There are no free lunches in the world of finance.
STEEM is no different.
Although it might seem like buying a vote is risk-free when you get a quoted "10%" return on whatever service you happen to use, keep in mind that 10% only becomes real if the price of STEEM/USD stays the same and the current SBD/STEEM rate stays the same by the time your post pays out.
What do I mean by this?
Well, I certainly don't mean to imply that this risk is a bad thing or that bidders are getting taken advantage of here. This risk is just a part of life.
Its the same as when an investor buys a company that exports alot of goods like AAPL, and now that investment has EUR/USD and JPY/USD exchange rate risk, for example.
To put it another way, the more value (or rshares) that your posts accumulate, the more the expected payout of a post can fluctuate as exchange rates change. (Thats regardless of whether you use a bidbot or not)
Thus, buying a vote is like going long STEEM/USD.
But to really understand this, let's rewind a bit and start by figuring out how the network calculates the value of your post. Like everything else in STEEM, it all comes down to a formula:
((REWARD_POOL * NETWORK_STEEM_USD_RATE ) / RECENT_CLAIMS) * POST_RSHARES
where
REWARD_POOL is the current size of the reward pool
NETWORK_STEEM_USD_RATE is the current value of the network STEEM/USD feed (i.e. the 3.5 day moving average the witness price feeds)
RECENT_CLAIMS is the current value of network recent claims
and POST_RSHARES is the current rshares on your post.
So how much do we lose (or make) when the price of STEEM/USD goes down (or up) by a penny???
To answer that, let's calculate the sensitivity of the expected payout of one of my recent posts
According to steemd.com that post has 50,696,175,463,520 rshares.
Also, right now www.steemdb.com has the following values for:
REWARD_POOL = 738041.738
NETWORK_STEEM_USD_RATE = 3.019
RECENT_CLAIMS = 4.5579684828326E+17
These values change over time, and its beyond the scope of this post to go into all of that. For the purposes of this example, however, let's assume REWARD_POOL and RECENT_CLAIMS stays constant.
Now, we can calculate how much a $0.01 move in STEEM/USD would change the expected value of my post:
((738041.738 * 0.01) / 4.5579684828326E+17) * 50,696,175,463,520
which comes out to a change of $0.82 in post payout per $0.01 change in STEEM/USD.
So, for example, if the price of STEEM/USD fell to $2.5 the value of the post would drop by about $42.558 (ouch!)
On the other hand if the price rallied to $3.5 the value of the post would rise by $39.442.
Thus, the more rshares your post is worth, the more sensitive the value of the post becomes to the network STEEM/USD rate
Of course, figuring out the author's share of the calculated expected payout from a post is a little more complicated.
Suppose a post is worth $100 according to the expected payout.
Worst case scenario, 75% of this value goes to the author, i.e. $75
Then, to calculate the actual payout in SBD, we get $75 / 2.0 = 37.5 SBD. Thats the author's SBD payout.
The SP is calculated is $75 / 2.0 = $37.5 / $3.019 = 12.42 SP. Thats the author's SP payout.
So how does all of this expose you to SBD/STEEM rate risk when you buy a vote?
Well, a typical bidbot transaction might go something like:
- send 20 SBD to bidbot and
- get $45 "dollar" upvote
Remember this $45 isn't real dollars, and it gets split 75% / 25% between you and the curators, so the real value of the upvote to you the author is:
$45 * 0.75 = $33.75
Now this gets split in 2 to calculate the actual SBD and SP payouts:
$33.75 / 2 = 16.875 SBD
and
$33.75 / 2 / $3.019 = 5.59 SP
Which means that 20 SBD went out and now only 16.875 SBD are coming back in. This results in a deficit of 3.125 SBD.
That's where the SBD/STEEM exchange rate risk comes in.
Suppose that the current SBD/STEEM rate is 1.22 (i.e. 1 STEEM buys 1.22 SBD)
The 5.59 SP from the paid vote equals 6.819 SBD at this SBD/STEEM rate, which more than makes up for the deficit in SBD. The total return then in SBD is around 18% in this case.
But suppose the SBD/STEEM rate goes to 0.8 (i.e. 1 STEEM buys 0.8 SBD), now the 5.59 SP from the paid vote is only equal to 4.472 SBD, so the return of the vote drops to 6.7%
On the other hand if the rate goes to 1.8, the return jumps all the way to 34.7%!
Thus, assuming all other factors stay the same, buying a vote puts you short SBD vs STEEM, that is you gain as the value of SBD declines against STEEM.
Like everything else on STEEM, this has to be wildly complicated. But just like in traditional finance, there's returns to people who actually read the rulebook.
Of course, this post only considers the risk presented from changes in exchange rates. We do not consider the ever present risk of getting downvoted [not a suggestion, just covering all bases]
I've tried to make this as accurate as possible but given the amount of math involved errors may have crept into my work here... any correct corrections (lol) will be rewarded with love, and upvotes ;-)
Every time the currency moves, it is a risk, as long as I liquidate my rewards, I fall and fall short of what I had in the beginning. I have run with bad luck!
i feel you, it can be hard to time it right, but this math helps explain why our posts payout a lot more during rallies in the price of STEEM/USD
interesting post ,now I understanding this up vote bots better thanks :)
Are this bots allowed ? or why Steem not block them ?
there's nothing in the protocol that blocks this kind of thing directly
even if there was, i would imagine an offline side channel would arise. at least now its pretty transparent and democratic in that basically anyone can use these bidbots. by that i mean democratic in the DPoS sense of the term: anyone who has SBD / STEEM can use them.
that being said, there are plenty of users that don't like this practice. posts can be downvoted and behavior discouraged... this post wasn't trying to come down on one side of the argument or the other, just to explain the mathematics... i use bidbots. they have value as long as trending pages work the way they do.
Thanks for you my dear friends @marketstack
thanks for your answer .
your channel is informative
this was an excellent breakdown of how it works. I wish I've known this before buying up votes in an attempt to promote a post to an empty room (as this platform tends to be).
Part of me wants to just put all my SBD earned to SP and delegate it, going long.
Part of me wants to liquidate my SBD and gable with other coins.
Thanks to your explanation I finally understood how it works.I was wondering why does the value change so drasticly after slight changes in the price and sometimes doesnt.I was also confused what happens with reward value according to Steem price.Because sometimes pirce fell and I still got the same/bigger reward value.Great informative post.
BTW Surprisingly this time the math was easy and simple :) (I know you made an easy example not including other factors)
thanks for feedback! i'm glad it made sense
sometime in the near future, i'll write follow up posts going through the other factors like reward_pool and recent_claims, which are quite complex in their own right
There is a LOT of math that goes along with this website! lol I'm scared to even look at your math. I did pretty well though when steem shot up in price though but now that it went down my earnings have suffered.
Very useful post that explains what happens when the price of STEEM/USD goes down or up.
You have explained everything very clearly and with examples so there is nothing to add . Congratulations my friend @marketstack this post is perfect.
thnx! high praise indeed
Helpful post.Thanks for sharing it
Wow extraordinary the way that dominates this topic ... I really did not learn to do the steps of mateatica only that buying votes is more a mirage of happiness than the real gain. It is better to go little by little!
dominating topics is kind of my thing
Thanks for sharing - I hadn't really thought of the short term exchange risk inherent in vote purchasing or even resteem services. Important to know and understand during unstable markets.
I READ your post great thinking vote is the part of life..... every one like voting same as election also.... but here the game depend on only risk.... its look like trading.... some time you have benift but some time lose money.... first of all here i have need education about steemit.... then we can succes...
Maybe I should have taken my business calculus classes in college more seriously because upon reading through your post twice it still baffles me how Steem and SDB rewards are calculated. I do know that I have used bidbots before and never came out ahead other than expanding the number of followers and an increase in reputation but I have to admit the idea of throwing some steem at a bidbot and then seeing a post that took time and effort to compile get upvoted tens of dollars instead of dollars or tens of cents makes it feel more rewarding in my mind at least, even if I am losing on the deal...
you're just like a comment / meme machine, literally
Looks like you're not improving the comment
hi my friend has been waiting for your new post mu friend
Thank you for the explanation, I was necessary to know this
Thank you for your postings. very useful ~
Hi
hello
I like your analysis of The Exchange Rate Risk of Buying a Vote
This post has received a 6.84 % upvote from @boomerang.
Interesting post.
You gave me useful information how to run SP/SD anyway.
Interesting! This is something new to me and I am trying to learn as much as I can about paid bids! This makes a lot of sense!
is it a better time to invest in bids when Steem is on the lower end like it is now if you are expecting it to rebound within 7 days?
Follow and an Upvote from me! :)
new information for me, you have great article Sir and very useful for me and other people...thanks for sharing
always provide some information dear.I'm glad to see your post @marketstack
Wow... If you have the above figured out the way you do, you're not going to have any trouble with my P.C. Theory... It's really very simple, but some people just don't seem to get it...
Awesome breakdown good info thanks
Thanks!
Great article @marketstack ! Following You!
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STOPThanks for the sharing