The Price of Steem Will Always Go Down... It's Supposed To : The Magic of Steem Power
The explanation here is very general and ignores the initial first year launch conditions and eventual reverse-splits. It assumes general voting participation on the platform and for simplicity uses nice round numbers.
It doesn't have to go down obviously. If there is considerable growth -- I fully expect it -- the price will go up. I just want to point out the normal / natural downward pressure. And if you're holding Steem for the long haul, you may be holding the wrong thing.
I think the following is an important part of the puzzle in understanding what Steem and Steem Power are and what they are for. In particular the price of Steem falling as a normal, expected, and healthy behavior.
By design, the total number of Steem will double in supply each year to pay for all of its utilities.
Because the supply is increased by 100% every year, if the market-cap, or total value of the network, were to remain the same, it would require the price per unit of Steem to go down by 50%.
Anyone holding just Steem for that period will obviously lose half its value.
Anyone holding Steem Power will not lose any value.
Said a couple different ways:
Given any amount of growth in market-cap less then a double for the year, will show a drop in price per unit of Steem.
In order for the price of Steem to go up, it requires a growth in market-cap more then double each year.
Any price drop less then 50% for the year, would indicate growth in the total value of the network.
Steem can fall in price by one half, each year, and your SP total value will remain the same.
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I've seen people refer to the benefits of Steem Power as it paying interest. I think there is a better way to look at this and in turn explains the downward inclination of the price.
Steem is subject to inflation.
It is a short-term trading vehicle. (It is not meant to be held for long periods. It is meant to be traded)
Steem Power(SP) is protected from inflation.
It is a long-term investment vehicle. (Meant to preserve value and provide benefits, cannot be traded)
If you have 1% of the supply of Steem held as SP now. You will have 1% of the supply of Steem as SP any number of years from now.
Saying SP pays interest suggests that you're gaining value, when in fact you're not.
Saying SP pays 90% interest or more; and you won't be taken seriously. It's true in a way... it just doesn't make sense unless you understand all the other mechanics.
Let me know if you found this helpful... or confusing etc. : )
Greetings @xeldal.
Have you thought about writing an update to this article.....or has anything changed.
The latest HF has certainly given pause when running the senarios as to the future of the token itself.....Steemit seems to have a future...but could the token itself become irrelevant?
Thank you for your role as witness.
All the best. Cheers.
NB....the query is this.....what is the incentive to keep any amount here at Steem?
@xeldal wrote:
Naturally, there is a limit to this doubling; when every human on the planet is on Steemit.com, to give an exaggerated example. There will have to be a change in this doubling mechanism at some point. It can't go on doubling forever. Would you agree?
It won't matter how many users there are, but yes, eventually the numbers get unmanageable. Steem does what's called a reverse-split every 3-4 years to keep the numbers in a usable range. Basically just moving the decimal place on all balances.
No. Only the virtual supply doubles, and the vast majority is held within VESTS. It's only if VESTS start falling significantly below 90% of the virtual supply (and there's mechanisms to encourage it to return quickly up to 90%) that inflation actually becomes unmanageable.
Good post, this deflation is needed to be able to pay the value creators for their work. I think now in an early stadium of this platform 100% gain in market cap / value should be easy to reach, a multiply of this is realistic I think.
So for early investors it might be still a really profitable long term investment. But when the platform gets more mature and will enter the last stadium of adoption. There is almost no expansion in value anymore and then this 100% will be almost impossible to reach.
Since the deflation is covered by interest when holding SP, it will then only be profitable to hold Steem in the form of SP and use it on the platform. This is exactly where it is created for right?
So when the big gain in adoption is over, you have to keep al your Steem in SP and the rest cash out or use to power up. Then the value of SP will grow / lower together with the value of the platform and give you the power to earn more / have more influence, and the long term value doen't matter if you cash out, so it is quiet a perfect system.
thanks for even more explanation.
Bookmarked
dude ur fucking tripping? its inflation not deflation.. personaally i think steemit is a bit ponzi.. money locked up so there is no big cash out before inflation.. then what happens when the cap is doubled people are going to sell off , dropping the price dramaticly
Thanks explanation.
Why do you rarely create new articles ,,,,? I really want to see your new article @xeldal
Im new to the platform and this information is very helpful to me.
From the Whitepaper: "The purpose of liquid STEEM is to facilitate changes in ownership between long-term holders. It is this change in ownership that the network 'taxes' to fund growth."
Wealth transfers result from content creation, curation, mining, and liquidity rewards. It's fascinating that this creative mechanism replaces and is equivalent to Bitcoin or credit card transfer fees... but has a covert quality that is much more user friendly. Steemit appears to be "free", but, of course, nothing is free.
Any more info like this for people who don't know much about crypto, this was insightful. Anything more recent? That means steemit has to keep growing indefinitely? Sounds like it fits right into the existing economic paradigm...
Steem Power will dilute too just 90% less than Steem...
Correct. I ignore this for this explanation and assume the user participates minimally in voting/posting to gain the missing 10% in SP. Such that his SP is not diluted at all.
Ok I can agree with that, however that demands some work from the investor part which it's a little odd IMO.
He only needs a bot for the curation. That goes pretty well, if you have enough Steempower.
And then there's this related point:
https://steemit.com/cryptocurrency/@inertia/dilution-not-a-tax-not-theft
Interesting. You learn something new everyday. Thanks for sharing.