Dynamic Inflation - A Casual proposal to discuss over a cup of coffee as we architect the future of the STEEMIT economy.

in witness-category •  3 years ago 

To establish a good long term manageable economy it is important to be flexible on the nuts and bolts that keep the construction together. Steemit currently has a 100-160% Inflation rate which will become 9.5% in fork 16 which will help establishing a ground floor for the price of the STEEM-Token.

This is good considering that there has been more supply of steem then there has been demand for steem ergo the price has dropped significantly since the top.

But what do we do when the picture is completely different? When there is greater demand for Steem-Tokens then the supply can give?

The Answer could be dynamic inflation in a future fork

The example below is not ratified or calculated, it is just a good example to study for future ratifications and calculation of a long term manageable dynamic inflation - not short term position-management, let us look at the example:

Supply & Demand

Dynamic Inflation must be long term average based, and we should also have a target price that we want to reach first and maintain as we grow in numbers of people over the years.

When 5000 People want to buy STEEM VS When 1million people want to buy STEEM

My 4X4 Truck has four wheels, and for optimal driving I need to adjust the air-pressure depending on what kind of terrain I´m blazing through. I never want to have flat tires - that would destroy the ride completely, and I do not want them so pumped up that they explode in the heat.

Economies need to be managed in the same way - not too much - not too little - just perfect for the current conditions. So as we grow in demand for STEEM-tokens, the price will naturally rise with it - but at some point we will experience that the price of STEEM will be too high - then what? - Well, then we need to produce more STEEM and meet the demand until the price-correction is at a level where people want to invest, and instead of doing manual hard-fork every time we need to adjust the inflation, we can automate that process and create the incentive to keep the price high - but not too high - or keep the price low - but never too low.

Sincerely, and in all friendliness
@fyrstikken & @fyrst-witness

Thank you for reading - let us talk about Dynamic Inflation casually over a cup of coffee on SteemSpeak Radio 24/7 Steemit Talk Radio

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Resteemed and tweeted!

awesome - thanks for both.

Hmm, is this something that can be implemented right away or would we need to see the some changes before this can be implemented?

well, for now it is just an idea for the future when things are heating up again - Dynamic inflation should not be too hard to code and implement once it has been calculated and ratified.

I really don't see the need for dynamic inflation and I think it makes things a lot more complicated for average investors and speculators to understand. Unlike a 4X4 truck, STEEM is highly divisible. And I'm not convinced it's advantageous to keep STEEM at a stable price thanks to SBDs.

Bitcoin is easy for everyone to invest in because it's supper simple to understand. Everyone knows that there will only ever be 21 million. The new proposed inflation rate for STEEM is also pretty simple and easy to understand. I'm a big fan of keeping it simple.

keeping it simple - sure, but not static.

We still need to plan ahead and have some Plan A, B, C, D etc that we have discussed as we move forward. Setting the inflation at 9.5% APR is a good start. My suggestion was around 5% - I like to keep it simple too.

I'm ears wide-open on this issue and I appreciate the post and the discussion. But I'm not convinced... what's wrong with static? It seems to be working for bitcoin. There's a big advantage to "static" in terms of the psychology of investing.

I agree with you - so say that you as an investor would along with all the other investors (SteemPower holders) when the price is higher started to produce more SteemPower to power down with and sell to the market until the price is so low that the inflation would dry up again, you would benefit from it personally as an investor, and you would along with all the other investors be able to get the price down a bit to enable more investors to come along in "investable periods".

Like a speedometer on your car that goes from 0 to 100 based on an array of factors like price, volume, liquidity, traffic, users etc etc...

In the stock-market when the price of an asset is too high, you split it so that there are more units to go around, and when an asset is too low, you reverse split so that there are less units to go around.

Originally the plan for Steem was 3 years of hyper-inflation and then a reverse split that would change the number of units overall except VEST, but it became obvious that hyperinflation does not work very well if you want to grow something sustainable, investors hate looking at a downward chart and growing numbers of tokens.

We surely have facilitated with Fork 16 for a long term bulltrend thanks to the new inflation, I like it simple and with better oversight - but we need to prepare for a million users+ in the future.

Ok, but you're comparing STEEM to stocks, which are not divisible. The highly divisible nature of STEEM (like bitcoin), means that we can already handle millions of users. People will just start trading in smaller units... "STEEM-bits" or "STEEM-oshies" lol. But even that won't matter because SBDs will be used for most practical purposes.

Are you saying that it's important for future users to be able to afford full denominations of the STEEM token? and if so, why?

Also, getting a community to agree on decreasing inflation is very possible, but getting a community to agree on increasing inflation (even based on reasonable parameters) would be very difficult.

One thing to add regarding the upcoming hardfork - It will initially be reduced to 9.5%, but it will also be further reduced by by 0.01% every 250,000 blocks (Roughly 0.5% per year) until it eventually reaches 0.95% in about 20 years.

This is not a bad idea either. I like that so many people are putting so much thought into all of this!

Before the fork there was a conflicted situation where the price of steem needs to increase to handle the new users but at the same time there was a very high inflation which put downward pressure on the price.
After the fork there will also be a conflicted situation where the condition for the price to rise are there but this means that late adopters will never be able to get huge influence in the system compared to early adopters. I talk exactly about this in this post https://steemit.com/curation/@snowflake/why-curation-guilds-are-essential-to-the-future-of-steemit

Creating dynamic inflation as you suggest won't change anything because the day there is millions of people wanting to buy steem the price will already be well over $10 and this means that these people will never be able to gain any kind of influence compared to early adopters. For example if the price stayed at $4/steem it would have taken many many years for the 1% to redistribute their power, now imagine when the price is $10 or more. Everyone buying steem now are the new 1%.
This is why in my post I said that in the future, economic/financial incentives will work but ideological incentives won't work. People will buy steem power to earn curation rewards, earn some redistribtution rewards from new issued steem,etc..not to gain influence ( unless something is changed)

To me inflating the money supply as more users use steemit is a contradiction and has always been the problem I saw with steemit. The more there is users the higher the price needs to be to rewards everyone in the platform not the opposite. The new changes addresses this issue.

If they want to keep both financial and ideological ( influence) incentives on the platform they need to change something as redistribution will be a perpetual issue.
What could be done is for example give a certain percentage of influence for each level, say

  • users with more than 500 steem power own 5% influence of the whole network ( total voting power)
  • users with more than 1000 steem power own 10% influence ,
  • users with more than 5000 steem power own 20% influence,
  • users with more than 10 000 steem power own 25% influence
  • users with more than 25 000 steem power own 30 % influence, etc...
    With such system people who own roughly the same amount of steem power will have equal influence, the power will be more evenly distributed, there will still be an incentive to buy steem power to gain influence even if the price rise and these levels could be adjusted as the price increase ( btw there is already financial incentives which are working very well) anyhow something will have to be changed as redistribution will never occur naturally.

Creating dynamic inflation as you suggest won't change anything because the day there is millions of people wanting to buy steem the price will already be well over $10 and this means that these people will never be able to gain any kind of influence compared to early adopters.

You are right - compared to early adopters nobody can stand a chance - but there are people in the real world with way more personal or corporate money then all the crypto-market-caps put together, and as we have seen - people bought steem at any price and powered up when the price was high as well as when the price is low.

Personally I am fine with Fork 16. I just want to break the ice and bring out the best ideas for the platform on the platform and discuss them or scrutinize them.

You seem to have a good understanding of how you want Curation-Guilds to work, so I would be honored if you would come on SteemSpeak and talk with us about it :)

but there are people in the real world with way more personal or corporate money then all the crypto-market-caps put together

These kind of people are investors, they buy steem /steem power for financial reasons not ideological ones. Very few people with large amount of money are going to buy steem power to gain influence, the higher the price the fewer the people buying with this goal in mind.

people bought steem at any price and powered up when the price was high as well as when the price is low.

There are very few people who actually bought, only 400 BTC pushed the price to $4 ( could have been 1 person).

Personally I am fine with Fork 16. I just want to break the ice and bring out the best ideas for the platform on the platform and discuss them or scrutinize them.

I know where you coming from, I am like you I want to bring the best ideas and I am also looking at the potential problem steem will face in the future. Btw I understand your logic behind wanting dynamic inflation ( you want people to be able to gain influence even if the price increase too much), but the problem with it is that first you remove some incentives to invest in steem ( impredictable inflation is probably the worst thing for any investor) and also if you reduce the steem price the rewards on the platform will go down, more users and less rewards is a bad combination. The power distribution is something imo that isn't going to be solved by itself, because it is perpetual. Whales will sell their share at these prices but there is only 1000 active users on steemit, these users will be the next whales that will sell higher to the new 3000 users who themselves will sell higher and so on, and this issue is going to increase exponentially as the price of steem grows so you quickly end up in a situation where late adopter will never be able to gain influence as the price will be 100x + what early adopters paid for.

You seem to have a good understanding of how you want Curation-Guilds to work, so I would be honored if you would come on SteemSpeak and talk with us about it :)

Actually I want to clarify something about curation guilds. Curation guilds would be able to solve the influence issue in that 1% owns the large majority of the power BUT it won't create incentives for people to buy steem power to gain influence, actually it would achieve the opposite because if someone with little power can enter a guild with lots of power, then that person will be able to be influent in the sytem without needing to buy more steem power.
Which is why a solution to what i proposed above with the differents levels is ideal imo, as the price rises these levels could be ajusted which means regardless of the steem price new users will always be able to gain some influence in the system.

Thanks for the invitation, ill look into it see how it works!

Interesting... what price point do we pick as an optimal level? And won't that discourage speculators from buying steem because it will only go so high before being contained?

just to pick some numbers ... we could set $10 as a target-price for higher inflation and $5 for lower inflation for the first dynamics and then set $15 as new target-price for higher inflation and $7.5 for lower inflation for the second dynamics etc. :)

I have been saying for some time that the traffic within the network is a perfect correlate to demand. Print when traffic.

something like that, people do blog more when the rewards are high then they do when the reward is low. Of course all things need to be calculated in a stable way, scrutinized or ratified. Right now we have more then enough steem to go around in our little community - we will see as we grow over the years :)

Commenting to follow. I think to much meddling could cause mistrust in the system. But I do like some of the ideas being discussed. Good discussion

Fyrstikken you are so good at talking real sense in easy to see ways This is a great model and it makes totally sense of course. Its great to have a you the warm hearted Viking in this community. I hope this model will be looked at seriously by those that are in a position to enact your wisdom concerning the production of steem relative to its demand and price setting !! You will always be my FYRST-WITNESS , upvoted and resteemed too )

Thank you @gomeravibz - without brainstorming the fun disappears :)

Well we certainly have quite a few fun loving good brains out their, so in that case we should all be hopeful of a perfect solution to our current woes concerning the price of our more than beloved Steem )

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Agree with flexibility. As any type of money that is rigid doesn't adjust well to everything else changing in value along with the demand and supply of that money itself with its users.

Think some type of scale would serve as a check and balance to help keep value in check within a certain acceptable range. So as to expound on the idea of the SBD being USD soft pegged. To have another check for STEEM in relation to a changing inflation. Whatever we may think may serve well as guidelines as a community with feedback with the many great minds in the steemit community.

Also shared on twitter

Steem_Land Steemland.com tweeted @ 23 Nov 2016 - 01:09 UTC

Dynamic Inflation - Casual proposal to discuss over cup of coffee as we architect the future of STEEMIT economy.

steemit.com/witness-catego… / https://t.co/ikWKeDfApr

Disclaimer: I am just a bot trying to be helpful.

This has the qualities as being an excellent idea in theory, but perhaps not practical due to human psychology. The original inflation scheme fit these qualities as well... great idea, but would it work? It didn't seem to because of the unpredictability of investors. I imagine in a perfect world that dynamic inflation would bring stability as well as more investors to the platform because of the stability. But we have often seen the opposite happen with new ideas: investors are quick to judge and in most cases judge unfairly. The only thing that seems to calm investors is an inflation philosophy that works, or at least appears to have success with one crypto currency. I would be willing to try it, but as a test or pilot.... perhaps dynamic inflation could be set for a sub-account (like savings or such).

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incredible how the dynamic inflation can be changed if needed but it seems perfect!

Stem is the new economic model for the entire planet!