I continue on my quest of discovering wonders of crypto world investment opportunities. I recently examined Steem, and this is my report. I will argue that Steem economy is made good for content creators and curators who is willing to sell their time and hard work, but not particulary attractive for investors. At least no more than many other blockchain-based techs at this point.

Inflation

As outlined in Steem WhitePaper:

• STEEM has built-in inflation of 9.5% in 2017, decreasing down to 1% over the next 20 years. Inflation is required because network creates new tokens to pay content creators and curators (75%), witnesses that support the network (10%) and Steem Power holders (15%).

• Steam Power has built-in inflation of 8% in 2017. Since SP is just frozen STEEM, inflation dynamics are of course the same, but slightly mitigated by 15% with payments outlined above.

At first I was like WHAAAT, why would anyone invest into an asset that loses 9.5% of its value annually? Ukraine in 2016 had a yearly inflation of 8.1%, and they were supposed to be in total chaos and at war with freaking Russia! Their currency at the time surely didn't look like a good investment.

On the other hand, I then found out that Ethereum has built-in 15% inflation in 2017, and others anywhere from 4% to 30%. Good job Bitcoin with 4%! Others... not so good. Apparently everyone just takes inflation for granted in crypto world. Okay then.

Zero interest rate on Steem Backed Dollars

Anyone who read Steem Whitepaper knows that SBD are designed to pay interest rate. Rate is determined by price feeds controlled by witnesses. I remember being impressed and excited about it at first. But eventually disappointed by a description in wallet at steemit.com saying annual rate is 0.01%. Effectively they don't pay.

This kind of makes sense if you think about it. Interest rate is determined by witnesses. Witnesses are elected by votes weighted by Steem Power. No SP — no vote. People with SP do not want to dilute their SP by having high (or any) interest rate on SBD. On the other hand, people who hold SBD have no power to influence witnesses. Not sure if this is supposed to fix itself later when the economy develops.

SBD are also pegged to USD, which 1) do experience inflation of about 2% per year, and 2) do not of course grow with the adoption of Steemit, as STEEM hopefully does.

Well... okay then, moving on.

STEEM is for crypto traders

Finally a change to positive tone!

(image source)

First and foremost, STEEM (and therefore SP) value hopefully grows with Steem adoption and use, as well as market cap of all crypto realm. It is reasonable to assume it should at least grow faster than its inflation rate. This reasoning, however, is exactly the same for all sensible crypto tech out there, not just Steem. It comes down to which you believe to have greater potential for growth.

Then, if you believe in Steem future adoption and decide to be a long-term holder, you have a choice: STEEM or SP. Liquid STEEM allows to quit at any time, as well as play on internal STEEM/SBD market, betting on quick price movements when the whole crypto market moves up or down. That is, pretty much every week. As opposed to keeping funds on centralized trading platform, you're your own master here. Literally, you hold your own keys. You're not limited by platform rules and withdrawal limits; there are no fees; no risk of platform being hacked, shut by authorities or host plainly running away with clients money. Trade-off is of course that you're limited to a single trading pair.

Steem Power pays — if you work hard to use it

Experience tells that market game is fiendishly hard to consistently beat even for professionals. So, unless you are a seasoned forex shark, most likely you should turn STEEM into SP. This makes you additional 1.5% a year (in 2017) in form of dividends, at the cost of not being able to retreive your money instantly. SP can currently only be converted to STEEM by a serie of gradual payments over 13 weeks.

There is more to holding SP: it's not called power for nothing. Holding SP affects your voting power, that is, weight of your upvote. Large SP pool, together with a decent reputation score, gives you influence to affect people on the platform. Even a $1 upvote is a strong tool to play with — and my paper tissue calculations conclude it might cost as low as $7500 worth of SP on a 35-rep account. Having ability like that to affect visibility and payout of posts — yours and others — can be monetized in many ways, limited only by imagination and ethics.

The most straightforward way to monetize is the system of curation. Upvotes affect distribution of rewards to authors (which is good for the platform), and also distribution of curation rewards (which is good for SP holder). The more SP you have, the more curation rewards you get.

Curation requires hard work. And maybe more experienced steemians will correct me here, but by itself curation does not seem to bring much. Out of top 25 richest whales there are only four who did any decent amount of curation recently. Here they are:

Whale	Wealth	Curation reward last week	Projected annual income
@blocktrades	3.61m SP	2962 STEEM	4.2%
@hendrikdegrote	1.66m SP	2048 STEEM	6.5%
@abit	1.54m SP	1990 STEEM	6.8%
@thejohalfiles	1.25m SP	1186 STEEM	4.9%

Not stellar percentage when compared to inflation, and seemingly not a reason to keep SP by itself. But being both author and curator in some combination should certainly have potential.

Photo: steem curator filtering through minnow posts.

Again, all this require decent amounts of work. Options become limited for those who don't write and aren't ready to invest time into curation. It is possible to set up an upvote bot <1> <2> to follow voting of others you trust. Bot still requires initial set up and occasional fine-tuning, but probably takes much less time. Technically it is possible to delegate SP to increase voting power of another account, which means one can lend SP for a fee. One can also straight up sell upvotes, as many bots do: most popular community bots are of "bid for upvote" type with variations.

More and more we go into a shady zone here. @sherlockholmes'es blog is full of posts describing SP-farming schemes. Where to draw the line is the question everyone answers for themselves.

Conclusion

My point of view as a potential investor sounds kind of pessimistic, but for what it's worth: other than hopes for organic growth of STEEM currency, existing opportunities to put capital to work do not seem viable on Steem.

Not to say that those hopes themselves are ungrounded, though. Steem has one overwhelmingly strong advantage compared to most other crypto tech. Steem, being a social network with unique features, has a decent plan for how to increase its userbase — plan that seems to work so far. Aren't those charts beautiful.

And maybe for Steem itself it's a good thing not being attractive for money. If Steem does not need money, but needs authors, it certainly makes sense to appeal to authors.