoking! Nice work!

Well I like the idea of there being less rigidity than there is now. I do think that such an exchange would buy SP at a discount, so that would still provide some incentive to power down the 13 week way, thus continuing stability in the platform.

My only concern would be with where the market might set the price. Would it be so low that it is basically extortion of people when they are at their most vulnerable and must take any offer? Or would it be so high that there is inadequate incentive to ever power down over 13 weeks and this simply becomes the new way of cashing out, with all the problems you noted of no power down period?

Is it really safe to presume the free market always prices things in a way to achieve optimal outcomes for the platform?

Hi @scipio!

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I'd power down and buy SP with STEEM constantly 😁

I have corrected this upvote to 50%!!

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