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RE: Feedback Wanted: 4 Week Power Down

in #steem5 years ago

I upvoted this for visibility, not because I agree, but because I disagree wholeheartedly.

The math here is really simple.

Price is a function of supply and demand. If supplies increase faster than demand then the price goes down. Powering up is a simple method of taking supplies off the table without burning them. Essentially it pushes that supply to some point in the future. Powering down says "let this supply become liquid".

I would argue that having the power down at 13 weeks is already too short. 13 weeks is already ~90 days though and for any serious business building on top of steem, 90 days or 1 business quarter is enough time to plan. It would be far better to set this to 52 weeks or 1 calendar year if you're going to change it at all.

Steem is fundamentally different from other currencies. While speculators are useful in most currencies because they provide liquidity. Speculators are not good for this currency, because the power of this currency is the community behind it, literally. Our thoughts, our ideas, our hopes, dreams, goals. When someone buys steem with the intention of powering it up, it's because they see value in you, me, all of us.

This is because Steem is a participatory economy. And the way you participate is by powering up your steem and using the prestige to bring attention to the people, purposes and messages that you feel are worthy to share in the increase. If you change the power down from 13 weeks to 4 weeks there will be several knock on effects that damage the currency.

#1 The increase in liquidity will lower the purchasing power of each steem already in circulation because it is a direct supply increase. The differential multiplier is 0.325 or put another way. Assuming the current price of steem is $0.20 the price would necessarily drop to $0.06. You can bet that speculators would immediately price this in before the drop by removing buy orders and putting a new floor in at $0.06

#2 The increase in supplies and subsequent drop in purchasing power would lower the value of the already beleaguered SBD. Some people would flock to it in order to offset the pending drop, but all this does is increase the supply of SBD circulating. SBD is currently trading at $0.80 and thus could reasonably expected to drop to almost immediately $0.26. This means that speculators would remove pricing supports in order to price in the increased supply and begin repricing all the way down to the bottom.

But wait it gets worse!

Anything that effects supplies will trigger a bullwhip effect in the supplychain in the direction that supplies headed. This is because people need to earn a profit or they won't play.

Consider for a minute BTC. Every 4 years the amount of new supplies entering circulation is cut in half. 18 months later the price goes up over 10x it's previous all time high. This is despite the fact that in the 6 to 9 months leading up to the halvening, the price has consistently doubled which intuitively speaking would be where the speculators were already pricing in the halvening.

BTC is cutting new supplies in half and seeing 10x increases over all time highs. We are talking about increasing supplies 3 fold! This means that we could expect prices to dip as low as 3% of all time lows, in otherwords it is reasonable to expect that if you do this, prices for steem would drop to less than a penny.

Now of course all this math is extremely simplistic, but it is the math that any speculator will be doing.

So if you really want to invite the speculators in to drive up prices, double the interest rate on SP and double the power down time to at least 6 months. This will mop up excess supplies which will drive the price through the roof and higher prices help everyone.