VESTS are something that a regular Steemian, now Hiver rarely thinks about. Yet they are the core feature at the blockchain and the essence of it. They determine how inflation will be distributed, rewards allocated, witnesses elected, projects funded etc. They are the point system on which the blockchain works.
The Hive blockchain is really a complex thing. Here I will try to go in short about vests, in a simple manner, assess their function with a focus on the staking rewards.
What are VESTS?
Many of the users know VESTS for their second name Hive Power. You see the HP really don’t exist on a blockchain level, but just on the frontend level. VESTS is a unit, another token if you like, that you buy when power up. VESTS have value in HIVE with a certain ratio that is being used to show the HP on the hive.blog or peack.com frontend wallets as HP. Behind the HP, it is VESTS.
Just like if you have euros in your account that you have locked and put in savings, and the bank is showing them as dollars using a standard conversion value.
These VESTS units/points are used by the blockchain to calculate most of its fundamental mechanics, like author and curation rewards, voting for witnesses, DAO and inflation. VESTS are also referred as a share of the network. There is a lot of posts about VESTS, you can google them for more information.
The focus that I want to put here is STAKING.
HIVE VESTS Staking | How does it work?
Probably most of the users are familiar with the fact that HP generates staking rewards to its holders.
These staking rewards are not very visible.
The inflation distribution on Hive at the moment is like this:
• Authors 32.5%
• Curators 32.5%
• HP holders 15%
• Witnesses 10%
• DAO 10%
Currently the HIVE inflation is around 9.5%. 15% of that is going to the HP holders or around 1.43% interest. This number is dynamic and compounding so its bigger than 1.43% and some estimated it around 2% on a yearly basis.
The thing it you don’t actually get any transfers to your account as usually, for let’s say some delegation. The HP value just magically increases. You can notice this for some large HP holders accounts, where it is visible in a short-term period. The reasons why it magically increases is because of the VESTS value to HIVE. Remember HP on a blockchain level doesn’t exist. What you are seeing in your wallet as HP is VESTS converted to HP with some conversion ratio/value.
The HIVE per VESTS value according to hiveblocks.com, at the moment of writing this post is 0.0005117. Meaning 1 VEST is equal 0.0005117 HIVE. But the thing is that at blockchain level this value is dynamic and increasing all the time. I remember in the past the value of VEST was lower than this something like 0.0004800. Sometimes VESTS are referred as MVESTS and the value then is 5117 MV per HIVE.
Increasing the value of VEST per HIVE is what gives the HP holders interests.
Since the HP that a user holds is actually VESTS, when the value of VESTS increases the frontend wallets then show a higher number of HP.
Now I guess there have been a good reason to make a totally different token/unit that will represent the base layer of the blockchain, the rewards and voting mechanisms etc. but it is a bit confusing, especially when it comes to staking rewards.
I don’t know what the exact reason is for a different token/unit to be introduced. If someone has a more information on the topic, please comment below.
From my point of view, one of the obvious things is that VESTS have bigger precision and are more accurate in allocating rewards for the voting mechanism and overall. This can be achieved if we introduce more decimals to HIVE.
VESTS make staking rewards hidden and not visible/meaningful
One of the biggest cons of the VEST system is that they are hiding away the staking rewards, so to speak. You may say its not a lot, something in the range between 1.5% to 2%, but it’s not an amount that should be ignored at all.
Staking is a huge part of the cryptocurrency industry and so many projects go trough a lot of marketing to make it visible.
Why would a system that is hiding away the staking rewards should be supported?
It’s totally opposite of any economic logic. Furthermore we are now seeing discussions on the staking topic, like the one from @therealwolf about Hive Staking Rewards, and some brainstorming happening. I personally fully support more brainstorming about this.
Although I believe that the overall trends in crypto and Bitcoin have a larger effect on the Hive price and the project in general, than the little tweaks that we are doing here. But still this doesn’t mean we should not improve as much as we can.
For starters let’s make visible the staking rewards that we have now. The psychological effect of having even a small income in your wallet in a form of daily transaction as a staking reward can do a lot.
Removing the concept of VEST from the blockchain is probably a significant operation, having in mind that a lot of the core operation of the blockchain revolve around VEST, but I guess there is a way for this to be done.
I personally would like to see VESTS removed in total, but if this is not possible or there is no consensus around it, some addition that will make staking rewards visible as a daily transaction, similar to the curation rewards.
Then we can continue the discussion about staking rewards, curation and author rewards. For starters lets make visible the staking rewards that we already have.
What is your opinion on this?
All the best
@dalz
I recently did a “deep dive” into this:
https://peakd.com/hive-174578/@preparedwombat/the-hive-power-you-earn-for-holding-hive-power
As of a few weeks ago, I came up with a “snapshot” of 2.73%
Just read it :) You have done a great job!
Far more accurate that what I have stated above :)
Calculating the exact inflation in % value is tricky because it basically depends on the virtual supply, that depends on the HIVE price. Then we have to see how much of the overall token is powered up.
Anyway the main point ....2.73% is acctualy a great ROI, and its beeing hiden away from users. Imagen you have a daily transaction that says .... here is XX HIVE as a reward for staking
The inflation rate currently is at 8.0747% not 9.5% so HP holders get about 1.21% from the inflation. Since the vested hive only accounts for 42.5% of the virtual supply the "interest" earn for holding HP is about 2.84% (people who do not have their coins powered up subsidize those who do stake them).
I am not 100% sure that the virtual supply is taken into consideration for the distribution of the staking rewards but if instead the current supply is the benchmark used then the APR would be ~2.56%.
The 9.5% is some standard number I have been using for a while, although Its old and I know its not exactly correct. I haven't bother with it much, because of the VIRTUAL SUPPLY that you have mentioned above, that is dependent on the stablecoin HBD price, and its getting hard to calculate the exact inflation number, cause it basically changes daily depending on price :)
Overall I agree that 8% is probably closer to the real inflation number than 9.5%.
Also the APR calculation that you point to, taking into account that not all the stake is vested is more exact. Thanks for that.
Thanks for the explanation I had noticed before that SP increased without any transactions! Why is it that it’s not shown on a front end level to encourage people to stake? If we saw staking rewards to our HP or a tribe it would encourage more people I think to want to HODL
Does delegating affect the payout or is it attributed to your fixed vests? If it is, then you technically earning double since you earn from vests and delegation for some projects!
I’ve been a long time user of the chain and even I didn’t know much about vests should really be made more a part of the front end
Thanks!
Goof question what happens to the vesting rewards when you delegate? I'm not a 100% sure but I think they go to the account that has the delegation. The delegation receiver so to speak. But not sure about this one :)
What I noticed is that the delegation is increasing also in value.
When delegating 5000 HP for some weeks and you remove the delegation (by doing a new delegation of 0 HP) you will receive 50xy.z HP back.
I think that makes sense because delegated Vests/HP should be handled the same way as not delegate ones.
Nice explanation in the post btw :)
Thanks!
So it actually goes to the delegator then.
Yeah, I received a delegation of 5,000.040 HP 23 days ago and now I have 5,010.886 HP that is delegated to me.
If this was removed today, the person who delegated would get back 10.846 HP more.
Thanks a lot.
If one has 60K HP, the staking reward is app. 3 Hive per day, so indeed worth to be mentioned!
Would be cool, if this could be added in the background and then be "claimed" like curation rewards. By the way, why are curation- and author rewards not automatically added?
Thanks!
I really don't know ... they need to be claimed... that how it has been forever. I would be happy if they are automatically added.
Thank you for these explanations.
Stacking APR should be mentioned in the wallet.