(Before I dig in, I want to point out that the magic of compounding interest can seem fantastic. I am not a financial adviser, and this is not advice to invest in Steem. I am long Steem, but it is part of a portfolio of savings and investments, and I’d never recommend anyone put in more than they can lose comfortably into Steem)
Did you know that if you self upvote 10 times per day, at 2.4 hour intervals, and do no other voting, you can give yourself 100% upvotes that are worth about 4.5 cents each per 1000 SP ($733).
That’s about 22% APR in Steem (19% after 15% is taken off for witnesses and SP holders). Of course, the fiat value of Steem may fall, offsetting the 19%, which is one reason (of many) there aren’t a hoard of investors swooping in to make their fortune in Steem right now.
Let’s Do Math!
If you’re wondering where I came up with the above numbers, I’m going to explain it all below. I had to answer a question that had been bothering me for quite some time, which is, “What is the exact APR in Steem I can get by self voting?”
Now, I do upvote my own posts, but in general, I use the vast majority of my voting power on other Steemians, as you can see here (look at “voting CSI” for the %age of votes I give to myself vs others). What I’m talking about, however, is the value of an account that only self votes. I don’t recommend self voting in this way, but running the numbers here gives us an understanding of what SP is worth.
And that is a question worth answering.
- Steem is currently $0.733
- The account has 1000 Steem Power exactly
- The account is set to automatically self post exactly 10 times per day, each time at 100% power, which takes 2.4 hours to reach after one full upvote.
I began by looking at the cost of 1000 SP in USD: $733. Right now, a person could buy 1000 Steem for $733 and instantly power up.
With 4.5 cents per upvote, and 10 upvotes per day, the Steemian would earn 38.25 cents per day. This number is reached by the following math: 4.5 cents times 10 is 45 cents. This 45 cents (split half into SP and half into SBD) is further reduced by 15%, as some rewards go to witnesses and SP holders. The remaining 85% is split between curators and content creators, but since we’re just self upvoting, they are both the same person.
This results in the Steemian receiving 85% of $0.45, which is $0.3825 cents.
Multiply that number by 365, and you’ll get the annual return: $139.61. If you started with $733, and added $139.61, you now have a 19% Annual Percentage Rate.
All this assumes the price of Steem remains constant.
Steem is Volatile, Delegation Rewards are Not
Steem has been just as crazy as other cryptocurrencies. Those who bought Steem at $7 or $8 and self voted all this time have lost over 90% of their investment. 19% isn’t going to make a difference…except for those who have a low time preference for their investments and believe that accumulating and increasing their Steem will pay off in a number of years.
Here’s the secret: delegations give approximately the same level of returns as self voting. Minnowbooster is a great place to go to delegate Steem Power, but projects like Vimm, Partiko, and others are also worth considering.
By delegating SP for daily rewards, Steemians can tap into the power of compounding interest, putting more of their earned Steem into Steem Power, and creating the opportunity to earn even more returns faster each year.
At 19% APR, it takes just a touch under 4 years to double that 1000 Steem Power into 2000 Steem Power.
The next four years? Your 2000 SP turns into 4000 SP. You just earned twice as much SP in the same amount of time that it took you the first four years. Let’s take a look at what a few more four year sessions could provide:
- Year Zero: 1000 SP
- Year Four: 2000 SP
- Year Eight: 4000 SP
- Year Twelve: 8000 SP
- Year Sixteen: 16000 SP
- Year Twenty: 32000 SP
A 19% APR brings the patient investor over 1,000,000 SP in 40 years, from 1000 SP.
The above is a thought experiment, because real life is different: bills need to get paid, bull runs drive prices higher and create good opportunities to sell and diversify, bear markets freak people out and cause them to panic sell. We are not robots who act without regard to fear and greed.
Furthermore, Steem (as a currency) currently inflates at about 9% per year. This means the actual effective APR is closer to 10%, as there is an expectation that an otherwise stable currency would lose value as more is added into circulation. However, the number of new Steem created is constant, so as the money supply grows, the percentage of inflation will decrease, meaning we’ll have a lower rate of inflation in 10 years than we do today (maybe 2%) even though the same number of Steem will be created daily.
I want to reiterate that I’m not a financial adviser, and this isn’t advice to buy Steem. I hope it is informative and helps you understand better some of the value of Steem Power. Ideally, I’d love for some VC firms to read this and put some money into Steem, maybe even bringing some more projects to this outstanding blockchain.