This post has hard data. Number crunching proving that basic mathematics can turn data into information. Also, assumptions, caveats, and conjectures.
First off, in the interest of full disclosure, I'm more nerd than geek. Perhaps someone who's more geek than nerd will use the comments section below to correct errors in my math or point to sources I've missed. Please, do.
I wrote a post about two weeks ago that discussed the importance of Steem Power. In it, I talked about the interest that we earn on our SP and did some not-very-scientific calculations to come up with an interest rate of "maybe a bit over 1%?"
Yeah, that was pretty vague. So I've decided to flesh it out a bit, and try to come up with a more specific interest rate.
There's a sentence in the FAQ that newbies might not have noticed, "STEEM tokens that are powered up to STEEM Power earn a small amount of interest for holding."
In my earlier post, I had mentioned looking at a whale's wallet to note the Steem Power balance at Time A and comparing it to the balance at Time B to calculate the interest rate that SP grows at.
In Steemit's early days (dinosaurs still walked the earth!) the total number of Steem grew at 100% per year. Not quite as bad as Weimar-era inflation, but pretty damn bad. But the Powers That Be finally realized that that was crazy and Shazzam! reduced that to 9.5% in December of 2016. And that rate of inflation is slowly decreasing, "narrowing to 0.95% APR by 0.01% every 250,000 blocks (Roughly 0.5% per year)."
@dan-atstarlite recently did a post about the Steemit reward pool in which he mentioned that Steem's current inflation rate is 9.3% annually. Interesting post about the reward pool, check it out.
The slowly declining rate of interest for the creation of Steem has important implications for how to calculate the rate of interest that Steem Power earns. Out of all the Steem created on the blockchain, 75% goes into the reward pool for Authors and Curators, 10% goes to Witnesses, and 15% goes to holders of Steem Power.
So we can do a quick and dirty calculation to come up with a ballpark approximation of the interest that SP accrues. If the total amount of Steem is going up by 9.3% per year, and SP holders get 15% of that, 1.395% would seem to be the APR for SP holdings. (9.3% is of course a bit of an approximation, the digits after the decimal point are slowly falling.)
But exactly how much Steem exists right now? I went deep into the weeds trying to figure this out. I found four different measures of this, but have no idea which is the best number to use. Coinmarketcap.com has numbers for "Circulating Supply" and for "Total Supply" and steemd.com has numbers for "virtual_supply" and "current_supply". Ever so helpfully, none of these four numbers is the same as any of the other three. I tried recording numbers at different times and coming up with interest rates but kept coming up with slightly different values. Which numbers, if any, are real-time and which are delayed? Meh, I gave up trying to figure it out. Someone geekier than me might know which numbers to compare.
But back to that whale.
I recorded the SP numbers at several times and crunched the numbers. This interval is illustrative of what I found:
27 July 2017 8:00pm CST, SP balance was at 7,194,986.092
28 July 2017 1:00am CST, SP balance was at 7,195,065.212
So we've got a 5 hour interval during which this account's Steem Power balance increased by 79.12 SP. Nice work if you can get it.
Let's simplify the math a bit, these are after all approximations.
79.12/5 = 15.824 SP per hour. Let's call it 15.82 to pretend that we care about geeky stuff like significant figures.
15.82 divided by 7,194,986 (ditching a few more rounding errors) gives us 0.0000022 and if we move the decimal place correctly we end up with an hourly interest rate of 0.00022%
We now have to figure out the daily interest rate and, from that, the yearly interest rate assuming that the interest rate does not change. Whoa there, big fat caveat. The interest rate does change. So we're really calculating a snapshot of what the interest rate is right now; it is constantly falling slightly.
Back to that fun hourly 0.0000022 number. Math geeks, feel free to rewrite my explanation in the comments. Add 1 to get to 1.0000022 and then raise to the 24th power to get a one-day result: 1.00005280134 then subtract 1 and move the decimal point to end up with a result of 0.005280134% interest per day. Yeah, I should probably deal with significant numbers again, but I'm a slacker at heart.
Now comes the fun part. Instead of raising to the 24th power to show how one hour's interest compounds over the course of a day, we raise to the 365th power to see how a day's interest compounds over the course of a year.
1.00005280134 ^ 365 = 1.01945888366
Subtract the 1 and move the decimal point and correct for significant digits and we come up with an interest rate of 1.946% per year.
So, what is the true number for the SP interest rate?
The numbers I crunched based on the rate of creation of Steem give us a 1.395% APR but the numbers crunched from a whale's wallet suggest an APR of 1.946%
I'd love it if someone geekier than me could come up with a more definitive answer, but at least we've come up with a ballpark figure, more that 1% but less than 2% APR.
So, yes, your Steem Power earns interest. Not much, but more than your bank's savings account is paying on your fiat money right now.
Keep in mind that since the inflation rate of the creation of Steem is constantly falling, the interest rate for Steem Power rates is also constantly falling. But this is not inherently a bad thing. If we assume that the value of Steem will tend to increase over time, that increase may well dwarf the decrease in the SP interest rate.
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