The Elusive Flywheel!!
The Elusive Flywheel!!
Flywheel is lately perhaps one of the most hated term in Splinterlands. I must admit, my blood begins to boil the moment I hear the term (no pun intended)! It is not that I hate James Watt, or Matt, or Aggy. In fact I enjoy the simplicity of the SPS Flywheel, which is what we are going to talk about today. The fact that I don't like it because its been "ELUSIVE"! Its been discussed for the last two years, and yet, there is no sign of its starting! Let us talk about it.
It is the elephant in the room.
Invented by James Watt (modern version, arguably concept is known since neolithic times, as soon as wheel was invented), the flywheel is simply a wheel that’s incredibly energy-efficient. The amount of energy it stores depends on how fast it spins, the amount of friction it encounters, and its size. By using a wheel to convert the up-and-down thrusts of steam-powered pistons into a continuous rotational motion, Watt invented the modern flywheel. That and other improvements he made to the steam engine helped spawn the Industrial Revolution (and earned him immortality as the namesake of the watt).
Above is the modern definition of Flywheel. No, I have nothing against James Watt or the steam engine (by the way, back in the day there was a thing called steem engine, not sure if that exists :)). But enough digressing; let us talk about SPS Flysheel!
SPS Flywheel
Just like most inflation driven crypto governnance tokens, SPS peaked at near launch and been in exponential decline ever since. It is currently trading just below 2 cents, and chances are there it can get lower, say 1.5 cents. Other than voting, SPS doesn't have much utility at the moment (I know its is coming, but not here yet). The other token, DEC, is now envisioned as an utility driven stable coin with a peg at 1000 DEC = $1. We are trying to push this token towards $1 (for 1000, won't mention it again) for a while. The most recent effort is the successful burn event which made the token highly deflationary over last 60 days (image above).
The goal is to push DEC to at peg and just above. Let's say SPS is at 0.02. I could burn 50 SPS (1 USD worth) and receive 975 DEC.
When DEC is above peg, say 1000 DEC = $1.00105.
That 975 DEC is worth $1.02375 USD.
One can then sell that DEC to the liquidity pool and receive 51.1875 SPS.
So, you see we started with 50 SPS, and ended up with 51.1875 SPS, so the profit for this 1 round trip arbitrage is 51.1875 - 50 = 1.1875 SPS. Obviously as this oppotunity arrives, all the Hive Engine arbitrage bot will try to capitalize that and this margin will reduce. Price of DEC will drop to peg.
Mind you, team promised no new DEC is being created, but almost everything in game requires DEC. So there is a constant demand for DEC, and more and more DEC is getting locked in staking on land. So price of DEC will rise, and as there is no other way to get DEC other than to buy and burn SPS from the market, price of SPS also begins to rise.
So ladies and gentlemen, that is the SPS Flywheel!!
Why Elusive?
Well, here is the rub. People still earn DEC from selling cards, rental income, and leaderboard winning (although it is small). These players are day-to-day professionals. They play the game to earn money, so they will sell at whatever prices at market. Since there is no staking of DEC yet, and there is still 4.7 B of DEC out there, yes it is still a LOT, there is still a large supply and not enough demand, neither for DEC, nor the cards. Lot of supply and little demand means prices will go down. So the price is still soft, even with all the 500M recent burning.
Positives!
Here we go. I am going to end the post with a positive note. As per the latest timeline. The 'current age' ends in August 1. Looks like team will honor that this time and release land 1.5 by then. That will ensure more DEC getting locked up to buy products first and then clearning of land; and then with land 2.0 there will be card staking. I don't know that timeline. I will guess it will be 4Q 2023. Say December. I say that will be the start of the SPS Flywheel. Hold tight for 6 months folks!
Yeah with the down turn it's going to be that much harder to hit that dumb term lol
I even question how much SPS will be burned for DEC in the first place will people really even do it?
I think this also shows us just how non pegged DEC will be with the current setup as it's very susceptible to external market prices.
In six months maybe we can observe and reevaluate
I'm hopeful I want to see this thing be successful and thrive (Mainly because I have a good bit invested into it )
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Even though such terms may be overused, the concept definitely got introduced to a lot of people. At least, the intent and goal has been made clear from the start on why things are being done in such a way. We just need to manage expectations. "Not as easy as it seems, and will definitely take time".
This is actually what I love about Splinterlands. It's more than just a virtual game. There are lots of components to learn and realize that it's not far off from what we encounter in the 'real' world. :)
How long are you playing Splinterlands? Also which level do you play?
I think it was August of 2021 around the Axie hype, and when Untamed rewards cards were already being out of print. I play Gold in ranked battles both Modern/Wild.
Did you buy cards? Back then. If yes, you must be under big time!
ohh yeah, that was my biggest mistake. I was buying a lot when CL started. My (paper)loss is mainly due to that. If only SPL can attract more new players right now, these new onboardess will be lucky at current price point. Right now, I'm just accumulating SPS
Thanks for the concise explanation of the SPS flywheel - I think I finally get the concept!
I am happy to help
To continue our conversation from Mav chat, I thought you said SPS could rally in 2 months? Feeling a little more bearish? ;)
I agree that 'flywheel' has been the buzzword of 2023 so thanks for sharing the origin of the term. With land 1.5 taking as long as it has and land 2.0 being even more massive, I wouldn't expect it until 2024 especially since they've said they will focus on other items like new game modes and cosmetics after land 1.5 - which I don't mind as the community has been calling for it.
Whether it's 2 months or 6 months though, I just hope we see the flywheel kickstart at some point in 2023!
No one can predict the timing.
As per the published timeline, land 1.5 is Aug 01. Land 2.0 is undisclosed. But likely this year.
Without 2.0 full DEC staking functions are not available.
Hope this is clear
Lol I know, I was just messing with ya. My main points is that I hope land 1.5 can fulfill the demand we need for DEC to get it to peg because I wouldn't be surprised if 2.0 comes out in 2024.
Yes, I agree.
I am not too worried about it.
We are made to think there is no DEC in print. But as long as you keep printing unlimited vouchers and give it a utility which in return can produce DEC in some way, DEC is going nowhere but sink. For example, They let users buy DECB with vouchers (which has an infinite supply as already mentioned) and now they are happy that we are burning so much DEC, which is not if you look under the hood. A good amount of those DECBs came from vouchers. So, yeah we printed again.
Any voucher discount given on any product which can be bought with DEC also works in the same way.
And the good thing is I am not the only one thinking this way
They should stop coming with new tokens(grains, time crystal) and give the existing token utility.
We should not be worried about this because it isn't getting printed, someone is buying to pay for them.
There is nothing wrong with your statement. I agree about vouchers.
The only thing I will disagree with you is your use of pronoun “they”, I would have used “we”. I don’t blame you for that, trust can be hard to come by from you especially thinking where you come from. However, trust is a beautiful thing. It improves the quality of life immensely!
And how will the new token(s) coming with land fit into this, will we just start burning dec/sps to prop up the price of those too once they start declining?
Good afternoon @Azircon, I've looked for knowledge but without satisfactory results, could you explain me what would be this new Arena mode in the Roadmap announced in Splinterlands? Will we have a new mode in battle or just a classic model of challenge players betting an amount of $SPS?
patience is a virtue. I think the key we all need to hammer home is to keep the team focused on task to complete what is already on the runway with a haste spell while not getting distracted with new projects and ideas. The split of focus and resources is definitely hurting project completion times on things like land, there should be more focus and drive to get that done asap, and start adding features etc. as soon as possible to the land game.
Thats my 2 cents.
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In theory, the flywheel should work once we are at peg and there is a strong consistent demand for DEC. However, there will also be macro factors that affect our SPL price action and take us off peg at times. I am quite hopeful that Land 1.5 and then the subsequent 2.0 in 2024 should be huge boons to helping deal with the oversupply of DEC, SPS, and cards. Even if we don't have another huge influx of new players until the next bull/halving run, there should be enough deflationary elements in the ecosystem to help us manage with the limited active player base we have now.
Fly wheel, Fly!