While steem recently became the third-largest digital currency as measured by market capitalization, surpassing $400 million this month, some market experts are skeptical of steem and have expressed doubts about its economics.The digital currency’s market capitalization surged in July, rising more than 2,000% from $17.9M to $411.9M between 04:14 UTC on 6th July and the same time on 20th July, CoinMarketCap figures reveal. The digital currency’s price climbed more than 1,800% during this period, increasing from $0.24 to $4.63.For those new to the digital currency, users can obtain steem by posting content on social media platform named Steemit.
When users publish popular content, as measured by upvotes, they receive steem tokens. By developing such a platform, Steemit’s creators have stated that they want to allow users to receive a reward for the content they create."The concept itself is interesting, it is a Reddit and Quora mashup with a strong monetary incentive to produce good quality content," Joe Lee, co-founder and CIO of digital currency trading platform Magnr, told CoinDesk. "Whether steem succeeds as a digital currency will be more a reflection of Steemit’s success as a platform as opposed to the economics of the coin itself. This is a good example of a digital currency whose value will be closely affiliated to its utilitarian value as a social networking and sharing platform."
The creators of Steemit have responded to criticisms like these, emphasizing that they have built certain safeguards into the system to provide users with greater incentive to hold on to their steem tokens. One such feature is Steem Power."Because Steem wants to encourage long-term growth, it is hardwired to allocate nine steem to Steem Power (SP) stakeholders for every one steem it creates to fund growth through contribution incentives," the steem whitepaper stated. "Over time this drives the ratio of the total Steem value of Steem Power balances to the total of steem balances toward nine-to-one.
""Long-term holders are almost completely protected from the dilution used to fund growth" as a result of this setup, the white paper continues. Past that, the "Steem power can only be converted back to steem over two years via 104 equal payments."Burniske spoke to the benefits of Steem Power, telling CoinDesk it could help provide the digital currency with the stability it needs.
"Locking people into Steem Power for 2 years is a good way to secure long term capital commitment that will help the platform retain a steady base, hopefully giving it the runway it needs to establish sustainable user and developer network effects," he stated. "This is an interesting neutralizer to the 'burn fast, burn bright' that we often see with new cryptocurrency platforms.
"While steem’s innovative approach has helped it rise above the vast majority of crytocurrencies and become the third-largest in terms of market capitalization, only time will tell whether its business model will be sustainable. Until that point, the digital currency will probably not lack for attention, as many market observers will be taking a closer look at steem to see whether its approach is sustainable.
Source: coindesk.com/steem-provokes-doubt-market-observers/
