Flywheel is lately perhaps one of the most hated term in Splinterlands. I must admit, my blood begins to boil the moment I hear the term (no pun intended)! It is not that I hate James Watt, or Matt, or Aggy. In fact I enjoy the simplicity of the SPS Flywheel, which is what we are going to talk about today. The fact that I don't like it because its been "ELUSIVE"! Its been discussed for the last two years, and yet, there is no sign of its starting! Let us talk about it.
It is the elephant in the room.
Invented by James Watt (modern version, arguably concept is known since neolithic times, as soon as wheel was invented), the flywheel is simply a wheel that’s incredibly energy-efficient. The amount of energy it stores depends on how fast it spins, the amount of friction it encounters, and its size. By using a wheel to convert the up-and-down thrusts of steam-powered pistons into a continuous rotational motion, Watt invented the modern flywheel. That and other improvements he made to the steam engine helped spawn the Industrial Revolution (and earned him immortality as the namesake of the watt).
Above is the modern definition of Flywheel. No, I have nothing against James Watt or the steam engine (by the way, back in the day there was a thing called steem engine, not sure if that exists :)). But enough digressing; let us talk about SPS Flysheel!
Just like most inflation driven crypto governnance tokens, SPS peaked at near launch and been in exponential decline ever since. It is currently trading just below 2 cents, and chances are there it can get lower, say 1.5 cents. Other than voting, SPS doesn't have much utility at the moment (I know its is coming, but not here yet). The other token, DEC, is now envisioned as an utility driven stable coin with a peg at 1000 DEC = $1. We are trying to push this token towards $1 (for 1000, won't mention it again) for a while. The most recent effort is the successful burn event which made the token highly deflationary over last 60 days (image above).
The goal is to push DEC to at peg and just above. Let's say SPS is at 0.02. I could burn 50 SPS (1 USD worth) and receive 975 DEC.
When DEC is above peg, say 1000 DEC = $1.00105.
That 975 DEC is worth $1.02375 USD.
One can then sell that DEC to the liquidity pool and receive 51.1875 SPS.
So, you see we started with 50 SPS, and ended up with 51.1875 SPS, so the profit for this 1 round trip arbitrage is 51.1875 - 50 = 1.1875 SPS. Obviously as this oppotunity arrives, all the Hive Engine arbitrage bot will try to capitalize that and this margin will reduce. Price of DEC will drop to peg.
Mind you, team promised no new DEC is being created, but almost everything in game requires DEC. So there is a constant demand for DEC, and more and more DEC is getting locked in staking on land. So price of DEC will rise, and as there is no other way to get DEC other than to buy and burn SPS from the market, price of SPS also begins to rise.
So ladies and gentlemen, that is the SPS Flywheel!!
Well, here is the rub. People still earn DEC from selling cards, rental income, and leaderboard winning (although it is small). These players are day-to-day professionals. They play the game to earn money, so they will sell at whatever prices at market. Since there is no staking of DEC yet, and there is still 4.7 B of DEC out there, yes it is still a LOT, there is still a large supply and not enough demand, neither for DEC, nor the cards. Lot of supply and little demand means prices will go down. So the price is still soft, even with all the 500M recent burning.
Here we go. I am going to end the post with a positive note. As per the latest timeline. The 'current age' ends in August 1. Looks like team will honor that this time and release land 1.5 by then. That will ensure more DEC getting locked up to buy products first and then clearning of land; and then with land 2.0 there will be card staking. I don't know that timeline. I will guess it will be 4Q 2023. Say December. I say that will be the start of the SPS Flywheel. Hold tight for 6 months folks!
The Splinterlands
