Back in March, I wrote the article, A hypothetical method for creating Steem endowments that resist embezzlement to suggest a mechanism for creating an embezzlement-resistant endowment mechanism on the Steem blockchain.
As a reminder, an endowment is an investment fund where the original donations are invested and never withdrawn, and charitable giving is accomplished entirely through the proceeds from the investments.
The method that I suggested for an embezzlement-resistant endowment involved the use of two accounts and required no new smart contracts. In short, one account would be funded and powered up, then all of its Steem Power would be delegated to a second account, and finally, the keys to the first account would be destroyed. This act of destroying the keys would make the delegation irrevocable. The owner of the second account would then be able to grow their own account and fund their charity through curation, author, and beneficiary rewards, while the initial grant would be untouchable by a would-be embezzler. (Of course, it's possible that the blockchain has a simpler mechanism for irrevocable delegation, and I'm just not aware of it.)
Not only would this resist embezzlement, but it would also give the holder of the second account a powerful incentive to vote and create content in a way that protects and grows the value of the Steem blockchain.
Today, I'd like to extend that thought experiment by thinking through the use of Steem blockchain rewards to power a university endowment. I'm not going to focus on the implementation, however. It would be equally effective to use a traditional Steem account along with procedural or legal controls to prevent the base funds from being withdrawn (Barring embezzlement).
Purely as an example, I looked up the tuition at our local University (from which I received my first master's degree), West Chester University of Pennsylvania and then threw together a spread-sheet to see what it would take to set up an endowment that could pay one student's tuition completely out of blockchain rewards starting in 10 years, and continuing every year after that. Of course, it would be desirable to continue increasing the endowment to pay for even more students after that. As you're likely aware, endowment lifespans can last for hundreds of years.
I'll work through the details in the remainder of this article, but here is the bottom line. I believe that, even with very conservative assumptions, it would be possible to launch an endowment that would fund one student's tuition out of blockchain rewards starting in the tenth year after launch.
Here are the assumptions that I made:
West Chester's tuition is listed on their web site as $1,113.57 per semester, giving an annual total of $2,227.14. After 10 years of inflation, that works out to $2,714.87.
Under those assumptions, I found that the endowment would - hypothetically - reach $2,738.18 in blockchain rewards after 10 years, which is a $23.31 surplus over the tuition price.
Here are the details behind that bottom line.
Now let's talk through the columns in the sheet. Note that all columns except for the last are shown here in dollars, but they'll actually be held as Steem Power (SP).
This is probably self-explanatory. It's the number of years after launching the endowment.
This is the amount carried forward from the previous year.
Donations are received through plain old-fashioned fundraising. Universities are already very good at this. I assumed a fundraising draw of $2,500 per year.
Here's where things get interesting. The Steem blockchain pays curation rewards to account holders for voting on posts in an effort to crowd-source content evaluation, appraisal, and ranking.
I assumed a 6% per year rate of curation rewards. My own personal curation bot has been achieving 8%-15% for a period of 3 years. Additionally, this bot is motivated by a desire to support quality content, not by a desire to maximize curation rewards. Therefore, I think 6% is probably an extremely conservative estimate. In looking over some of the data, I have seen other people's bots realizing up to 50% APR at times.
One of the interesting things about imagining that a college would implement this is that colleges have computer science departments where students and professors could develop and improve Steem voting agents as part of their curriculum or research activities.
I assumed $500 per year in author rewards. These are rewards that the blockchain pays to people for posting articles and links to videos or other media.
As with curation rewards, colleges are already well positioned to pursue author rewards. They could put their marketing and recruiting information on the blockchain, and they could post about school activities and events like athletic contests, musical performances, or theater.
And, in addition to the on-staff professionals that focus on communications, colleges also have literature, art, music, and communications departments who could contribute content for the endowment as part of their coursework (see @phillyhistory during the beginning of 2018 for an example of how this has worked in the past.)
Further, parents, students, alumni, faculty, and employees could all be encouraged to join the Steem blockchain and vote for the endowment's posts.
On the Steem blockchain, a beneficiary award is a way that a post's author can assign a share of the author rewards to other account holders where the payment to the beneficiary automatically goes straight from the blockchain to the designated beneficiary.
Those same parents, students, alumni, faculty, and employees could also be encouraged to assign beneficiary settings for the school's endowment in their own posts. I estimated this at $100 per year..
The Steem blockchain pays new tokens to stakeholders who have "powered up" their liquid STEEM into Steem Power in a process that is basically equivalent to paying interest. At present, the rate is over 2%, but it fluctuates, and I assumed a very conservative 0.5% APR.
This is the sum of curation rewards, author rewards, and beneficiary rewards.
This is the tuition, starting at $1,113.57 per semester, and increasing by 2% per year. The number came from here.
This is the difference between blockchain gains and tuition for the current year.
This includes any cost of operations. This is probably the biggest question-mark in the analysis. I estimated it at 20% of annual gains, but I honestly have no idea. This would need to be fleshed out more.
I can imagine costs for legal filings to get established as a legal investment mechanism, costs for fundraising, hosting costs for any autonomous voting agents, paying staff and faculty for their time in support of the endowment, and I'm sure there are other things that aren't occurring to me at the moment.
The total at the end of the year, in US Dollars, after accounting for gains and costs.
The total at the end of the year, after converting from USD to STEEM.
One objection that will occur to the skeptical reader is that these percentages aren't substantially better than a traditional investment vehicle, and blockchain is still a high-risk endeavor, so why would a college want to pursue this?
My response would begin by noting the educational opportunity that it provides for students in the school's computer science or creative departments. It's a unique opportunity to be able to give students a vehicle to contribute to the school's endowment without paying any money, and it gives them hands-on experience with blockchain technology that is going to play an ever-increasing role in their future.
Additionally, I would add that although it is a high risk venture, all of these assumptions assumed no change in the price of Steem. It is also possible that an increasing price of Steem could improve the results dramatically.
Another point worth noting is that schools could follow this up through the use of steem-engine tokens, and/or the upcoming SMTs and Steem Communities to create a customized blockchain and web 3.0 experience for their own academic communities. That customized experience would extend far beyond the simple endowment.
Thanks for reading, and I welcome your commentary on the concept.
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Steve is also a co-founder of the Steem's Best Classical Music Facebook page, and the @classical-music steemit curation account.
This is an extremely interesting proposition.
In fact if steem founders had allotted a portion of their original allocation for this purpose, it would have served not only a very useful purpose but could have also promoted steem to the academic community, which will be a big thing.
Your last point on steem-engine is worth noting.
Another point is donors to educational endowments could possibly create a trust fund stipulating that the funds should be used in the manner you have stated.
Thanks. Sounds interesting. Upvoted and resteemed. I have to think later about this.
This is a very interesting concept. Of course the possibilities are endless as to what the funds could be used for. This made me think of how a much smaller scale version of this could be used to help people or villages in developing countries.
I have seen a lot of corruption in the NGO world in Cambodia, and this post got me thinking how you could keep the funds safe and do good deeds bit by bit with the weekly power downs. Too many times a shady director has too easy access to the funds and flees with the treasure.
I knew one small NGO who was just trying to deliver a 50kg bag of rice and basic medicines to a remote village weekly. The owner skipped town with the funds, and this project fizzled out. Also, the volunteers were in a never-ending search for more donations because the director had been siphoning portions for years already. If all that lost money had been put into a safe account like you are describing, the project could live forever and be sustainably self-funded.
Setting aside the intrinsic risk of blockchain to the endowment itself, which you address, what about the inverse (risk of the endowment to the blockchain)?
Do you think the existing investors in the platform as a whole would be inclined to support these accounts? If not, what would the result be if investors actively seek to negate rewards that the endowment delegates seek?
Steem is not a charity. We can rule out any chairtable good will from the vast majority of people using Steem. This goes for any cause, nevermind people receiving the benefit of a free university education. They are already well looked after by traditional beneficiary programs. By virtue of acceptance already have a decent ticket to success and a second rate charity cause at best.
Unless it can clearly be demonstrated how this will help Steem, it isn't even in Steem's interest. It will just be another account trying to get more Steem, the same as the rest.
Most accounts benefit Steem in one way or another. Onboarding people who earn scholarships has limited value for the blockchain since they are onboarded as feeders. Would the receiver be required to promote Steem? These promotions likely have little value, especially when you look into what Steem is.
Steem is highly speculative. Most growth has been wiped out and it could get worse. Students need money based on a very specific schedule. They cannot just hodl and hope.
Further rewards can be negatively impacted by upset individuals. The last thing Steem needs is more stuff you cannot downvote for moral and ethical reasons or more accounts that have to be protected from attackers.
Perhaps putting money in something safer like companies graduates work in or commodities would be more responsible.
Blockchains can be used for education. Steem can be used for blogging or posting finished assignments. It can reliably earn students something like beer money, but even that makes me a little squeamish. Not only do I need my beer, but I wonder the value of only onboarding students. Facebook quickly mved away from them. The youth don't have money.
My good friend @devann shared this publication with me.
I must admit that I've never used word "endowment" before and in the beginning I found it a bit confusing to understand meaning of it. Thx for solid explanation what endowment is about.
the keys to the first account would be destroyed
Why? Would it really be necessary? It sounds like a huge put-off and I cannot imagine many users willing to do it. It require absolute trust between both parties. Hard to achieve.
Interesting read (it may be a bit to long :) Yours, Piotr
This is rather impressive. I guess one assumption made is that the University in question are progressive thinkers and willing to take a gamble on steem blockchain. Computer science departments may know this but the first point of contact will most likely be admin staff who may not be aware or comfortable with it.
Personally, I like the idea and I think Steem's decentralized model means anyone can do it. You just need to find a group of likeminded people to synergise with
Not sure I understand all of this completely after one read, but I like the idea. It's especially interesting to think about the difference in motivation between an educational institution, an individual, and any other institution.
Thank you for breaking down the various rewards' and interest, and for noting the fact that your chart reflects the dollar value of Steem Power rather than actual dollar amounts. It'd be interesting to play with the assumptions you've built in to build an understanding of the range of possibility from conservative to overestimated.
Now that I think about it, I wouldn't be able to repeat this to somebody without mistakes if I didn't have it on hand to reference, so I am going to read through again to make sure I get it as much as possible. Cool thought exercise, though! I'll reference it if I ever post something similar with a tweak or two.