EOS Price Analysis – Dan Larimer resigns from Block.One

The EOS (EOS) platform, created by Block.One, is a global computing network designed to host decentralized applications (Dapps), and decentralized autonomous corporations (DACs). The asset’s market value in USD is down 87% from the all-time high established in April 2018. The market cap currently stands at US$2.63 billion with US$772 million in trade volume over the past 24 hours. EOS is ranked 17th on the Brave New Coin market cap table.

The EOS network hosts smart contracts on Virtual Machines and competes with other Dapp or smart contract platform blockchains, including Ethereum (ETH), Tronix (TRX), and NEO (NEO). The ETH and NEO platforms use gas to pay for units of computing power while EOS uses RAM.

The EOS blockchain went live on June 14th, 2018, after raising ~US$4.2 billion in a year-long ICO, with an average token price of US$5.74. Unlike many ICOs, which continue to hold some quantity of Ethereum, EOS had spent most of their ETH holdings by June 2018 (chart below). The large ETH outflows from the EOS treasury likely contributed to a drop in ETH spot prices throughout May 2018.

Source: Sanbase

In September 2019, Block.One announced a US$10 million investment in Arlington County, Virginia, for new headquarters. Block.One’s CTO, Dan Larimer, has been based in Blacksburg, Virginia, along with an 80-employee team. The new headquarters are set to double the team size and will serve as a base for increased government relations. Earlier this month, Larimer announced his resignation from Block.One.

Also in September, Block.One reached a one-time civil settlement of US$24 million with the U.S. Securities and Exchange Commission (SEC) in regards to the unregistered EOS ICO on Ethereum. Block.One neither admitted nor denied wrongdoing. The settlement resolved all ongoing matters between Block.One and the SEC according to the post. Globally, other regulatory agencies may also seek enforcement actions or settlements against EOS if the project is again deemed an unregistered securities offering.

The EOS blockchain uses a Delegated Proof of Stake (DPoS) consensus model, which was pioneered by Larimer. Other iterations of DPoS are currently being used by BitShares (BTS) and Steemit (STEEM), two of Larimer’s previous projects, as well as Lisk (LSK), Ark (ARK), and Tezos (XTZ).

DPoS blockchains have users that vote for delegates, or Block Producers (BPs), who are considered trusted and good actors. The top 21 EOS BPs validate the blockchain, collect a passive income, and are expected to help further protocol development by proposing changes or improvements. Most of the top 21 BPs are located in Asia, with nine located in China. In early 2020, Google Cloud also joined as a standby block producer.

Source: eosq

While the top 100 BPs are paid for their services, the top 21 BPs earn the highest reward. Should any of these BPs oppose the community’s wishes, they can immediately be replaced. To encourage voting participation, EOS has implemented a vote decay system with newer votes initially carrying the most weight and eventually having zero impact after two years.

The governance structure is similar to that of a two-layer representative democracy with landowner suffrage. Each stakeholder has an influence proportional to their stake in the system. BPs can also offer reward sharing to encourage votes from stakeholders. However, this can encourage the election of BPs offering the highest reward to stakeholders and does not necessarily encourage what is in the network’s best interest. The current reward for staking on EOS, beyond voting on network proposals, is the use of Virtual Machine (VM) components, including; bandwidth, RAM, and storage.

A now discontinued arm of the EOS governance system was the EOS Core Arbitration Forum (ECAF), a volunteer-led tribunal. While active, the ECAF gave nine public notifications of arbitration and facilitated over 20 orders or rulings. As of April 2019, the ECAF is no longer accepting claims. Instead, 15 of the 21 BPs can now decide on any arbitration matters. The process often involves blacklisting accounts, which only works if the top 21 BPs use the blacklist.

In 2019, a newly rotated top 21 BP, games.eos, failed to apply a blacklist correctly, allowing 2.09 million EOS, or about US$7.25 million, to move out of a blacklisted account. Due to the incident, games.eos is no longer a top 21 BP. Going forward, there are plans to cancel the keys for blacklist account holders entirely, so they can never be used on the EOS blockchain.

Throughout 2020, there was a growing concern in regards to BP ballot stuffing and manipulation. The exchange Bithumb recently added seven new BP accounts with 18 new proxies, which may be an attempt to obscure the trail of its votes. These new BPs have virtually no social media presence and/or working websites. These “sock puppet nodes” could be mirroring larger nodes and siphoning the BP rewards from the top 100 BPs, without providing additional network security.

Source: https://twitter.com/ColinTCrypto/status/1189972205653970949

Developer activity in the main repository for the EOS project on Github has produced just over 2,000 commits from 34 developers in the past year (shown below). There are currently 109 repos in the EOS Github, most of which have been inactive over the past90 days. Most coins use the developer community of Github. Although commits represent quantity and not necessarily quality, a higher number of commits can signify higher dev activity and interest.

Larimer pushed 15 commits in May 2018, with his commit contribution dropping off precipitously after June 2018. Larimer has also been working on a decentralized identity solution, which has been granted a patent. Despite Larimer’s absence from core dev work, incremental protocol updates continue.

Source: Github – EOSIO/eos

EOS REX (Resource Exchange), first proposed by Larimer in 2018, went live in May 2019 and now has a vibrant lending community. The exchange allows users to lease EOS tokens to Dapps, or other users, for a variable fee. EOS.IO v1.8 was released via a hard fork in September 2019, enabling Voice, a social media platform. Voice is currently an invite-only beta to U.S. residents and was not launched on the EOS chain. The public beta launch occurred in July 2020.

On the network side, the EOS blockchain has grown to over 4TB in the past year. The nodes are essential for fully-functional Dapp activity as 20% of blockchain lookup requests involve observing the entire blockchain history. A list of these active full nodes was unable to be obtained.

Currently, approximately 57% of all circulating EOS tokens are being staked with a net staking reward of 0.65% per year. The network is confirming around 35 transactions per second with the record throughput of transactions on the network at one time at 3,996 transactions per second. Among all staking blockchains, staked EOS ranks fourth in notional value at US$1.48 billion, behind Polkadot (DOT), Cardano (ADA), and Tezos (XTZ) in total USD value.

Source: StakingRewards

On the network, the number of total transactions per day (line, chart below) hit a new all-time high of over 10 million in November 2019 and fell to 1.42 million in January. The spike in transactions was related to the EIDOS airdrop, which encouraged transactions of any size. Transactions per day have since quadrupled from the January lows. Blocks produced per day (fill, chart below) fell substantially from January to February but have returned to previous levels.

Transaction costs on EOS are essentially free, enabling Dapp transactions to flourish. Grassroots interest on meetup.com shows 57,500 people in 100 EOS-related groups worldwide and nearly 74,100 subscribers on the EOS Reddit sub.

Source: CoinMetrics

RAM on the EOS virtual machine is subject to supply and demand, as well as speculation. New EOS account creation uses 4kb of RAM and, after an account is created, there are minimal transaction fees. In July 2018, a few users attempted to corner the RAM market, causing RAM costs to skyrocket to more than 900EOS/MB. In response, 15 of the 21 EOS BPs approved a measure to double the supply of RAM, flooding the market and decreasing RAM costs.

In June 2019, RAM spiked to nearly 0.20 EOS/KB after Block.One bought US$25 million worth of RAM for the launch of the Voice social network. Since July 2019, RAM costs have continued to drop below 0.1 EOS/KB.

Source: eospark.com/chart/ramprice

Gambling and exchange Dapps continue to be the most used application on EOS, which is likely due to gambling activity being highly regulated in most countries. These gambling Dapps are currently outside of legal purview, at least for the moment. Over the past month, Newdex has had the highest volume of any EOS Dapp while the virtual property game Upland has had the most number of users.

Despite impressive user numbers, a 2019 report from AnChain.AI found that blockchain bots account for 51% of all EOS Dapp users and 75% of all EOS Dapp transactions. These bogus transactions accounted for US$6 million of the daily transaction volume at the time. The report concluded that without sophisticated prediction models, Dapp leaderboard websites, or rating agencies; investors, developers, and enthusiasts will be fooled by inauthentic numbers.

Transaction costs are also very minimal, or non-existent when interacting with EOS Dapps. Several Dapps have launched on EOS, or migrated from competitors over the past year, citing concerns over scalability or transaction costs on other platforms. These Dapps include; Effect.AI, Tixico, Unico, Medipedia, Sense Chat, Billionaire Token, EOSBet, HOQU, Everipedia, and Insights Network. Additionally, Tapatalk, a forum app with 300 million registered users, is building a reward system using the EOS blockchain.

Source: DappRadar

Aside from a brief period between July 2017 and March 2018, Google Trends data for the term "EOS.IO" has mostly been pinned to the floor. Over the past few weeks, Trends have increased substantially. The increase in 2018 likely signaled a large swath of new market participants at that time. A 2015 study found a strong correlation between the google trends data and Bitcoin price, while a 2017 study concluded that when the U.S. Google "bitcoin" searches increase dramatically, Bitcoin price drops.

Technical Analysis

EOS has followed the wider cryptocurrency market recently, with some gains in early 2020, a swift retracement in March, and a strong recovery off of the lows. As the macro trend continues to recover, strength and duration can be measured using Exponential Moving Averages, Volume Profile of the Visible Range, Yearly Pivots, Pitchforks, and the Ichimoku Cloud. Further background information on the technical analysis discussed below can be found here.

On the daily chart for EOS/USD, the 50-day and 200-day Exponential Moving Average (EMA) bullishly crossed on August 16th, following a 150-day bearish trend. On September 20th, these key EMAs flipped bearish and bullish once again in early December. EOS/USD has only had two Golden Crosses since trading began, both of which ended after muted bullish momentum. The Death Crosses have lasted from 150 to 300 days.

The Volume Profile of the Visible Range (VPVR, horizontal bars chart below) continues to show a strong zone of resistance at US$3.70 and US$4.80-US$5.90 with strong support from US$2.40-US$2.92. Yearly pivots also show resistance at US$4.93 and US$7.26. Additionally, there are no bullish or bearish divergences on volume or RSI at this time.

Bitfinex open interest is currently 88% long, with long interest decreasing over the past month and short interest slightly increasing over the same time period (top panel, chart below). The June 2019 reduction in short interest mirrors a reduction in short interest on Bitfinex for BTC on the same day. A significant price movement downwards will result in an exaggerated move as the long positions begin to unwind. This is known as a “long squeeze”.

The current spot price appears to have invalidated a bearish Pitchfork (PF) with anchor points in December 2017, and March and April 2018. Price has resided in the upper half of the PF since March 2019. The spot price has exceeded the upper diagonal of PF for 54 days, likely invalidating the nearly 1,000-day downtrend. However, with the resignation of Larimer, the spot price may experience a continued deep retracement back to the PF median line (yellow).

Turning to the Ichimoku Cloud, four metrics are used to determine if a trend exists; the current price in relation to the Cloud, the color of the Cloud (red for bearish, green for bullish), the Tenkan (T) and Kijun (K) cross, and the Lagging Span. The best entry always occurs when most of the signals flip from bearish to bullish, or vice versa.

Two-day Cloud metrics, with doubled settings (20/60/120/30), for more accurate signals, are bearish; the spot price is below the Cloud, the Cloud is bearish, the TK cross is bearish, and the Lagging Span is below the Cloud and below the current spot price. The trend will remain bearish so long as the spot price remains below the Cloud, currently at US$3.00.

Lastly, trend metrics for the EOS/BTC pair echo the EOS/USD pair. The spot price continues to hold below the 200-day EMA following a near Golden Cross on February 16th. The trend will remain bearish so long as the spot price remains below the Cloud. Future upside resistance sits at the yearly pivot of 22,000 sats and a VPVR node at 65,000 sats. Strong resistance also now sits at the previous accumulation zone from 34,000 to 38,000 sats. Bitfinex EOS/BTC long/short open interest is currently 87% net short (not shown). Additionally, there is a growing bullish divergence on RSI suggestive of waning bearish momentum (not shown).

Conclusion

Due to the feeless nature of the chain, Dapp activity on EOS, such as gambling, has flourished. However, further investigation has shown that up to 75% of these transactions are likely to be bot activity or transaction mining. In January and February 2020, the chain became clogged with transactions as blocks per day dropped significantly.

There is continued concern regarding the concentration of EOS BPs in Asia as well as various exchanges, which may lead to the centralization of governance. Additionally, the current EOS full node size could not be determined, but the chain has very likely developed further blockchain bloat beyond the 4TB discussed in 2019. Many functional full nodes are important for a network to maintain decentralization and to continue running smoothly. Sooner rather than later, EOS will need to deal with the growing burden of both blockchain size and bandwidth requirements.

Technicals for both EOS/USD and EOS/BTC reveal bearish trend metrics, with spot prices below both the 200-day EMA and the daily Cloud. Support for EOS/USD sits at US$2.40-US$2.92. EOS/BTC has drifted below the previous 130-day range and now sits at all-time lows, with a growing bullish divergence. Downside support sits at 5,300 sats based on last year’s S1 pivot point.