Ned Scott, co-founder and CEO of Steemit Inc., updated the community yesterday about the company's recent layoff of approximately 70 percent of its staff. He asserts that the company was forced to do so because of the current state of the cryptocurrency market, reduced fiat returns on Steemit's automated sales of STEEM (the network's native token), and the rising costs associated with running full Steem nodes.
Steemit is known for its social media site, Steemit.com, where users are rewarded in STEEM for their content contributions (think of a blockchain-based Medium with token rewards instead of claps). The website is powered by the delegated proof-of-stake Steem blockchain, wherein "witnesses" (instead of miners) produce blocks.
Apparently, operating the blockchain has become financially difficult for Steemit. The team is looking into various cost-reduction solutions, such as decreasing the chain state size from 160 GB to 0 GB, diminishing staging and testing nodes, and removing any redundancies. The company's survival, even if that means a massive reduction in the size of the Steem blockchain, is Scott's priority.
Despite the published reasoning, community members have speculated as to how Steemit could fall so hard. Independent cryptocurrency researcher Hasu, for example, is perplexed by the situation, considering that the company has "mined & auto-sold almost 1/3 of the entire token supply." The researcher believes that Steemit's plight "must be a blatant case of treasury mismanagement/negligence." Hasu told ETHNews:
"Steemit didn't diversify into fiat … they played hedgefund with the money of their investors, instead of being responsible fiduciaries."
MaRi Eagar of DigitalFutures, a blockchain and cryptocurrency consulting company, ascribes the company's downsizing to an overall poor setup:
AEON, a crypto project in the space, chimed in as well, maintaining that because Steemit "still has at least $30 million worth of STEEM in public wallets," the layoff could represent a decision to reduce the coin's burn rate.
There are also other, more general forces that can contribute to a crypto company's downfall. For one, the burgeoning field of tokenomics is tricky. Developers can strategically create a token system, but if people are not using the token, the incentives are not properly aligned, or the token funds are not wisely allocated – among other potential pitfalls – then the coin, despite all its good intentions, may fail.
This is not to say that Steemit is guilty of any of these issues, but it's convenient in the volatile cryptospace to blame a bearish market or high operational costs for one's woes instead of confronting other possible reasons for failure. Crypto is capricious by nature – the risks of a blockchain-based initative, especially if it involves a token component, are writ large. Plus, the value of employees' salaries is not necessarily tied to the value of a token such as STEEM.
In any case, Steemit has been candid about its challenges, therefore upholding one of the cryptosphere's key values: transparency. With information about the company's "structural reorganization," as Scott dubs its, users can make better-informed decisions about what to do with their tokens.
Steemit's frankness, though, is not necessarily the standard. Civil (the blockchain journalism platform that has generated quite a buzz) was accused by journalist Jay Cassano of being dishonest about the compensation it had promised staffers. He left his position with Sludge, a Civil newsroom, as he did not receive the CVL tokens comprising 70 percent of his pay over a five-month period. Additionally, Cassano said Civil had promised that the tokens would be worth at least 75 cents.
Civil CEO Matthew Iles responded to Cassano's claims, noting that a specific token value was never promised. However, various Civil journalists, not just Cassano, agree that even if the value of CVL were not necessarily guaranteed, the organization certainly "talked up" the coin's growth potential.
Steemit and Civil, though experiencing different problems, represent a common blockchain theme: the potential for failure in this space is incredibly high. ICOs have not met their soft caps, projects have been halted, and funding has been lost. It's unsurprising, then, that these companies – despite the hype they have garnered – are losing steam.