Here I'd like to closely examine Steemit platform and its business model. First, several brief notes. The Steemit platform uses a platform-specific cryptocurrency, and authors whose content is upvoted or commented upon are getting rewarded in cryptocoins. Then there's a baffling moment: Those who vote for the content also get rewarded. In other words, it's not a transaction where fans reward their favorite authors by tokens from their pockets; It's a transaction where both sides have a monetary interest. I vote for somebody's post and both he and I get some coins. And here it's getting interesting, like, if all the parties of platform's transactions get money then where those money is coming from (In this context, it's worth noting that Steemit tokens are convertible into fiat money. In other words, Steemit authors make real money off their content) To add more confusion to the situation, the Steemit platform doesn't run ads, so at the first glance it seems incomprehensible how it makes money at all, let alone providing monetary incentives to its participants.
So, speaking of Steemit. The platform has three different cryptocurrencies. Steem is a standard token with a free-floating value on the market. Steem dollar or SD is a token with which Steemit authors are rewarded when their content gets upvotes. Steem Power (SP) is a special non-tradeable token, giving some special perks to the platform users. (More on that later)
So how does this system work? One of the key differences of Steemit tokens with typical blockchain tokens is that they are subject to inflation. In fact, this inflation factor is significant; Steem token has 100% yearly dilution rate and SP token 10% yearly dilution rate. This happens because the platform conducts regular token emissions (not as if this process is uncontrollable though) and the steady influx of tokens leads to overall decrease of token's market price. In other words, the demand for Steemit tokens is relatively steady, so the constant increase of supply leads to the gradual depreciation of their value. Also, Steem tokens don't have any built-in emission limit as other crypo, so they can be produced indefinitely. All this means, for example, that it's pointless to buy Steemit tokens with expectations of their market price growing over time, in other words, for the purposes of investment or speculation. To the contrary, if you buy Steem you should expect that after a year you'll lose a half of the value you invested in them. Or if you've converted Steem into SP (Steem Power) with slower inflation speed you will still lose 10 percent of your money.
So why after all people buy those tokens? Let's take a closer look at the daily life of an average Steemit user. (We'll be talking about Steemit authors, people producing content, because to read Steemit content one doesn't need to register on the platform.) So, you've registered on the platform and published a couple of articles. If you are lucky you get some upvotes, and one new thing you notice is a number below your post, indicating how much you earned from those upvotes.
(Let me be clear, it's highly unlikely that you'll get any meaningful sum (>$1) right off the bat, or you'll get any upvotes at all during your first weeks on Steemit. I managed to get $100 for one of my posts during my second week, but it turned out that I was incredibly lucky, plus there was some politics involved. More on that later.)
The sum you get for upvotes on your posts is denominated in Steem Dollars (SD). As I've mentioned before, SD is one of the cryptocurrencies used on the platform, and its key feature is that it's pegged to US dollar, so the authors know approximately how much money they'll get in fiat without the need to constantly track the wild and chaotic token exchange rate. In fact, SD is more of a platform's debt obligation; the total number of SD's never exceeds 10% of company's equities, which keeps them liquid. With each emission of the standard Steem tokens the platform simultaneously issues SDs in a proportion defined by Steem token's current market value (as well as other factors, in other words, it's complicated)
Here you might ask, how Steemit manages to keep the value of SD token pegged to US dollar, and at the same time maintain regular emissions of those tokens. Naturally, it would lead to an overabundance of SDs in the system, which would lead to the situation when the company wouldn't be able to back their total value by its assets. In other words, if all the Steemit users simultaneously decided to sell their SDs it would immediately lead to the company's bankruptcy. Ok, here's an interesting thing. Actually, nobody keeps their savings in SDs despite its being the least subject to inflation. But there's a strong incentive to convert them into Steem Power or using the platform's jargon to "power up." I'll explain later the psychological magic, compelling platform's participants to convert mundane but reliable (in a sense that they can always be converted into an approximately equal number of US dollars) Steem Dollars into volatile Steem Power, that looses yearly 10% of its value to inflation, and which value is defined by a turbulent and volatile cryptocurrency market to begin with. Right now let me mention what happens to the Steem Dollars when their owner exchanges them for Steem Power. They are BURNED. Just like that. In other words, a constant emission of SDs doesn't really increase their amount in the system. The lifecycle of Steem Dollars is relatively short. They are produced, get distributed to the authors when the latter get upvotes, (as well as to the people who upvote and comment on the content) and shortly after they are burned when users exchange them for Steem Power. It means they disappear forever (or sent into the void or whatever)
So now here's the most crucial part, also explaining how the actual money gets into Steemit. Like, the token economy is great, but it's really a closed economy. It can be compared to a small country that has its small currency. While all the exchanges inside that country can be conducted using its small currency, for this currency to be convertible into US dollars for example, the country needs to export something that people would be willing to pay US dollars for. In case of content platforms it can be a) ads placement b) subscription fees. But Steemit doesn't run ads, and its content is free. So what's going on, how on Earth does it make any money at all?
Here I'd like to return to a closer examination of Steem Power (SP) tokens and also clarify why authors who earn money in Steem Dollars are so eager to exchange them for SPs as quickly as possible. As a newbie author on Steemit platform, I can probably earn about $10 per month, and this is not something I dreamt of. Here is where SP tokens come into play. They increase my earning power. ~So I exchange all my hard earned profits into SP tokens, presumably investing in my future monetary success. If I'm determined enough I will buy Steem tokens on exchanges for real money in order to convert them into Steem Power and thus ensure my cloudless financial future. And this is the answer to the question of WHERE DOES THE MONEY COME FROM? The money comes from the people buying Steem tokens, hoping to increase their standing on the platform, as well as potential profits they can get from their content.
As I mentioned at the beginning, there's a stable demand for Steem tokens despite them being a really shitty investment, considering their 100% yearly depreciation (Ok, we are rather talking about 10% depreciation of SP tokens cuz nobody really holds Steem tokens for long, but still they are meaningless in terms of investment) So, here it is, the platform, in fact, is financed by a part of its participants who see a monetary potential in this combination of SP tokens power and their own creative skills. To realize this potential they become investors/authors. Sometimes their ambitions are justified; there are authors who make $1000+ on each post. (SP tokens play a definite role here) But more often they are just voluntarily contribute to the platform's well-being, at the same time financing those successful authors who make good money off their content, as well as, well, everybody else -)
In some way this situation reminds me of a model of multiplayer games where some players pay money to buy game credits or some artifacts, giving them some advantages in the game.
