Introduction
Collectively, user-generated content has created billions of dollars worth of value for the shareholders of
social media companies, such as Reddit, Facebook, and Twitter. In 2014, Reddit hypothesized that its
platform would be improved if everyone who contributed to reddit.com by posting stories, adding
comments or voting were rewarded with a fair share in Reddit, Inc . Steem aims to support social
1
media and online communities by returning much of its value to the people who provide valuable
contributions by rewarding them with cryptocurrency, and through this process create a currency that is
able to reach a broad market, including people who have yet to participate in any cryptocurrency
economy.
There are some key principles that have been used to guide the design of Steem. The most important
principle is that everyone who contributes to a venture should receive pro-rata ownership, payment or
debt from the venture. This principle is the same principle that is applied to all startups as they allocate
shares at founding and during subsequent funding rounds.
The second principle is that all forms of capital are equally valuable. This means that those who
contribute their scarce time and attention toward producing and curating content for others are just as
valuable as those who contribute their scarce cash. This is the sweat equity principle and is a concept that
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prior cryptocurrencies have often had trouble providing to more than a few dozen individuals.
The third principle is that the community produces products to serve its members. This principle is
exemplified by credit unions, food co-ops, and health sharing plans, which serve the members of their
community rather than sell products or services to people outside the community.
The Steem community provides the following services to its members:
- A source of curated news and commentary.
- A means to get high quality answers to personalized questions.
- A stable cryptocurrency pegged to the U.S. dollar.
- Free payments.
- Jobs providing above services to other members.
Steem’s purposeful realignment of economic incentives has the potential to produce fairer and more
inclusive results for everyone involved than the social media and cryptocurrency platforms that have gone
before it. This paper will explore the existing economic incentives and demonstrate how Steem’s
incentives may result in better outcomes for most participants.
1 Reddit’s Cryptocurrency, Forbes, Erika Morphy, October 2014,
http://www.forbes.com/sites/erikamorphy/2014/10/01/reddits-cryptocurrency-could-have-many-uses/#4e07b05332b
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2 Sweat Equity, Investopedia,
http://www.investopedia.com/terms/s/sweatequity.asp
Recognizing Contribution
Steem is designed from the ground up to address the major barriers to adoption and monetization of a
social media based economy. Our thesis is that the same techniques used to grow major social media
platforms can be used to bootstrap a successful cryptocurrency. Economic incentives enabled by
cryptocurrency can dramatically facilitate the growth of a new social media platform. It is the synergy
between cryptocurrency and social media that we believe may give Steem a powerful advantage in the
market.
The challenge faced by Steem is deriving an algorithm for scoring individual contributions that most
community members consider to be a fair assessment of the subjective value of each contribution. In a
perfect world, community members would cooperate to rate each other's contribution and derive a fair
compensation. In the real world, algorithms must be designed in such a manner that they are resistant to
intentional manipulation for profit. Any widespread abuse of the scoring system could cause community
members to lose faith in the perceived fairness of the economic system.
Existing platforms operate on a one-user, one-vote principle. This creates an environment where rankings
can be manipulated by sybil attacks and the service providers must pro-actively identify and block
abusers. People already attempt to manipulate the Reddit, Facebook, and Twitter scoring algorithms when
the only reward is web traffic or censorship.
The fundamental unit of account on the Steem platform is STEEM, a crypto currency token.
Steem operates on the basis of one-STEEM, one-vote. Under this model, individuals who have
contributed the most to the platform, as measured by their account balance, have the most influence over
how contributions are scored. Furthermore, Steem only allows members to vote with STEEM when it is
committed to a vesting schedule. Under this model, members have a financial incentive to vote in a way
that maximises the long term value of their STEEM.
Steem is designed around a relatively simple concept: everyone’s meaningful contribution to the
community should be recognized for the value it adds. When people are recognized for their meaningful
contributions, they continue contributing and the community grows. Any imbalance in the give and take
within a community is unsustainable. Eventually the givers grow tired of supporting the takers and
disengage from the community.
The challenge is creating a system capable of identifying what contributions are needed and their relative
worth in a way that can scale to an unbounded number of people.
A proven system for evaluating and rewarding contributions is the free market. The free market can be
viewed as a single community where everyone trades with one another and rewards are allocated by profit
and loss. The market system rewards those who provide value to others and punishes those who consume
more value than they produce. The free market supports many different currencies and money is simply a
commodity that everyone finds easy to exchange.