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This is a chapter from the book Token Economy (Third Edition) by Shermin Voshmgir. Paper & audio formats are available on Amazon and other bookstores. Find copyright information at the end of the page.
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Steemit was a decentralized social network that used tokenized rewards for social media contributions. It operated on the Steem blockchain, a special-purpose blockchain that provided a public infrastructure not only for Steemit but eventually also for other decentralized social networks of the time. At its peak, Steemit was a groundbreaking Web3 application with significant user traction. However, unsustainable token economics led to a user exodus, culminating in a network split from which a competitor network, Hive, emerged. This secession is a textbook example of how and why political splits occur in Web3 networks and what their implications are. Today, neither Steemit nor Hive boasts significant user traction, yet they remain relevant as case studies due to their historical metrics and the lessons one can draw from their flawed token design.
Disclaimer: Steemit’s governance and the Steem blockchain’s protocols underwent frequent changes, with patchy documentation. Understanding its governance rules often required reading the protocol code. As a result, some details in this chapter might be inconsistent. Nonetheless, the insights presented aim to illustrate the complexities of the Steemit ecosystem and highlight the challenges and necessities of social tokens. To provide a forward-looking perspective, alternative Web3-based social networks like “friends.tech” and Web2 platforms like “Reddit” venturing into the social token space are also discussed in this chapter.
Conceptualized in 2015 and launched in 2016, Steemit was among the first social media protocols to reward content creators and curators with network tokens. It operated on the Steem blockchain, a custom-built infrastructure with its native token (STEEM) and a stable token (Steem Dollar). Its innovative content monetization attracted early crypto enthusiasts, driving rapid growth to over one million registered users by 2017. The fact that the application was settled on a publicly verifiable blockchain network ensured the transparency and immutability of all interactions, which also appealed to many early adopters.
Steemit went online around the same time that the Ethereum network emerged, which was slightly before it was possible to create a decentralized application without having to create one's own blockchain infrastructure. It was also before the emergence of a wide array of stable token applications. The project founders, therefore, had to create their own special-purpose infrastructure that was scalable enough (the Steem blockchain with the native token, STEEM) and also their own stable token (Steem Dollar). Though complex and resource-intensive by today’s standards, Steemit was a visionary project ahead of its time. The Steem blockchain also hosted other decentralized applications, such as “d.tube,” (a YouTube alternative) and “d.sound,” or Spotify alternative), using “IPFS” as a decentralized file storage protocol. However, these applications never achieved Steemit’s level of success.
Despite its early achievements, Steemit faced persistent challenges. The biggest concern was the concentration of network tokens among a small group of users and the lack of governance transparency. Content quality and spam eventually also became issues, leading to frustration among users. Even though the project founders continuously adapted the governance rules to address these issues, these protocol changes were insufficient to overcome the flaws of the initial token design. As power structures solidified, community frustration grew.
In early 2020, Steemit Inc.—the company that managed the continuous research and development of the Steemit ecosystem—was sold by the original founders and became a subsidiary of Tron, a blockchain network with centralized governance. The change in leadership led to disputes, culminating in a secession of network participants that resulted in the creation of the “Hive” blockchain and the “PeakD” social application, which aimed for better governance and fairer token allocation. The forks of both the blockchain network and the social network, including their developer and user communities, ultimately weakened all ecosystems involved.
The purpose of Steemit's founders was to reward content creators and curators with network tokens in a transparent and decentralized manner, using blockchain infrastructure as a settlement layer with the aim to address the flaws of traditional social media networks:
The main challenge was to create an incentive mechanism for fairly rewarding content creation and content curation. Other challenges were (a) how to create a blockchain infrastructure that was scalable enough for the purpose of the social media application and (b) how to create some kind of currency stability so that the tokenized rewards could have a relatively predictable value.