EOS Price Analysis – Dapp numbers mostly bots, finds report

EOS (EOS) is a computing and smart contract platform. The asset has gained over 450% since the December lows, but remains down 53% from the all-time high established in April 2018. The market cap currently stands at US$5.9 billion with US$1.97 billion in trade volume over the past 24 hours. The crypto asset is ranked 6th on the Brave New Coin market cap table, just below Litecoin (LTC).

The EOS platform, created by Block.One, is a global computing network designed to host a myriad of decentralized applications (dapps) and decentralized autonomous corporations (DACs). The network hosts smart contracts on Virtual Machines and looks to rival other dApp or smart contract enabling blockchains, like 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. The EOS blockchain uses a Delegated Proof of Stake (DPoS) consensus mechanism, which was pioneered by Dan Larimer, the EOS and Block.One CTO. DPoS is also currently being used by BitShares (BTS), Steemit (STEEM), 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.

Source: http://eosnetworkmonitor.io/

While the top 100 BPs are paid for their services, the top 21 BPs earn the highest reward. Should any of these BPs go against 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 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.

Another arm of the EOS governance system is the EOS Core Arbitration Forum (ECAF), a volunteer-led tribunal. Thus far, ECAF has given nine public notifications of arbitration and has facilitated over 20 orders, or rulings, since June 2018. The process often involves blacklisting accounts, which only works if the top 21 BPs use the blacklist.

Earlier this year, a newly rotated top 21 BP, games.eos, failed to apply the blacklist correctly, thus 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.

On the network side, the EOS blockchain has grown to over 4TB in the past year, with only five BPs running a full archival node. The BPs were Greymass, EOS Sweden, CryptoLions, EOS Tribe, and EOS Canada. The nodes are essential for fully-functional dApp activity as 20% of blockchain lookup requests involve observing the entire blockchain history.

Currently, 54% of all circulating EOS tokens are being staked, and the network is confirming around 50 transactions per second. The record number of transactions on the network at one time stands at 3,996 per second. The current number of total transactions per day on the network (line, chart below) stands at 5.12 million, which has increased substantially since June 2018, and is likely related to sustained dapp activity. The average transaction value (fill, chart below) is currently US$52, which is down from a May high of US$38,000 and is also likely related to dapp activity.

Source: coinmetrics.io

The 30-day Kalichkin network value to estimated on-chain daily transactions (NVT) ratio (line, chart below) fell rapidly from November 2018 to January 2019 but has risen substantially since February 2019. A clear downtrend in NVT suggests a coin is undervalued based on its economic activity and utility, which should be seen as a bullish price indicator, whereas an uptrend in NVT suggests the opposite. NVT is difficult to compare between coins that use different transactions types, but the ratio can be used to assess a network’s relative utility over time. The EOS NVT, at 57, is currently lower than TRX at 76, but higher than ETH at 51, and NEO at 28.

The number of monthly active addresses (MAA) reached a new high of almost 95,000 in mid-January but has since declined, and is currently just over 55,000 (fill, chart below). EOS currently has a lower MAA count than ETH, but higher than TRX and NEO. Active addresses are important to consider when determining the fundamental value of the network based on Metcalfe’s law. Grassroots interest on meetup.com shows over 60,000 people in 160 EOS groups worldwide and nearly 66,000 subscribers on Reddit’s /r/eos.

Source: coinmetrics.io

Transaction volume across most EOS Dapps has fallen slightly over the past few months. Gambling dapps continue to be the most used application, which is likely due to gambling activity being a highly regulated activity. These dapps are currently outside of legal purview, at least for the moment. EOS Knights, a mobile role-playing game, has also seen sustained user growth since being launched in August 2018 with daily active users exceeding 4,000 since December, and peaking around 7,000 daily active users in March.

Despite impressive user numbers, a report last week from AnChain.AI states that blockchain bots account for 51% of all EOS dapp users and 75% of all EOS dapp transactions. These bogus transactions account for US$6 million of EOS’ daily transaction volume. The report concludes that without sophisticated prediction models, dapp leaderboard websites, ratings 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, in recent months citing concerns over scalability or transaction costs. 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: https://dappradar.com/eos-dapps

Turning to developer activity, the EOS project on GitHub contains 88 repos, with the main repo accruing a cumulative 1,875 commits over the past year (shown below). Larimer’s commits dropped off precipitously after June 2018, with his last EOS commit occuring in August 2018. Despite this, incremental protocol updates continue.

Most coins use the developer community of GitHub. Files are saved in folders called “repositories,” or "repos," and changes to these files are recorded with “commits,” which save a record of what changes were made, when, and by who. Although commits represent quantity and not necessarily quality, a higher number of commits can signify higher dev activity and interest.

EOSIO.CDT V1.5.0, EOSIO V1.7.0, and EOSJS v20.0.0 were released in January, March, and April respectively. Together, these changes bring improvements to sustainable transactions per second, reduced CPU costs, lower latency on all EOSIO based blockchains, and enhanced tooling for smart contract development. The EOSJS update also increases security and user-friendly JavaScript development for apps.

EOS REX (Resource Exchange) was first proposed by Larimer in 2018 and went live on May 1st. The exchange allows users to lease EOS tokens to dapps, or other users, for a variable fee. Earlier this week, Block.One announced a blockchain-based social media platform called Voice, with the goal of returning rewards to the users. Voice will require an update to EOS.IO v1.8 via a hard fork, the first for the chain. The social media platform will also require users to provide a full name and country of residence, which is permanently listed in the EOS chain.

Source: https://github.com/EOSIO/eos/graphs/contributors

EOS exchange traded volume in the past 24 hours has predominantly been led by the Tether (USDT) and Bitcoin (BTC) pairs, with Ethereum (ETH) accounting for a smaller but substantial percentage of the volume. Tether was added to the EOS chain on June 1st.

EOS trading has gained increased market access over the past few months. Both Bitfinex and Huobi are EOS BPs that have launched exchanges on the EOS chain. On April 9th, the EOS/USD, EOS/EUR, and EOS/BTC pairs were added to Coinbase Pro. EOS was made available for purchase on Coinbase.com on June 1st, along with the addition of an educational program about the EOS chain. An EOS/USDT pair was added to Bitfinex on April 12th. There are no EOS pairs currently on Bittrex.

The Korean exchange Bithumb has been hit hard by hackers over the past year, including a loss of US$18 million, constituting various coins, in August 2018 and a loss of US$15 million of EOS on March 2019. The second hack came on the heels of the exchange cutting 50% of its staff, or 150 people, due to declining trade volumes. ChangeNOW, a non-custodial exchange service, reportedly intercepted and returned US$500,000 worth of the stolen EOS tokens back to the exchange. Some reports have concluded the exchange has been repeatedly targeted by North Korea, while others suggest the possibility of disgruntled staff playing a role in the theft.

Technical Analysis

EOS has outperformed most coins since the marketwide lows of December, and has formed a strong bull trend in recent weeks. The strength of a trend can be measured using exponential moving averages (EMAs), Volume Profile of the Visible Range (VPVR), Pitchforks (PFs), and Ichimoku Cloud. Further background information on the technical analysis discussed below can be found here.

On the daily chart, the 50-day and 200-day EMAs have been bullishly crossed since April 9th. Despite this bullish indicator, known as a Golden Cross, price is likely to retest the 200-day EMA as support some time in the near future. These mean reversions happen frequently throughout the duration of any given trend. VPVR (horizontal bars, chart below) also shows a strong zone of support from US$5-US$6. If price is able to surpass the current local high, upside resistance is limited.

Bitfinex EOS/USD long/short open interest is currently 70% long with long interest ranging near record highs (top panel, chart below). A significant price movement downwards will result in an exaggerated move as the long positions begin to unwind. There are no active RSI or volume divergences currently.

The current spot price continues to reside within the boundaries of a bearish PF with anchor points in December 2017, and March and April 2018. Price cleanly broke the median line (yellow) on March 27th, signifying momentum towards the opposite edge of the PF. Throughout this process, price may also attempt to return to the median line as a mean reversion test. If price fails to exit the PF through the topside soon, a retracement to the median line at US$3.20 becomes increasingly likely.

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.

The status of the current Cloud metrics on the daily time frame with doubled settings (20/60/120/30), for more accurate signals, are bullish; price is above Cloud, the Cloud is bullish, the TK cross is bullish, and the Lagging Span is above Cloud and in price. A traditional long entry signal triggered on March 17th with a Kumo breakout. The most recent pullback has not respected the Kijun as support, suggesting the increasing likelihood for a retrace towards Cloud support. The trend will remain bullish until a candle close below the Cloud.

Lastly, trend metrics for the EOS/BTC pair suggest a bearish picture; price is below the Cloud and the 50-day and 200-day EMAs recently crossed bearishly. VPVR (horizontal bars) suggests significant support at the 66,000 sat zone. A bullish Kumo breakout or bullish 50/200 EMA cross, should it occur, will likely bring EOS to retest the previous all time high at ~0.025 BTC over the next few months.

Bitfinex EOS/BTC long/short open interest is currently 68% long (not shown). A significant price movement downwards will result in an exaggerated move as the long positions begin to unwind. There are no active RSI or volume divergences currently.

Conclusion

EOS has led the numbers game in terms of dapp activity and transactions per day for months. However, upon further investigation, 75% of these transactions may be bot activity. Total transactions per day on the EOS chain are likely closer to one million than the reported five million. Because transaction costs are free on the EOS chain, this is no surprise. 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 earlier this year. 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.

Further risks of centralization on EOS comes in the form of the ECAF and governance system, which is absent in many other blockchains and, for many, is antithetical to crypto ideology in general. Even when functioning as intended, unless all 21 of the BPs have an updated blacklist, a compromised account can still slip through the cracks. No action was able to be taken on the recent Bithumb hack because the funds were quickly dispersed, highlighting another weakness in the ECAF system.

Technicals for EOS/USD show an intact bull trend with the increasing likelihood of a much deeper pullback based on Cloud signals and a longstanding bearish PF. If strong support between US$5-US$6 fails to hold, a price target of US$3.2 is feasible in the next few weeks. Additionally, The average EOS token price during the ICO was US$5.74, suggesting additional confluence for horizontal support. EOS/BTC is caught within a messy, directionless range that currently leans bearish with strong support at 66,000 sats.