A chat from the Slack chat room discussing Steem, Steemit, long term incentives and how they affect Steem price and market cap with Steemit founder ned and others.

This is a chat reformatted and posted from the Steemit Slack chat room today. At the time I wanted to discuss the long term incentives and plans of Steem and how they would affect the Steem price and market cap. It turned out to be a very interesting chat and others wondering the same things might also find it interesting.

Chat start

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(edit: introductions)

aem
(edit) I’m trying to find out about long terms plans for Steemit and Steem

to me, it seems the big value in Steem and Steemit is the capacity to pay authors of content and curators

and given that, I’ve been thinking about where they get paid from in the future

so first thing I’m wondering is: is that where Steemit thinks the big value is here too? or somewhere else like allowing people to transact using Steem?

ned
yep .. the value comes from speculation capital (see coinmarketcap.com #10)

once value is established .. the blockchain protocol uses an economic mechanism known as seignorage to specifcally reward posters and voters .. a process similar to how miners are rewarded for securing bitcoin

aem
ok

so say Steem reaches a market cap of $1B and that capital inflows slow down

but authors and curators are being paid and they are cashing out at whatever rate to buy stuff off Amazon or whatever

that would mean sell pressure greater than capital inflows at some point which would mean a downward slope for the price unless there were some external source of inflow, like advertising money -> buying steem or distributed to users?

at least thats what it seems like in my head, I may be missing something

ned
the answer to how the economics balance is complicated .. but at the level of analogy .. steem has several buckets .. which are constantly being “filled” and through this process it’s able to separate leverage from stability .. see Steem Dollars and Steem Power .. thanks to this, steem will always be able to pay contributors without ‘spending’ the speculation capital .. so it doesn’t necessarily depend on inflows and constant growth of market cap

aem
so you could say there is a pot of $1B of value which has accumulated in Steem and that the algorithms distribute the wealth of that pot around to different users based on their contributions?

void
Looks like magic to me :rocket:

So good that someone actually asked :slightly_smiling_face:

ned
Hive account@aem that’s correct .. and .. because the contributions are about bringing valuable information to the platform .. we do expect the information to attract more and more participants .. and along with that, probably additional speculation capital

aem
OK, but then for every contributor or investor that is winning there is another that is losing? The only way for all investors/contributors to ‘win’ is to have external sources of capital like advertising?

pharesim
no one loses anything. did you read the whitepaper yet?

complexring
how does reddit have value? the information that they glean from people who willingly post anything and everything

aem
Presumably Reddit makes money somewhere other than investors?

Reddit has content from contributors, but that doesn’t magically turn into money.

complexring
but the speculative value of the company is large

yes?

aem
based on its ability to monetize that content

Look at facebook, its market cap grew with its userbase

but everyone knew at some point it would add ads and start bringing in money

pharesim
advertisers can use steem themselves. invest some of their budget and use it to post+upvote

aem
it has to, otherwise every current investor that wants to cash out, even partially, has to be paid off by a future investor investing at a higher rate

pharesim
there's no clear line between investors and other users here

aem
ok, that makes some sense, does that work then if an ad company buys a ton of Steem and upvotes their post is it given more weight in rankings or do they just get more reward for their upvote?

ned
Hive account@aem .. specific to the point about cashing out .. there are economics layered in so that users are incentivized to contribute and ​stay​ within the system

pharesim
ranking equals reward

aem
I understand there are strong incentives to stay within Steem so I suppose it could stabilise at some point, but would seem far less risky to me if it had any external source of input

steem power = reward as I understand it but if a user has a lot of steem power can they get their posts to the top of the list? thats what an advertiser will care about and see value in

xeroc
Hive account@aem: that is where steemit.com will make its money ..

not steem

aem
steemit’s success is also contingent on the success of steem though right?

so it may be in steemit.com’s interest to take a portion of that ad revenue and distribute it to users or buy Steem with a view to increasing the market cap of Steem

thereby making Steem more valuable, increasing rewards and making it more attractive to use and post on Steemit

xeroc
once steemit's reserves run out, they will NEED to buy more STEEM to fund new accounts .. otherwise .. no (or smaller) growth

aem
I thought rewards came from the Steem blockchain mechanics, not distributed by Steemit directly?

xeroc
that's right .. rewards come from blockchain ..

but steemit.com can ask for a fee in order to get your post on a higher rank .. ON STEEMIT.com ..

the ranking on steemit.com is independent of the ranking of steem ..

ned
Hive account@aem .. your point about a revenue share is definitely not invalid .. as long as advertising doesn't diminish the value of steem or fracture steemit’s appeal .. it would represent additional .. not previously captured .. capital infusions .. which could be used to increase the value in either the bucket of steem or the bucket of steemit .. however .. it is worth considering as an augmentation and a risk ..

aem
Hive account@xeroc I’m not questioning Steemits ability to monetize, I’m saying why does Steemit need to buy new Steem? They give away $3 worth of Steem just now but is that necessary? They could give away accounts with $0 of Steem?

xeroc
Hive account@aem, that's true .. but a 0$ would allow people to squatter the name space .. that's why there is a fee in the first place

aem
Hive account@ned thanks, I don’t consider this something necessary just now, but I think its important that the option is open for later

username squatting might not be a big concern for Steemit when it reaches a certain user base though. I think there has to be some financial incentive to at least prop up the Steem price with external revenues but Steemit’s close link with Steem is maybe enough to provide that.

Hive account@ned I completely understand that advertising etc is not popular, and I should point out I’m using ads as an example but any form of monetisation would apply and work just as well, and I agree it would be important not to diminish Steemit and Steem by dumping a load of invasive crappy ads onto it

xeroc
Hive account@aem, the other issue is that new accounts need to be funded with something so that they can transact ..

recall that steem has a rate-limitation.. taht depends on your steem power

aem
ok so to be functional a Steem account must have some balance, and that is a rule enforced by the blockchain?

(+1 thumbs up from xeroc)

so to offer ​functional​ steem accounts Steemit may ​need​ to buy more steem at some point?

in which case whatever monetisation strategy it chooses, some of that will end up buoying the steem price at some point?

xeroc
anyone can create and fund new accounts ..

and the account creation fee is actually defined by the witnesses/miners ..

there may not be a need to by more steem for a while ..

aem
sure, I think that is fine though, I think if there is a decent story for long term market cap increase (e.g. via this blockchain enforced mechanism of needing steem to fund usable accounts) then it makes sense for investment capital to flow and be the bulk of the value at this stage

ned
Hive account@aem .. another representation of demand comes from steem power .. one needs steem power to vote .. voting allows them to earn

aem
Hive account@ned I get that, I think thats is a nice bit of design btw and will probably work well, but I think that raises the point of equilibrium (albeit potentially high) rather than provides ongoing growth which external revenue sources can

arhag
Very interesting discussion happening here.

I think people don't appreciate that using the service Steem is not actually free.

It may be free to them right now because Steemit is paying their cost

But that is just the initial cost. Longer term (way longer term) they need to earn enough to still use the network.

ned
someone want to post this convo on steemit ? :slightly_smiling_face:

arhag
Or buy enough if they cannot earn it.

aem
I think that advertisers or similar could pay the cost of new accounts in the future though

arhag
Perhaps yes

But once you have established a new account.

You still need at least a trickle of more SP

To maintain your same bandwidth usage

aem
I think its reasonable to assume not everyone on Steemit will earn a lot of money, but once there is a large critical mass of content producers and curators there others will be there purely for the interest

so not every account I think needs to be viable monetarily

arhag
Yes I agree

aem
but it is good that new accounts require Steem

I’ll format this up and post the conversation later today if everyone is amenable

xeroc
they require steem POWER!

creating them requires STEEM :slightly_smiling_face:

pharesim
even a couple of cents work to attract people. i vividly remember the times of "earn money on the internet by having your own starting page with ads to click"

arhag
The psychology here is brilliant in my opinion

cryptoctopus
I have just wrote an article about how dropbox did it with all the screenshots. Check it out :slightly_smiling_face:

arhag
How do you get people to pay to use a service: don't nickle and dime them, and offer the ​possibility​ to earn A LOT more money than they pay to use the system.

It gets rid of a lot of the psychological barriers to paying to use a social media platform like this.

aem
I think if the long term story is reasonable it will give users and (just as critically, investors) confidence, which will allow it to grow. And I think the incentives are already well designed and in place for it to grow very quickly as far as I can see.

arhag
It doesn't matter if on average statistically they end up paying more (which funds the payment to the big earners).

How many people play the lottery anyway?

aem
statistically thats OK but you have to get the money out of them, if Steemit wanted people to pay $1 a month that might be damaging to its userbase, whereas ads or some other form of revenue that isn’t so invasive as to be a turn-off is just an easier way to achieve the same goal

arhag
I would really like to see how far the existing system can take us

without needing ads to prop up the market cap (edited)

Ads suck

void
I would pay $1 not to see any ads, really.

aem
maybe that could be an option then

see ads or pay $1 a month, everyone is happy

void
:smile:

aem
I think it will go far, but investors will want to know how things pan out in the longer term other than just more investors