In this article, I perform a thought experiment to imagine a college endowment that could pay tuition for students by making use of Steem's blockchain rewards.
pixabay license: source
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As a reminder, an endowment is an investment fund where the original donations are invested and never withdrawn, and charitable giving is accomplished entirely through the proceeds from the investments.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to use a traditional Steem account along with procedural or legal controls to prevent the base funds from being withdrawn (Barring embezzlement).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.
Note that this is not financial or legal advice. I'm doing a thought experiment about the technology. Anyone who wants to implement something like this should consult financial and legal professionals
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.
Blockchain reward gains
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.
Shortage / Surplus
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.