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RE: Pros and cons of two versions of Steem Proposal System

Donations should be possible, both targeted (for specific proposal) and general (to reward pool), however there is no way this would suffice for any serious development. The funding needs to be more predictable. Therefore taking part of inflation is the way to go. The question remains which one of current inflation targets is to be reduced to make way for development fund.

Witness rewards pay for upkeep of the servers and for work of witnesses. This is the backbone of the whole ecosystem and therefore cannot be touched.

Interest part of inflation sets optimal level of vesting. If the ratio of vested Steem to all Steem is lower than percentage of inflation going to interest, then those with vested Steem gain purchasing power, if the relation is opposite, owners of vested Steem lose purchasing power, just a bit slower than those with liquid Steem. Note that liquid Steem can be, well, liquidated much easier than vested, therefore interest has to outweigh the risk of keeping Steem in ice. Whales are naturally restricted in movement of their funds, they require deep market to operate, however their operations have profound influence, therefore it pays to give them incentive to keep their Steem frozen. Minnows on the other hand should not have any strong incentives to keep their funds in vested form because it is damaging in two ways. First: vested funds cannot be used as currency. If minnows (that are much more important target for merchants than whales) keep their funds frozen, they can't spend, which thwarts development and recognition of Steem as viable mean of trade. Second: interest going to vested funds of minnows is not an incentive for them (because it is too small), yet due to sheer numbers it cuts interest going to whales, reducing their incentive for freezing funds. To sum it up: interest part of inflation cannot be cut, if anything it should be increased. The minnow part of argument will be needed later.

Commenters are basically authors, just publishing in different place. Authors are the meat of Steem. Steem would be just another crypto if not for authors. While there is plenty of people that will create content for free, for recognition alone or to vent their creative spirit, real professional quality content requires money. If Steem has an ambition to attract content on the level of f.e. YouTube, it has to pay the authors on the same level. It is extremely far from it (IMHO the 7 day limit is responsible in big part) and yes, it needs to grow first. Reducing rewards paid to authors would be a step in wrong direction.

That leaves us with curation rewards. Many people feel these are small, which is true, because there is a lot of curators. In fact, in order to pull anything noticable from curation mechanism, one has to resort to use of bots. The question is what value does curation have to be worth paying for? The answer is: none. Running around and clicking "like" button is not work, passing your voting power and relying on algorithm to choose the content that is likely to give maximum payout instead of what you actually like is not work either. Zero work deserves zero pay. In all systems that have "likes" people use them with no monetary incentive. In fact I'm pretty confident that users would still use "likes", even if that transferred small amount of Steem from them to the authors. After all people actually pay for content they consume.
Did it rub you the wrong way? You are not a curator like that, you scan through the content and read everything personally to choose only the best, "most deserving" posts? There is a solution for you. Start making aggregate posts, f.e. if you curate posts about nice places to travel to, make posts that link to posts describing such places, organize competitions, build your recognition and if you are as good a curator as you think you are you will be rewarded from the pool for authors. There is no need for curation rewards.
Curation rewards can be wholly consumed by pool for development. This will kill the curation bots, make the flow of "likes" more reflect actual popularity of the content and decrease the incentives of minnows to keep their funds in frozen state (see above).

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Interesting thought.

Completely agree with you here. The average content consumer will never be a whale, why would they be? I don't believe we will ever motivate the average Steem consumer to power up sizable amounts of SP beyond $50 worth. Let's say they buy $100 in Steem today and get 333 SP, that's still just in the $0.01 upvote range and they're only getting 25% of that amount. If they upvoted content optimally with no less than 300 upvotes per month, exactly 10 upvotes per day at the end of a year they would have around $9. Would that be worth it to you?

I'm not saying we do away with curation rewards, but if we have to diminish any pool in favor of a dev fund, I'd choose curators. Honestly, I believe the concept of Steem appeals primarily to content creators hoping to earn on Steem, not content consumers that don't want to produce content. The problem for why we're not taking off all that fast is that we are not intriguing content consumers enough. But I don't think curation rewards are going to solve that, I think we have to empower them and give them access to cool stuff. Steem Monsters is one example of doing this well, but we need a lot more cool features that make Steem fun for audiences.