Greetings Fellow Bloggers,
After a long hiatus from Steem, and a new return to Hive, I have taken the time to look around and see what has changed. Although there have been some meaningful updates such as the creation of communities, it seems that Hive has inherited and yet to overcome the design flaws of Steem. There are also other issues that I would like to point out that if addressed will raise retention of new users.
I’m going to start with the largest problem I see first and I’m going to be thorough. This problem has existed since the beginning of Steem and it is an economics problem that won’t be solved with just code or more users on the platform alone. Users come to Steem/Hive because they like the idea of getting paid to create content. This means that they are the initial demand for HIVE cryptocurrency. When the content developers get paid typically they exchange their HIVE rewards, therefore they are the main distribution of HIVE tokens into the market which creates a downward force on the market price of HIVE via people wanting to exchange their HIVE due to the fact that other cryptocurrencies/USD are valued higher than HIVE. This trend is reflected by the market.
(Source: Bittrex 5/28/20)
Why do content developers want to exchange HIVE in the first place? The evaluation of placing higher value on other cryptos/USD is not the result of any sort of a disdain for HIVE, it’s the practical reality that unless one trades for something different we can’t purchase anything with HIVE. That doesn’t mean that there are no people in the world that would accept HIVE as payment for a service or a good, but I don’t think any of us could go to a local store and swipe a card to pay for something with HIVE. This practical reality forces us to exchange HIVE for that which we can use in our day to day lives.
The next problem that comes with this set up is incentive on the market to purchase HIVE. If I know nothing about HIVE and I’m a crypto trader, I have no incentive to invest funds into HIVE unless I see an attractive trend signaling me to make a purchase of HIVE. That means that HIVE is dependent upon the market not only to research Hive the platform but also to agree with what it is so strongly that it influences a purchase. Most people on Hive strongly support the decentralized concept of this platform. For someone with only an understanding of centralized institutions this concept of how a decentralized entity functions can be confusing.
(Source: sadhguru.org)
The next largest issue centers around several issues that have been long known so although I’ll mention these things I’m not going to spend a lot of time on them, but I do wish to convey how these issues tie into the larger economic issue.
What are these issues? Scaling the platform, bringing on more users, content rewards, curation rewards, user friendliness, ease of use ect. These topics are frequently discussed but here is the economic problem with solving them all efficiently. The solution to these problems will bring on more users, incentivize them to stay, and make the platform more popular which in turn attracts more users. Obviously the platform wants to effectively address these issues but the end result is issuing a larger volume of HIVE and increasing the supply of HIVE tokens.
Economics says if you increase the supply of a given item, you will reduce its price. Also, and oppositely, if you reduce the supply of a given item, you will increase its price.
The single most important issue Hive needs to address is this economic issue. Obviously that encompasses several spectrums of lesser issues but solving the issue will have a MASSIVE positive impact on the platform. What is the solution and what will the positive impacts be?
The simple answer is that Hive as a platform needs to reduce the amount of HIVE tokens in circulation. But how? This can be done in many ways and I highly encourage Hive as a platform to discuss, generate ideas, and implement the best/most popular ideas.... But a simple solution is for Hive to offer services and or merchandise to Hive users in exchange for HIVE tokens. This can’t be arbitrary, these have to be services/products that Hive users actually want. This can be discovered easily with discussions and polls. If enacted successfully, this reduces the overall amount of HIVE tokens that go into circulation as it happens at the first layer of distribution, the content creator. This has a similar impact on the market as a Bitcoin Halving, the more efficient the achievement of offering products/services to content creators, the higher the reduction of HIVE tokens going into circulation and the higher the upward force of valuation on the HIVE token. If I were a business attempting this I would shoot for a 30% rate of currency retention but whether or not that’s viable depends on what the platform can offer its users (which is typically placement and advertising in the case of media/social media) and whether such demand is present or can reasonably be created.
(Source: rmafed.com)
But this is only half of the equation. This does not address the tokens actually in circulation. Hive as a platform needs to find a profitable way to remove tokens out in circulation from non-platform users. The simplest way this can be achieved is by purchasing HIVE in exchange for USD below current market rate, This can easily be directed with a fixed percentage. In the presence of a long term upward trend this only makes money for the platform. Dollar Cost Averaging can then be used as a long term strategy to bring consistent liquid assets into the Hive platform while minimizing negative impacts on the HIVE token market valuation which means mitigating negative impacts on the market price against the average Hive content creator as well as the greater incentives attracting users to the platform.
Here is the net result of both of these strategies if employed simultaneously with a reasonable degree of success. It creates value for HIVE tokens in the form of raising the value of HIVE’s price by reducing the amount of supply. This increase in value creates long term market trends that signals traders to purchase HIVE tokens further reducing the supply and increasing the value of HIVE. Purchasing HIVE tokens from non-platform users raises awareness of the platform that it exists and that it is something beyond the letters “HIVE” on crypto exchanges. This also attracts more users via raised awareness but also via a higher valuation of HIVE tokens which translates to greater rewards per post, imagine if a post evaluated on Hive at 30$ actually brought $60USD. This also concentrates funds within the Hive platform which allows the platform to invest in its own proliferation in whichever way it sees fit be it resource acquisition, marketing, enhancing existing resources, offering new/existing products/services, increasing HIVE circulation reduction pool ect.
How HIVE tokens travel to the market via its users in and of itself is not a problem. Doing nothing to counteract this economic reality is. Hive did not create this problem, it was inherited. Solving this problem however will create the proper economic incentives necessary not only to retain existing users, but continue to attract new ones and do so at a much greater rate than right now. The attempts by the platform to draw more people to get involved in Hive essentially should be viewed by the platform as talent acquisition. Most people will choose to generate content for Hive and that’s great but along with those people will also come others who will like to become developers or host their own nodes or provide services and resources in other ways like me right now providing economic information to improve the existing community. More People = More Skills and Resources.
Right now this second with the system being as it is, if a billion people came to Hive and became active participants generating all kinds of content and rewards the net result would push the market valuation of Hive tokens into the ground as you would have a massive flood of HIVE tokens into the market meaning a giant increase in supply and the inevitable loss of value as the result of said increase in supply.
The counterintuitiveness of economics via the
incentivisation of individuals currently stands in opposition to Hive’s most important goals as a community/platform. But this is anything but unfixable. The magic of economics is that people respond to incentives and if those incentives are brought into harmony with the goals of Hive as a community/platform it can be viewed as similar to jogging with the wind to your back, you still have to do the work but it’s easier than if you had to run into a headwind... which is what the platform is doing right now economically speaking.
-Kush Freeman