My biggest concern regarding STEEM right now is whether or not they got the economic math correct. Take a look at the current interest rate on Steem Power and how that impacts the balance of the whale accounts:
ā php-steem-tools git:(master) ā php steem_rate.php ned
Sleeping 1 minute...
.
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Interest Rate Per Hour: 0.0344%
Steem Power Per Hour: 1011.1007175967
Interest Rate Per Week: 5.7792%
Steem Power Per Week: 169864.92055625
At the current price of $4.28 that's... $727,021.
WUT?
Did I mess up the math? Is my script wrong as far as how it calculates things? Is it really $700k+ in new value a week for a new startup?
I love the idea of this platform bootstrapping a currency and of the founders being massively, massively compensated for their creation. I think this platform could potentially make the world's first cryptocurrency trillionaires in fiat terms, and I'm all about that! What I'm not sure about is if the current exponential increase in Steem Power via interest is sustainable. I get that the interest rate will settle down to 12% annually over the next nine months, but what about the time between then and now?
If you'll notice, Ned (and other whales) are powering down:
That could be to transfer as much STEEM as possible to other accounts because of the potential problem I'm bringing up here. It could also be to pay for real world expenses to continue to grow the team and infrastructure. If the intention is to sell in order to obtain real world $, can the market sustain a large sum of STEEM for sale every week? Given @ned's current balance (and I'm only highlighting one whale account here, there are more), his payout of STEEM should be around 28,000 STEEM:
2,937,140 / 104 = 28,241.730 STEEM
At $4.33, that's $122,286.69. At last check, the 24h trade volume of STEEM is $ 2,657,920. If Ned sells all his weekly STEEM, that would be 4.6% of the market activity for that day and less than 1% for the week:
If dumped in one day:
122,286 / 2,657,920 = 0.04.600841635565 = 4.6%
If sold throughout the week:
122,286 / (2,657,920 * 7) = 0.00657263090795 = 0.65%
Maybe that's fine? What if a few other whales do the same?
I guess we'll find out in the next couple days. If there's one thing humans are bad at, it's understanding the exponential growth of compounding interest. We don't encounter it nature, so we've got no hard-wired brainpower for handling it.
I'm a huge fan of Steem, and I really want this system to succeed on so many levels.
That said, I just had a friend message me today on Facebook about buying $1,000 worth of bitcoin (for the first time ever!) so he could convert into Steem Power. I have friends who bought at the top of bitcoin's price rise to $1,200 and still haven't broken even two years later. This gives me pause. Could we be in a similar situation? So many altcoin scams have lost money as @jaycodon points out in his post. Given the flood of liquid STEEM that's coming, will the market price hold? If not, will people consider this a pump and dump?
Is it different this time?
I realize by putting this out there, I may not be making friends with the whales. They may not want people to think about these things in hard terms. On a platform where reputation and influence is everything, I may be shooting myself in the foot. I also may not understand the economics here, and might be putting my ignorance on display for all to see. Either way, it's risky to put this out there, but I wanted to get my thoughts down for you all to critique. Having just finished a 24 hour experiment hiding all the $ signs on the site (more on that later), I'm a bit sensitive to the financials right now.
What do you think?
Edit: as @bacchist mentioned in the comments (throw him a vote!), the amount of VESTS an account holder has isn't actually increasing unless they interact directly with the site and are rewarded by the mining process for their post creation or curation. That means the VEST amount isn't going up, just the conversion rate between Steem Power and VESTS, which as of this edit is 1 MV = 1M VESTS = 229.382 STEEM. Thanks @bacchist!
Edit #2: Thank you to everyone for a such a great conversation! I've really learned a lot and enjoyed it. One thing I intend to do is no longer think in terms of "interest" but instead in terms of vested ownership dilution. The new Steem Power being created is dilution, even if the price isn't (yet) adjusting to represent that reality. Things are going to get interesting! Also, I wanted to make it very clear, I am in no way jealous of the whales here. I'm super excited for them!
Edit #3: Ned cancelled his power down this morning! What does that mean for Steemit and the market? I have no idea! Photo in the comments below.