Liquid Steem Rewards are Here - Math Time!
In case you hadn't noticed, you now get some Liquid Steem as part of your author rewards, alongside SBD (Steem-Backed Dollar) and Steem Power (SP). We'll call that LS. And I'm going to explain why it is happening, how much of it you'll get, and where it's headed. Maybe.
Before we get started:
This only applies to author rewards, because the LS rewards are replacing SBD rewards. You don't get SBD rewards from curation rewards. Ergo, not relevant there.
This post assumes you know how the author reward splits work. Well, not really, but it's nice to know what form your payments come in, isn't it? Check this post if you'd like to know.
This has nothing to do with SBD's price. Pegging it won't help. I'll actually explain this, but I thought it'd help to get this out of the way for everyone who won't be reading through all of this.
Actual Talk:
SBD was designed to be pegged to be worth $1. Well, to be exact, it's insured to always be worth at least $1 USD worth of Steem. That means that there needs to be enough Steem around, that all SBD could be converted into Steem worth at least as much USD as said SBD. Assuming the SBD is worth $1. So if we have 1 million SBD, there needs to be at least $1,000,000 USD worth of Steem for it to be converted into.
Actually, the ecosystem is designed so all the SBD should be worth no more than 2% of Steem's market-cap. Any more than that, and less SBD is getting produced, so the system will return to a state where the amount of SBD would be exchanged for less than 2% of Steem's market-cap.
The amount of SBD getting printed gets lower, and the amount of Liquid Steem (LS, remember?) goes up, from the starting point of 2% of Steem's market-cap, to where if the amount of SBD around is equal to or higher than 5% of Steem's market-cap, no SBD gets printed at all.
Remember that post on how your author reward gets broken down? This is where it gets relevant. How much LS are you going to get? Well, depends on how much of Steem's market-cap % the SBD count is at.
If we reach 3.5%, which is the middle point between 2% and 5%, 50% of the rewards you'd normally get as SBD would come as LS. How much LS? The same logic as applies to your SP rewards: Suppose you were to get $100 USD worth of SBD, which at current SBD/Steem prices ($1.7 USD for each, about) would've amounted to, well, 100 SBD, worth $170 USD? You'd instead receive 50 SBD (worth $85) and $50 USD worth of LS (50/1.7 = 29.4), worth $50. For a total of $135 worth of currency.
A loss to anyone who receives author rewards on the platform.When would this end? When the amount of SBD going around falls down to below 2% of the Steem's market-cap.
Math Time!
Here is the math for how to find the figures involved. Figures of current data pulled from steemd.com.
Figure 1: market_cap.
This is the current Steem Market Cap, as defined by the current 3.5 days' witness median price.
Current data: $535,119,854
(This figure is had by multiplying Virtual Supply (271,084,019.468 STEEM) by Feed Prince (1.974 SBD).)
Figure 2: current_sbd_supply
Unsurprisingly, this is how much SBD is floating around. Total.
Current data: 10,798,075.803 SBD.
The "Steem Ecosystem SBD "Debt":
Figure 2/Figure 1.
Or [SBD Amount]/[Steem Market Cap]
Current data: 10,798,075.803/535,119,854 = 2.018%.
As you can see, just a smidge over 2%, so we're here. Now what do we do about it?
So, what two factors can move, to bring this situation about, remove it, and make it better/worse?
Steem's Market Cap, and SBD amount. As you can see, how much SBD is worth is irrelevant. The system was designed as if SBD is worth $1 USD, so nothing really assumes it's worth anything else in the system.
Steem's value plummets, as it did over the past couple of weeks? Well, it market-cap plummets, and thus, the "debt" rises, in terms of relative percentage.
So one thing that can be done is have Steem's market-cap rise. If Steem's value keeps falling, expect to make less SBD - both because your posts will be worth less STUs, and because less SBD will get printed, to cover your actually owed STUs.
Print Less SBD! Sounds simple, right? But nothing controls how much SBD gets printed directly. Those who believe in pegging the SBD down to the $1 USD again can't actually have it be printed as Steem does, without reworking the entire system. They can do that, mind, but that won't peg the SBD. That'll only make SBD into a coin worth exactly as much as Steem is worth, or artificially give us less rewards.
There's the suggestion to increase Steem's price, which will then lead to more SBD getting printed (because the higher Steem is worth, the more STUs are handed out, and the more SBD relative to Steem that pump out), which should hopefully lead to SBD's price going down - increase supply, lower demand, lower prices, right? Well, I've had some thoughts about that before.
Anyway, do you see the problem here? Aside from SBD prices having nothing to do with this phenomenon (remember, only Steem Market cap and how much SBD is going about!), it'll actually increase the amount of SBD. Which would make this situation worse. Which would result in less SBD getting printed. Which won't work for those hoping to pump the system with more SBD.
What can we do? Hope Steem's price goes up, and thus its market-cap goes up.
If not? Expect the double-whammy of reduced rewards, both due to less STUs (such as $100 post rewards 5 days ago reading more like $80 now, and going to keep going down as the price feed updates), and less SBDs, which we got as higher-amount of rewards.
Good luck, and stay informed!
And thanks to @eonwarped for his talk on these matters, as always, which helped me get to the bottom of things. Image taken from him, with his permission.
"If Steem's value keeps falling, expect to make less SBD - both because your posts will be worth less STUs, and because less SBD will get printed, to cover your actually owed STUs....
"What can we do? Hope Steem's price goes up, and thus its market-cap goes up."
Thank you for making this so crystal clear! This is the 3rd article I've read on this today and now I largely understand.
The only missing piece for me still is why I'm suddenly getting some STEEM in the mix along with my SP and SBD, and why that is reducing the amount of those from what the "preview" on my posts says I will get.
I tried to explain that above, but I'll do succinctly here :)
SBD is insured against Steem. So if there's too much SBD in the market, there's a system that diverts some of the rewards you'd normally get in SBD to Liquid Steem. That both increases the amount of Steem and reduces the amount of SBD, and thus reduces the Steem-SBD debt ratio.
This is what's going on here. A portion of the SBD reward instead gets translated to "equal value" (but actually less, for that, read the in-depth explanation above) amount of Liquid Steem.
The preview is just not designed to show you these figures, alas. It's actually all translated VESTS, the actual denomination of all the rewards, shown nowhere...
Ah here you are talking about the feed price. I actually think this is a viable option if we want to keep in the SBD zone. But you're right about one thing-- it's still so susceptible to a pump that it could send us into longer term STEEM printing than we'd like. I'd go with the wait and see approach, as you are suggesting.
(There are by the way some witnesses that want to tweak these thresholds to give us even more room, but that is an actual code change of the steem blockchain itself, and unlikely to happen. This along with reverse conversions code and all sorts of fun stuff...)
Would it work though? Because if you manipulate the feed price, it manipulates both how much SBD gets printed and what the system thinks the market-cap is. You're going to really have to mess with it constantly to make sure one moves without the other, overmuch.
The alternative is, indeed, to trust in Steem to skyrocket. Well, that's not "trust," so much as it is "belief." Or, well, yes, to rework the system entirely. Somewhere.
Here's how I think about it: Changing the feed price essentially changes what the target peg is. So if you double the usd price of steem for the feed, you are effectively intending to peg the value to 0.5 USD (long term).
So you can still do the same exercises in pretending to reason about half dollars. But still, you are right, it's a bit tricky. Especially with the low liquidity of SBD already.
replying again, now that we are closer to mutual understanding :D
Woah. That 10% threshold is something I was looking for but never found in the code. I'm going to go double check that now...
[edit]. Looked again, I cannot find that 10% behavior... any pointers? @inquiringtimes
There are a lot of things that have since been edited, or even edited out. Such as the plan to every so often divide all Steem amounts and prices by 10 to fight inflation.
I wonder if this is one of those older figures that is no longer accurate but was intended. @timcliff?
I'm actually laughing at that divide by ten to divide inflation. That sounds suspiciously like another hyper inflated real world currency. But I do remember steem inflation curve had that property at one time...
https://steemit.com/steemit/@dantheman/steem-dollars-have-limits https://steemit.com/steem/@dantheman/steem-dollar-stability-enhancements
these are the two posts I was led to for information, but not to it's existence in the source
These are very old posts from 2 years ago.
changing the bias, which is what I believe you two are discussing with the wrong terminology, is simply letting the blockchain know how much rewards should be liquid. increasing the bias would lead to more liquid rewards.
no one is manipulating the feed price. feed price is pulled by a script from a variety of exchanges and averaged out over the past 3.5 days.. the witness feed price is only wrong when their script is acting up. It is never manipulated to produce some effect on sbd print rates. Bias is what we should be discussing here.
BTW, in case it makes you feel better, the system is so convoluted I almost think it is on purpose.
What tripped you up is exactly some of the stuff I mentioned on Discord clarifying up for others before. The Witness Price Feed, that is. A lot is actually dependent on it, and even I got it wrong, such as the relationship between Steem going up/down and our rewards... it's all VESTS man.
I think we are on the same page. The terminology is confusing due to how it is displayed in various places. At the end of the day, the blockchain only cares about one number: the number the witness states in its own feed price. (Look at the steemd page of the individual witness setting the price to see what I'm talking about)
see, that's where we are not on the same page...
all the way on the right hand side is the bias column... depending on where the bias is set is what determines how much rewards are liquid, and how much are sp. The higher the bias, the more liquid, and less SP... if no bias then it's 50/50 (also ignoring the actual price of sbd, but acting as though all sbd ==$1 worth of steem)
the bias has never been used by enough top witnesses (at least in my time here) for it to impact our rewards at all, but that is the variable which can be changed not the feed price. The feed price is Always to be a reflection of whatever is pulled and averaged from various exchanges and performed by a script.
I hear you, but again. It has the same effect as what I'm saying. For example: netuoso has a bias, and I found where it shows in steemd:
In the end it's the median of these prices that are set that determine the feed price the blockchain uses. Yes it uses the USD STEEM ticker as the base, but my point still stands.
(We could easily swap the feed for something else and get everyone to pin it to something else like gold which is what golos does, but I digress.)
ok, now I see where I was confused... what the bias does, is actually change the pricefeed at the blockchain level... so yeah,ok.... sorry!!!!
https://steemit.com/steem/@fow/aggressively-forcing-sbd-peg-by-adjusting-feed-bias-witness-digression
:blushes:
sorry for arguing in circles with you.
but bias doesn't effect the price feed, only the way that rewards are handled... which is what I thought, until I read this article just now
https://steemit.com/witness-category/@timcliff/witness-voting-guide
which states that the bias is a way to effect how conversions are handled, and says nothing of how rewards are handled... I guess I'm going to do more reserach... the whitepaper has nothing on bias :(
Thank you for this information!! I think a lot of us don't like to do the math - so, thank you for doing it for us 😉
All you rascals who don't like to do Discord either! :P
You're welcome, Marianne :)
hahaha - but you know math - there are only so many hours in a day, and minutes in an hour... 🤪
Lol and I am one of them. :-p
What discord channel?
Isle of Write in this instance, which also serves as the home of @mariannewest's FreeWrite endeavour, but was talking more in general :)
Haha ok I was just looking for more of your knowledge on the regular
I'm impressed, Guy @geekorner, that someone who writes as well as you do can make heads or tails of all this :) I'm also less perplexed, now, and have you to thank for that
_/|\_I'm not sure, even a decade later, that my father has fully recovered from my not studying engineering or programming. He considers it a waste of my brain.
I like Maths, and work in IT. Pish-posh on those artificial humanities versus the sciences differentiations!
Glad I could alleviate some of the confusion :)
haha, I get where your dad is coming from. Where I come from, not too far from you, if one is any good at Maths or Science, it's sin to pursue Literature, etc... The Arts, as the old school see it, are for idjuts :p
That's the common attitude in most places, I think. The arts are considered a waste of time. My folks pushed me into the sciences too. I majored in Computer Science. I am good at math as a result, but these days I would just as soon prefer not to bother with the details and honestly my mind kind of shuts off when faced with them. It reminds me of an interview I read with Woz once. Brilliant guy, amazing with hardware design and very good at programming too, but he confessed that he has to use an accountant because when he is faced with finance math his mind kind of shuts off because he just doesn't want to deal with it. Thank goodness for Guy here doing the math for us.
Yes, I'm afraid my mind shuts off when confronted with many details, or 'hard facts', as some folks like to call them... By association, I think of Eliot's bird, in Four Quartets:
_/|\_What an extraordinarily well written article on a confusing subject. The other reports I've read in the last 24 hours all seem to infer that I should know something I don't or that I am stupid and need to be told the obvious.
This is in the 'Goldilocks' zone where I can understand the concept and the math.
Thank you for it!
If it makes you feel better, for most of them, the missing information is also because they did not get it fully. But yeah, there is something to the adage about most writers not understanding certain topics, and those who understand them not being writers :')
If it makes you feel better, for most of them, the missing information is also because they did not get it fully. But yeah, there is something to the adage about most writers not understanding certain topics, and those who understand them not being writers :')
@geekorner. Thanks for drawing this to our attention. I am a mathematics and analytical type of guy, so I should be understanding what is happening, but I am afraid I don’t - at least not from your blog. Can you provide some source documents or paragraphs?
Is the inflation rate of steem about to change?
I asked @eonwarped to point you to where the data comes from. I mostly deal with understanding the logic behind things and trying to explain it.
Could you tell me what is unclear? I could try again.
The inflation rate is yearly. I don't know when it changes, but it should change, because that's what it does, yearly.
@geekorner Thanks so much for explaining. From your blog, and others, I get the point that if the ratio of steem market cap to SBD is less than 50:1 the number of SBD being printed is reduced. At at less than 20:1 production of SBD stops. I also get the point that as this happens, part of your reward will be paid in steem (instead of SBD).
As I understood it, the inflation rate for SBD was changed recently to 4% weekly (someone else mentioned 5%). This is an obvious reason for the rapid fall in the price of SBD.
The question is this: If part of the rewards previously paid in SBD are now paid in steem, where will those extra steem come from? Will the number of steem being printed daily change in some way? I thought the steem inflation rate was set at 9% annually?
I am looking forward to seeing some source documents on this to understand how it all works.
You're hitting on part of what was confusing for me too. It all is actually pretty clear to me at the level of my concern (how much I'll get paid), but for the liquid STEEM part. I can see that I'm getting reduced SP and SBD from what I'm shown on my blog (when I click the dropdown for the rewards). There is showns only SP and SBD, but when I'm paid the STEEM allotment is reducing those two. So am I getting the same net once translated to USD, with some of it simply in STEEM instead of SP or SBD? And if it is coming from the rewards pool, what is being done to have it have liquid STEEM to payout where normally it has only given out SP and SBD? Aren't those 3 different currencies?
As far as I know, there's no SBD inflation rate. Do you perhaps mean its interest rate? Because while there's Steem inflation, the amount of SBD getting printed is decided based entirely on the price-feed value of Steem: The higher it is, more SBD gets printed (because STU goes up). And if Steem's price falls too low and leads to a too low market-cap, less SBD gets printed (as we are experiencing now).
There's no SBD inflation rate anywhere.
I am not sure about the Steem inflation and where the Steem is coming from. Does this get deducted from the yearly 9.5%? I think it might be in addition to it, and is "paid for" by less SBD getting printed. @eonwarped, do you know? I can't really make it out in the github document you've linked.
SBD's falling price has nothing to do with the above, just with the volatility of the crypto market right now and SBD's limited liquidity in particular.
new_steem = virtual_supply * current_inflation_rate / STEEM_BLOCKS_PER_YEAR
So you can see it's actually generated per block. It says instantaneous rate, which means this block it increases by a percentage given by dividing the annual target rate by the number of expected blocks per year (I suppose this number isn't perfect though, so rough estimate)
Technically, a percentage of this new steem is allocated to rewards pool. The amount allocated on a post depends on this amount and the votes. The payout is just converting to the steem to the SP,steem,SBD based on feed price.
Not sure what you mean by taken out of the yearly inflation.
@eonwarped. I am happy to see the equation “new_steem = virtual_supply * current_inflation_rate / STEEM_BLOCKS_PER_YEAR”
Thanks for confirming this. It is what I would have expected.
My questions on this are
@geekorner has the link above to where it is (desktop mode will send you straight to the line number)
inflation_start - blocknum/250000
978 - 20,824,939/250000 = 894
Which is representing 8.94% inflation at block 20,824,939 , which is the block I just checked just now.
@geekorner. Thanks for being so helpful to everyone. It seems there are loads of questions from people with different agendas:
For the benefit of SBD investors I have a question. You wrote “Do you perhaps mean its interest rate?”. The question is “Do holders of SBD receive interest?
There's a field called "sbd_interest_rate". Currently the value is set to 0, but I remember reading something about there being something about it in the White Paper.
The groundwork is there for it.
Thank you so much for the breakdown and explanation. I had noticed the Liquid STEEM rewards coming in over the last couple days but wasn't sure what that was about.
Glad I could explain things!
Thank you for the explanation. You're breakdown is clear.
Glad I could help. I worried I wrote it at too much length, and sometimes when you try to make things clearer, you end up muddying them up. Glad it didn't happen overmuch :)
Interesting. I noticed it had changed in my wallet earlier, but wasn't sure exactly what was going on. Thanks for the explanation!