Curator-Investors should protect their investment with at least one full vote per day to promoted posts [Opinion]
Steem has a built-in deflation mechanism. Let's use it.
If you are one of Steem's curator-investors who is concerned about watching the value of your core investment collapsing, there is a simple way that we can all work together and try to change things. We can do it immediately with no development effort and no permission needed. The 6 months of proposal #117 is the perfect time to try it because that proposal might amplify our results.
How much voting power will you dedicate for use in protecting the value of your holdings?
Here's my elevator pitch. A more complete explanation will follow.
- Posts are promoted by burning SBDs
- When the price of STEEM is below the haircut price (i.e. now), burning SBDs reduces the haircut price.
- Reducing the haircut price makes it easier for the price of STEEM to rise above it.
- If the price of STEEM rises above the haircut price, then all subsequent price increases make the blockchain more deflationary.
- When the blockchain is deflationary, daily STEEM production gets reduced.
- When the price of STEEM is above the haircut price, burning SBDs is defalationary.
- With proposal #117 slated to start in a couple days, there may be a coming increase in the availability of SBDs.
it's up to the curators - do you want Steem's authors to help you protect your investment? Supporting post promotion is how you make that happen. |
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Conclusion: Any curator-investor who wants to protect the value of their core investment should actively support promoted posts. One full vote per day would be good. More would be better.
Now, on to the details.
Pixabay license from geralt
1. Posts are promoted by burning SBDs
Most people probably know this, but anyone new might not be aware. If SBDs are sent to the @null walllet with a post URL in the memo field (in a specific format), that post appears in a special location called the "promoted" feed.
After promotion, these posts can be seen by visiting the /promoted link. Each community and tag also has its own "/promoted" section - such as /promoted/hive-151113 or /promoted/steemtalk.
When post promotion is used, an author can buy their way to the top of the list by spending more than the other posts in the feed.
The facts here are simple and clear. Authors will use this capability if - and only if - the voters make it worthwhile. We have seen authors adopt it and drop it several times through Steem's history.
So, it's up to the curators - do you want Steem's authors to help you protect your investment? Supporting post promotion is how you make that happen.
As an aside, I should also mention that @mod-bot makes sure that promoted posts and posts with @null beneficiary settings also get auto-pinned for visibility in the Popular STEM community and the Delaware Valley Life community.
2. When the price of STEEM is below the haircut price (i.e. now), burning SBDs reduces the haircut price.
The explanation for this is beyond the scope of this article, but you can read about it here or here.
We saw this in action during proposal #116. As a result of that burn proposal, the haircut price dropped from about $0.152 to about $0.136.
In short, adding or destroying SBDs just decreases/increases the values of the ones that remain. The blockchain accomplishes this value change by adjusting the haircut price.
3. Reducing the haircut price makes it easier for the price of STEEM to rise above it.
I suppose this is self-evident. It's easier for a market price to rise above a lower value than a higher one.
To get the haircut price down to STEEM's current level, the SBD supply would have to be below 4 million, more than a 50% drop. So, I don't think we're going to be able to flip them just by burning, but we can make the haircut price into an easier target.
4. If the price of STEEM rises above the haircut price, then all subsequent price increases make the blockchain deflationary.
This is another counterintuitive fact about the Rube-Goldberg Machine that is Steem inflation. When the debt is below 10% of the total value, no burning is actually needed in order to observe deflationary conditions. If the debt is below 10%, price increases cause deflation (and vice versa), even in the absence of burning.
Again, the technical details are beyond the scope of this article, but you can read about it here or here, by one of Steem's founders:
Once the price feed catches up (3 day lag) you will see the virtual supply of STEEM start decreasing.
5. When the blockchain is deflationary, daily STEEM production gets reduced.
Daily STEEM production is taken as a percentage of Steem's virtual_supply. If the virtual_supply gets reduced by deflation, the daily production must follow. This reduction also reduces future inflation - even if the STEEM price drops again.
6. When the price of STEEM is above the haircut price, burning SBDs is deflationary.
In this case, things are consistent with our intuition. Burning SBDs reduce the virtual supply because the blockchain is paying full-value for the debt. I don't think a technical explanation is needed here.
As a result of this fact, curator-investors can continue to protect the value of their investment by supporting promoted posts after STEEM's value rises above the haircut threshold again.
7. With proposal #117 slated to start in a couple days, there may be a coming increase in the availability of SBDs.
If the voting for this proposal stays at the current level, 10,000 SBDs per day will start leaving the SPS and some portion of them will be sold on Steem's internal exchange.
If they're exchanged for STEEM and then burned, that will put upwards pressure on the haircut price, which would make it harder for STEEM's price to rise above the haircut threshold again. This means two things:
- The additional liquidity may be useful for authors who want to promote their posts.
- Curators who support promoted posts will be helping to counter the rising haircut price.
Sidebar - why is post promotion better than burning beneficiary rewards?
Another way that authors and curators can team up to reduce inflation is by burning beneficiary rewards. We see that taking place with #burnsteem25, #burnsteem100, #burnitalldown, Steem Oasis, and @steemburnup.
The drawback to this, however, is that it comes out of the daily inflation. Therefore, it's not possible to reach deflationary levels of burning. It reduces growth, but it can never be deflationary. In contrast, with post promotion, there is no cap on the amount of burning that can take place each day if the authors who use it find support.
If the promoted post feed is utilized as designed, it becomes a competitive fight to sit at/near the top of the list. This is basically a built-in advertising market that sits idle because curator-investors have not supported it reliably.
Sidebar 2 - developers should pay attention, too
This post was written for curators, but developers can and should do things to encourage adoption too. These things include interleaving promoted posts into other feeds, giving prime screen real estate to promoted posts, and even displaying them on other sites like block explorers or utility web sites.
Developers could even provide mechanisms outside of post promotion in order to incentivize burning STEEM, as well as SBDs. For example, my POC Steemometer project demonstrated STEEM/SBD burning as a mechanism to support a capability to send "broadcast messages" or "vanity messages" to all users of a front-end.
Personally, I usually use /promoted as my entry point to condenser-based web sites, and that could easily be configured as a default for Steem front ends.
Conclusion - Action Required
Authors are not going to start using promoted posts again without encouragement from voters. (I'm the only one dumb enough to do that. ;-)) If curators want to encourage authors to restart post promotion, they should announce their intention to support promoted posts.
If you curate a community or a feed, you can even announce your plans to curate that promoted sub-feed.
The Steem blockchain has multiple built-in deflation mechanisms. A key, but neglected, mechanism is post promotion. Any curator-investor who believes in scarcity as a way to protect their investment should carefully consider how they can encourage the (re)introduction of post promotion.