HomeAnswerNotificationsCategoriesIntroductionAboutFAQ
HOMEQUESTION
What will be the projected inflation in steem, if the price stays at 0.42 usd for a month?
Someone told me that inflation lowers down if the steem price is high and vice versa. What's your say?
1 ANSWER

I'm not sure where you heard this, but STEEM's inflation rate is not determined by the prevailing price of STEEM in the market. Instead, it is determined by the frequency that new blocks are created by the blockchain.

According to the Steem White Paper published in June 2018, from an initial 9.5% inflation rate last December 2016, STEEM's "inflation rate decreases at a rate of 0.01% every 250,000 blocks, or about 0.5% per year. The inflation will continue decreasing at this pace until the overall inflation rate reaches 0.95%." Given that the blockchain can create a block every 3 seconds, this process is expected to take 20.5 years, at which point the inflation rate will be stationary at 0.95%. 

From this, @fyrstikken actually created a table projecting the inflation of STEEM over the next 30 years. You can check it out to see where STEEM's inflation rate is headed here: (https://steemit.com/re-calculated/@fyrstikken/the-inflation-of-steem-over-the-next-30-years). Based on the current 8.66% inflation rate posted at SteemDB, the table holds true, so far.

Why is STEEM following this inflationary model? We have to remember that the Steem Blockchain is an application-specific blockchain designed to tokenize online content businesses and communities. To do this successfully, it has to continuously create new tokens that it could use to reward the many stakeholders in the blockchain--from witnesses, to investors, to content curators, to content creators, and everyone else who provides a contribution. The inflation therefore provides a constant source of new tokens that could be distributed through the rewards pool. This is a feature unique to the Steem Blockchain. 

However, the rate of creation has to be controlled in levels that it could support the blockchain's spending without creating a downward pressure on the price of STEEM.  Thus, the decreasing rate of inflation.

So, regardless of the price of STEEM, the blockchain's inflationary model will still hold, and follow it's projected 0.01% decrease for every 250,000 blocks or approximately 0.5% per year.

Hope this helps.

Sources:

  1. Steem White Paper. https://steem.com/wp-content/uploads/2018/10/steem-whitepaper.pdf
  2. The inflation of STEEM over the next 30 years! https://steemit.com/re-calculated/@fyrstikken/the-inflation-of-steem-over-the-next-30-years
  3. SteemDB.com. https://steemdb.com/
  4. SMT White Paper. https://steem.com/wp-content/uploads/2018/11/smt-whitepaper-nov-3-2018.pdf
Reply