STEEM #1 Dilution of STEEM & How to Break Even (INTEREST RATE CORRECTION)

FIRST: Thank you @gmt117 for kickstarting my brain! 😊

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In the previous article I stated that you would get an 1.369% “interest” on your SP. What @gmt117 got me thinking about is that this may not be completely accurate. First, I will go through my theory on why this may be the case, and calculate what the rate would be if I’m right. I also did a quick test, actively measuring the “interest”. I will then compare the measured results with my calculation, based on this new theory.

Finally, I will make an update of table 2 from the previous post to reflect any corrections.

Skip to THE CONCLUSION if you feel allergic to more math today.

THE THEORY
All new STEEM created is collected in a “pool”. This pool is distributed among the community as shown in table 1 below. With 15% of it going back to SP holders.

	POOL SPLIT [%]	POOL SPLIT [STEEM]
STEEM Pool	100%	23,083,332
Returned to SP Holders	15%	3,462,500
Witnesses	10%	2,308,333
Authors & Curators	75%	17,312,499

Table 1: Showing the distribution of current STEEM Pool. Sources and the calculation is found below.

Imagine that all STEEM and SP in existence today made out a total of 10,000 STEEM. With a dilution rate of 9.13% - the “pool-size” would equal 913 STEEM for the year. 15% out of the 913 STEEM is 136.950 STEEM, which would be the amount of STEEM to be distributed on all SP holders.

If no one was holding liquid STEEM and kept everything in SP, the calculation in the previous post would be correct, since;

136.950/10,000.00 * 100% = 1.3695%

(PS! I rounded up 9,125% to 9,13% in the first post since it was a stipulated estimated. That is why we now get 1.3695%, and not 1,369%)

Let’s apply this calculation to the real amount of STEEM existing today. From @penguinpablo s' awesome statistics we know that there is both SEEM and SP in circulation.

Source: Penguin Pablo's Stat Update August 8th.

I will now have to make some assumptions on what @penguinpablo mean with Available Supply and Liquid. To be short I’ve presented my assumptions in table 2 below – along with the SP supply which I then can calculate.

	STEEM
Available Supply (STEEM + SP)	252,968,023
Liquid STEEM (STEEM)	70,224,756
STEEM POWER	182,743,267

Table 2: Showing all STEEM and SP in existence per August 8th 2017.

We will start with calculate the actual “interest rate” on SP. First the yearly pool-size;

252,968,023 STEEM*9.13% = 23,083,332 STEEM

now the portion of it going back to SP holders;

23,083,332 STEEM *15% = 3,462,500 STEEM

and finally, the annual interest rate;

3,462,500 STEEM/182,743,267 STEEM * 100% = 1.895%

There, now we have my theorized corrected value. Now, let’s look at my measurements to see if this holds true.

THE TEST
The SP balance seem to tick up at a constant rate. I measured the increase of SP, in my own account, over a period of about 2 hours. Noting the first and last tick down to the second, for the highest accuracy. Bigger accounts would achieve slightly better accuracy than I did – repeating the measurement over the same amount of time. The difference should be neglectable though.

The results; I gained 0.033SP over 6,937 seconds (1h 55m 37s to be exact).

I’m afraid we must do some math again. Starting with how much SP I would gain in a year, ignoring compounding;

(0.033 SP/6,937 s)* 31,536,000 s = 150.020 SP

where 31,536,000 s is the number of seconds in a year. Now we can calculate the interest by dividing on my initial SP balance;

(150.020 SP/ 8,023.485 SP) * 100% = 1.870%

I think we have our answer.

The deviation of 0.025%, from the calculate 1.895%, would be within the standard deviation error, when considering all the estimates I’ve made since the very beginning. First being with when calculating the dilution rate.

This correlation is enough to convince me to say I made a mistake in the previous post. What we also can draw from this, is that the exact “interest” is fluctuating much more then what we may have realized When more SP is converted into STEEM, the “interest” rate goes up, and vice versa.

So, if you were able to trick everyone else to power down – you would be awarded a decent annual reward of 3,462,500 SP the first year 😉.

THE CONCLUSION
We can now say that 1.895% is a more accurate estimate - very close to the exact rate. The rate is slowly going down over time by design. It will also rise if more SP holders start powering down, or drop even more if STEEM holders are powering up.

After this correction, the dilution rate you need to cover by being active (posting & voting) is 7.230%, and the required number of upvotes per day is 6.7 (@100%). NB! The number of votes required goes down when the USD value of STEEM increases.

I promised to update table 2 from the previous post with the corrected data. This time I will spare you for any further math.

The following abbreviations was used in the next table
SP = STEEM POWER | DD = Daily Dilution | 1UP = One 100% upvote worth | ARP1UP = Average Return Per 1UP | DI = Daily Interest | D1UPR = Daily 1UP Required. – “1UP” being a name-suggestion I once read @jerrybanfield made. I think it was a good suggestion.

SP	DD	1UP	ARP1UP	DI	D1UPR
100	0.025SP	0.012SP	0.003SP	0.005SP	6.7
500	0.125SP	0.059SP	0.015SP	0.026SP	6.7
1 000	0.250SP	0.118SP	0.029SP	0.052SP	6.7
5 000	1.251SP	0.589SP	0.147SP	0.260SP	6.7
10 000	2.501SP	1.179SP	0.295SP	0.519SP	6.7
20 000	5.003SP	2.357SP	0.589SP	1.039SP	6.7

Table 3: Examples of account size. There is a linear correlation - you can stipulate the daily dilution for your own account using the examples. Or you can ask me to make the calculations for your account in the comments below.

Again, I want to send a special thank you to @gmt117 for nudging my thoughts.

Thank you for reading, and my apologies for missing this in the first version. It will not be my last mistake.

Best regards,
warjar

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STEEM SERIES
This is a series I will use to present and discuss features of the STEEM system and its future. Please feel free to make you own contributions in the comments below.

I will do my best to update the information in these posts to keep up with future changes.