The other day I posted an update on Steem inflation. In that article, we saw that the expected daily STEEM production was 89,874 and that it was set to decline to ~22,000 over the course of the next 13 years.
In broad strokes, I'm fairly sure that the idea behind this inflation curve was to distribute STEEM widely for its first decade, and then to increase scarcity for another decade, and finally flatten off at a low, but steady and permanent rate.
However, something that worries me about this curve is that we see the rewards for witnesses declining from about 9,000 per day now to about 2,200 per day in 2037. This is (roughly) a 75% reduction. We depend on the witnesses to secure our blockchain, and if the price of STEEM doesn't go up, that's a pretty harsh decline. In order to maintain current income levels, the witnesses would need the price of STEEM to go up by a factor of four during that timeframe. Bitcoin has survived reductions like this, but every halving shakes out some portion of the miners. I'm not sure whether Steem has enough witnesses to support such a shakeout.
Further, let's look at what happens if the price of STEEM does go up. Here's the same graph as "Figure 1" in my previous post, 3 days later, after the price of STEEM crossed the haircut threshold.
Just $0.02 in price movement over two and a half days caused the daily rewards to drop by 654 STEEM, or 7/10 of a percent, and now the expected payout for witnesses in 2037 would be just 2,100 STEEM. Thus, even a 4x increase in the price of STEEM probably wouldn't get the witnesses up to today's income levels at the bottom of the curve. There's a lot of complicated math here, and we don't know what the future may bring as far as usage and investment, but I wonder if there's a point on the curve where the rewards will be so scarce that it won't be enough for even a top-20 witness to be profitable?
(If the STEEM price goes down again, the daily rewards will increase, but they'd never again reach the height of the original curve without some sort of intervention by witnesses.)
So, if a threat to witness profitability eventually arises from the blockchain economics, I'm wondering what the witnesses can do to remain profitable, and I have only come up with two answers:
All the way back in 2016, I made a Steem At A Glance graphic, where I noted that (at the time) SBDs were paying 15% interest, and we all know of a similar blockchain where their stable coins are currently paying 20%, so it certainly seems to be possible to implement option 2 with little difficulty. I believe that it's just based on a parameter that can be set by each witness.
So, assuming that the capability still exists, what would be the ramifications of such a decision?
As we've discussed many times, most delegation bot users would probably prefer to have completely passive income. One solution to the problem of spam from this investor community was almost exactly this, as suggested by @michelangelo3, Wie wäre es mit einem Investorenaccount? (How about an investor account?).
So, with a high rate of interest for SBDs, many delegation bot users might be encouraged to stop SPAMing the blockchain and start earning passive interest, instead.
I could imagine this going in one of two ways:
One of the things we have seen over the years is that STEEM's price can be influenced by BTC price movement. In recent weeks, I created this graph to compare the ratio of [new steem per day] / [new BTC per day], according to the two blockchains' inflation formulae.
As a result of BTC's halving cycle, there is a 4 year sudden doubling in new_STEEM/new_BTC that might produce some sort of a price shock. By paying a lower interest rate immediately after a halving and increasing it smoothly over the four year cycle, is it possible for the witnesses to use SBD interest to smooth out the impact of BTC's 4 year cycle in order to reduce the shock from BTC halvings? (and if so, is it desirable? I haven't thought this through at all.)
It's also worth noting that the SBD supply is currently around $13 million, and nearly 1/3 of that is locked up in the SPS, so the scope of these interest rate changes is currently limited to a total of about 9 million SBDs (which would - of course - increase with interest payments and author SBD rewards).
When should the witnesses start paying interest on SBDs? I'll be the first to say, "I don't know".
But, I think that the witnesses should start thinking about the possibility (if they're not already). At some point in the future, I think it might be a good decision - and potentially even necessary. In my opinion, it would be prudent for the witnesses to start deciding now what conditions would trigger it, instead of rushing it through during an unanticipated crisis.
If the witnesses decide to do this, there are possible benefits to authors, curators, investors, and the witnesses themselves. Of course, there are also tradeoffs, so the decision needs to be carefully considered.
What do you think? What are the conditions that should trigger the witnesses to reenable SBD interest payments (assuming that the parameter is still functional under HF23)?
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