The second level of curators then has less to look at, and can begin to shift rewards among the identified 'not worthless' candidates. This is good division of labor and value add all around, especially if you consider a scaled up system with much more content added daily.
In order for any of that to work, the large majority of the stake has to be voted naively, so that the people doing the algorithmic discovery have a large pool of content-based votes to be rewarded from. And you get naive voting by reducing the incentive to optimize, not the reverse.
If you have a first-level of curators that does basic discovery, and a larger (stakewise) second-level of curators that does higher-value discovery, you still need an even larger third level of "uncurators" who just want to vote on cool shit and don't care what their rewards are.
That remains the key population for making Steem work.
It works if overrewarded content is downvoted. Curators can pile on (or perhaps 'reverse pile on' is more accurate since it is anticipatory) because A expects B to curate/vote and B expects C, etc. But if D (along with E and/or F) comes along at the end and declares this to be trash and downvotes it to zero then A, B, and C all wasted their vote power (a costly mistake).
Even without any preference-motivated upvoters (and there will always be some) this can still work. As a curator you have to upvote something or your vote power is wasted. If you spread your votes thin or even vote randomly, this is superior to not voting. Once you do that, then choosing based on what you most expect to not get downvoted is superior to voting blindly. Simple model of course, but not absurdly off.
Somebody has to be the last voter who loses in this scenario. If not a naive voter, who's getting what they want on a personal-social level, then it's a curator who's not doing well enough to be successful. Over time the unsuccessful curators will drop off and somebody else will become the unrewarded top of the pile, until it has recursively reduced the curation-optimizing stake to the level the naive voters can support.
I don't think you have refuted my logic even there are NO naive voters other than downvoters (who count as a form of naive voter in the sense they are unrewarded).
Yes, there will be some equilibrium of curators. That's okay.
I don't understand your model here. Is it that you expect there to be a significant population of people who both desire curation rewards and are satisfied to lose at it? Do you think curation at 50% is so great that even the worst curators will be better off doing it than anything else with their money/time? (There might actually be enough inactive Steem to make that true in the immediate sense, but I'm doubtful it's sustainable. Though I really have no way to model future activity %s. I guess free downvotes help this too, and I'm going to have to think through that part some more.)
If the small curators are being paid by the medium curators and the medium curators are being paid by the big curators, who's paying the big curators? It's still zero sum and somebody has to lose.
Except that everybody in that system is getting paid by inactives and people who voted on things that got flagged, which is still zero-sum as a whole, but I need to think about it some more. There's a weirdness there of creating a system that sort of depends on the existence of abuse that I kind of like, but is super-weird in a game theory sense.
What I'm saying is that you can't do any worse than not voting. Even if your ROI from curation is relatively low, you are still better off throwing the vote out there. And if you're going to do that, you might as well try to throw it on something that has better prospects (with respect to upvotes minus downvotes).
If your ROI is low, you have a few alternatives: 1. Work to get better at it. 2. Delegate to a better curator (and probably get a share ofthe rewards). 3. Sell your stake and leave. 4. Decide you don't care (essentially your model of naive voters).
None of these are ever worse for you than not voting, with the possible exception of 3 if the STEEM price subsequently goes up (but it could go down too).
This is your mistake. It isn't zero sum unless Steem is failing. It is positive sum if the total network value of Steem increases by more than its (roughly) 8% inflation rate, even if you are the worst off stakeholder in the entire system! 8%/year doubles in 9 years. It would take 18 years at that rate for Steem to reach $1 billion in market cap. These are hardly aggressive growth targets.
People are incentivized to get their vote out there and try to get a share of the rewards, and in turn are then incentivized to try to do so in a less-than-maximally-stupid way. The goal of Steem is to grow the pie through effective allocation of rewards. That includes paying for the allocation process (curation). It doesn't just happen (well) by magic or wishful thinking.
Sure, but you can do substantially better than not voting by switching to a non-inflationary asset. That's what we need to be zeroing against here, not holding Steem and being inactive, which is basically lighting money on fire. If voting doesn't lead you to at least tread water against the inflation rate it's a loss.
So basically you're adding in the value of holding the coin in hopes that its price goes up. The extra inactivity from flags was a better idea. The problem is that you can achieve the same effect from no end of coins, shares, and other instruments where you have to do zero work. So again you're using a stationary zero when a moving one is appropriate.
If I can hold Steem and vote badly, or I can hold Bitcoin, Steem needs to be substantially more likely to do well than Bitcoin is for being on Steem to make sense, and the markets have certainly shown no evidence of that so far. In fact we're looking at the reverse - we need all the extra revenue from inactives we can get just to keep up.
Those coins do not endeavor to grow a community and accrue value to the blockchain by spending money via inflation the way Steem does. If they grow just as well or better than Steem then it indicates the Steem model is a failure. Simple as that.
In reality this hasn't happened. Steem has far more users than most of those non-inflationary coins, with possibly a few obvious exceptions (possibly because even though there are certainly larger blockchain communities and blockchain with more value, their growth prospects are unclear). Certainly Steem's growth rate has been higher and its reach broader, and very likely little or none of that growth would have been achieved without distributing money through inflation ("come for the rewards...").
The goal of Steem is to distribute rewards to value-adding activities (this includes but is not limited to new users since they are value-adding by growing the user base). To the extent that the system rules allow stakeholders to recapture those rewards via self-voting and other individual extractive schemes, this is in part unavoidable but not intended, and indicate leaks that need to be plugged, directing the rewards back to actual value-adding.
If stakeholders by consensus believe that inflation is too high (i.e. there are insufficient available opportunities for value-adding activities to absorb all the money), then they can vote for @burnpost type initiatives which temporarily reduce it (treating burning aka inflation reduction as the highest value-adding activity currently available) or hard fork to reduce inflation.
You are right in that sense. Steem is dysfunctional and needs improvement. Whether the improvements proposed here would produce the desired result is debatable but ultimately the goal is greater growth otherwise as you say, just go buy Bitcoin instead. Doing nothing and watching it continue to underperform is dumb.