STEEM #1 Dilution of STEEM & How to Break Even (INTEREST RATE CORRECTION)

in #steem-help5 years ago (edited)

FIRST: Thank you @gmt117 for kickstarting my brain! 😊


01 Thumbnail - Dilution of STEEM corrected.jpg

In the previous article I stated that you would get an 1.369% “interest” on your SP. What @gmt117 got me thinking about is that this may not be completely accurate. First, I will go through my theory on why this may be the case, and calculate what the rate would be if I’m right. I also did a quick test, actively measuring the “interest”. I will then compare the measured results with my calculation, based on this new theory.

Finally, I will make an update of table 2 from the previous post to reflect any corrections.

Skip to THE CONCLUSION if you feel allergic to more math today.



THE THEORY
All new STEEM created is collected in a “pool”. This pool is distributed among the community as shown in table 1 below. With 15% of it going back to SP holders.


POOL SPLIT [%]POOL SPLIT [STEEM]
STEEM Pool100%23,083,332
Returned to SP Holders15%3,462,500
Witnesses10%2,308,333
Authors & Curators75%17,312,499

Table 1: Showing the distribution of current STEEM Pool. Sources and the calculation is found below.



Imagine that all STEEM and SP in existence today made out a total of 10,000 STEEM. With a dilution rate of 9.13% - the “pool-size” would equal 913 STEEM for the year. 15% out of the 913 STEEM is 136.950 STEEM, which would be the amount of STEEM to be distributed on all SP holders.

If no one was holding liquid STEEM and kept everything in SP, the calculation in the previous post would be correct, since;

136.950/10,000.00 * 100% = 1.3695%

(PS! I rounded up 9,125% to 9,13% in the first post since it was a stipulated estimated. That is why we now get 1.3695%, and not 1,369%)

Let’s apply this calculation to the real amount of STEEM existing today. From @penguinpablo s' awesome statistics we know that there is both SEEM and SP in circulation.

02 Penguin Pablo.jpg

Source: Penguin Pablo's Stat Update August 8th.

I will now have to make some assumptions on what @penguinpablo mean with Available Supply and Liquid. To be short I’ve presented my assumptions in table 2 below – along with the SP supply which I then can calculate.


STEEM
Available Supply (STEEM + SP)252,968,023
Liquid STEEM (STEEM)70,224,756
STEEM POWER182,743,267

Table 2: Showing all STEEM and SP in existence per August 8th 2017.



We will start with calculate the actual “interest rate” on SP. First the yearly pool-size;

252,968,023 STEEM*9.13% = 23,083,332 STEEM

now the portion of it going back to SP holders;

23,083,332 STEEM *15% = 3,462,500 STEEM

and finally, the annual interest rate;

3,462,500 STEEM/182,743,267 STEEM * 100% = 1.895%

There, now we have my theorized corrected value. Now, let’s look at my measurements to see if this holds true.



THE TEST
The SP balance seem to tick up at a constant rate. I measured the increase of SP, in my own account, over a period of about 2 hours. Noting the first and last tick down to the second, for the highest accuracy. Bigger accounts would achieve slightly better accuracy than I did – repeating the measurement over the same amount of time. The difference should be neglectable though.

The results; I gained 0.033SP over 6,937 seconds (1h 55m 37s to be exact).

I’m afraid we must do some math again. Starting with how much SP I would gain in a year, ignoring compounding;

(0.033 SP/6,937 s)* 31,536,000 s = 150.020 SP

where 31,536,000 s is the number of seconds in a year. Now we can calculate the interest by dividing on my initial SP balance;

(150.020 SP/ 8,023.485 SP) * 100% = 1.870%

I think we have our answer.

The deviation of 0.025%, from the calculate 1.895%, would be within the standard deviation error, when considering all the estimates I’ve made since the very beginning. First being with when calculating the dilution rate.

This correlation is enough to convince me to say I made a mistake in the previous post. What we also can draw from this, is that the exact “interest” is fluctuating much more then what we may have realized When more SP is converted into STEEM, the “interest” rate goes up, and vice versa.

So, if you were able to trick everyone else to power down – you would be awarded a decent annual reward of 3,462,500 SP the first year 😉.

plane 1.jpg



THE CONCLUSION
We can now say that 1.895% is a more accurate estimate - very close to the exact rate. The rate is slowly going down over time by design. It will also rise if more SP holders start powering down, or drop even more if STEEM holders are powering up.

After this correction, the dilution rate you need to cover by being active (posting & voting) is 7.230%, and the required number of upvotes per day is 6.7 (@100%). NB! The number of votes required goes down when the USD value of STEEM increases.

I promised to update table 2 from the previous post with the corrected data. This time I will spare you for any further math.



The following abbreviations was used in the next table
SP = STEEM POWER | DD = Daily Dilution | 1UP = One 100% upvote worth | ARP1UP = Average Return Per 1UP | DI = Daily Interest | D1UPR = Daily 1UP Required. – “1UP” being a name-suggestion I once read @jerrybanfield made. I think it was a good suggestion.

SPDD1UPARP1UPDID1UPR
1000.025SP0.012SP0.003SP0.005SP6.7
5000.125SP0.059SP0.015SP0.026SP6.7
1 0000.250SP0.118SP0.029SP0.052SP6.7
5 0001.251SP0.589SP0.147SP0.260SP6.7
10 0002.501SP1.179SP0.295SP0.519SP6.7
20 0005.003SP2.357SP0.589SP1.039SP6.7

Table 3: Examples of account size. There is a linear correlation - you can stipulate the daily dilution for your own account using the examples. Or you can ask me to make the calculations for your account in the comments below.



Again, I want to send a special thank you to @gmt117 for nudging my thoughts.

Thank you for reading, and my apologies for missing this in the first version. It will not be my last mistake.



Best regards,
warjar


STEEM SERIES
This is a series I will use to present and discuss features of the STEEM system and its future. Please feel free to make you own contributions in the comments below.

I will do my best to update the information in these posts to keep up with future changes.

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Nice job. It seems like sbd should always be at least 1.8 percent

Tha would perhaps speed up the internal market, day trading and such. But would draw people from the SP position, that might make Steem bit more unstable.

Rising the interest on SBD too high would create an incentive to stock value there instead of STEEM and SP. Which could have a negative impact on the system. My understanding is that the Witnesses is determining when these interest rates are to be changed. So, it’s a tool that can be used to stimulate the internal market when we see fit.

I say we, since, we all can vote or the Witnesses we wish to represent us.

Thanks for you comment and upvote @ender!

Very good.

with your .033(sp)/6937(S) numbers to get the rate per second, I notice you use simple interest. For those who might gripe, complain or just want to see what compound interest would do:

If your base amount was 8,023.485 sp. in basically your first payout of .033, there was a return of about .0004112926...% or a flat interest= .000004112926....
Assuming that there are 31536000 seconds in a year, and each payout cycle is 6937 seconds there are about 4546 cycles per year. ((1+interest)^4546-1)*100% gives about a 1.887321...% return each year. So it really doesn't matter much which of the two methods was chosen.

Thank you @firstamendment!

In the beginning of that calculation I mention that I ignore compounding interests. Even though the interest is referred to as over a year, we are applying it here for just a day. If you want to make it precise for periods of months and years, you must account for A LOT of variables. I've done that too in a running excel-sheet ;)

First you would have to do some assumptions about the calculation and payout cycles, like you did. I can tell you it's shorter than the 6,937. I can refresh in between every 0.001. You would also have to account for the continuously decreasing dilution/interest per tick.

An in the end the effect is neglectable. Like you showed yourself. when you add in the changes in STEEM value and rewards, the effect of compounding interest becomes practically impossible to predict

That’s why I decided to skipped it. It was not worth adding to the complexity for something that neglectable in ym mind.

I appreciate that you bring it up, so we can point the size of its effect though. I'm sure there were more than yourself thinking of the compounding interest.

wow many information in this post.....thanks

Thank you for stopping by @anikearn!

Great job! Some people like when SBD is at $1, but I prefer it at 1.895% @warjar

I'm normally good with math but in this case I am good with having the basics to have my daily goals.

Increase SP 7.23% daily and get 7 upvotes per day. Is this a good milestone marker? I know I am not increasing that much SP daily but I should start seeing fruits of my efforts now that I have been on here actively 9 days.

I think I have this wrong. Is increasing SP around 2% daily what keeps me even or ahead?

With 7,23% daily SP increase you would be the king in here =) That number for an entire year.

I took the liberty of using you SP balance to make a custom calc for your account. I did not include the delegated amount. since it can be considered a temporary voting-boost. It mean that the targets would be a little easier to reach than the table show. The targets remain the same though.

0.026SP is what you need to earn every day, and you get 0.005SP from having invested in SP. Leaving 0.021SP to earn on posting & voting.

Your comments here, have now covered your inflation losses for about 5 days.

SPDD1UPARP1UPDID1UPR
1050,026SP0.012SP0.003SP0.005SP6.7

SP = STEEM POWER | DD = Daily Dilution | 1UP = One 100% upvote worth | ARP1UP = Average Return Per 1UP | DI = Daily Interest | D1UPR = Daily 1UP Required.

LOL, love your response. I thought I was off. I appreciate you taking the time to break it down individually for me. I love using stats as a measurement. I'm doing a 30 day Steem kickoff. Currently, I am on day 12.

very nice article

Terimakasih info nya @warjar

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