EOS Price Analysis – Decentralized Apps on the rise, while the asset’s value falls

EOS had seen decreasing volatility over the past 90 days, until this week, and is currently ranked 6th on the BraveNewCoin market cap table, having recently been surpassed by Stellar. The EOS spot price is down 80% from the all time high set on April 29th. The market cap currently stands at US$4.28 billion with US$1.15 billion in trade volume over the past 24 hours. Over the past month, EOS has declined in line with the majority of coins above a US$100 million market cap.

Source: coin360.io

The EOS platform was created by Block.One to rival other dApp or smart contract enabling blockchains, like Ethereum (ETH) and NEO (NEO), and can be thought of as a global computing network running smart contracts on Virtual Machines. The ETH and NEO platforms use gas to pay for units of computing power while EOS uses RAM. EOS went live on June 14th, after raising ~US$4.2 billion in a year long ICO, where the average token price was US$5.74.

In September, it was discovered that four top executives, David Moss, Thomas Cox, Brian Abramson, and Correy J. Lederer, had left Block.One after only being with the company for less than one year. Two other software developers also left the company. These previous employees left to start StrongBlock, a new blockchain project. One of the employees said, "we left because we saw a need in the blockchain marketplace that Block.one was not going to address."

The EOS blockchain uses a Delegated Proof of Stake (DPoS) consensus mechanism, which was pioneered by EOS and Block.One CTO Dan Larimer. DPoS is also currently being used by BitShares, SteemIt, Lisk, Ark, and Tezos.

With DPoS, users 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. Based on this structure, a hack discovered by Block Producers was thwarted in early October when two million EOS were blacklisted in a compromised account.

While the top 100 BPs are paid for their services, the top 20 BPs earning the highest reward. Should any of these BPs go against the community’s wishes, they can be fired and replaced. To encourage voting participation, EOS has implemented a vote decay system with newer votes carrying the most weight. Older votes decay and have a minimal 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 encourages BPs offering the highest reward to stakeholders to become elected and does not necessarily encourage what is in the network’s best interest. The current reward for staking on the EOS blockchain, beyond voting on network proposals, is use of the 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. The ECAF has given nine public notifications of arbitration and has facilitated 19 orders or rulings. In June, the ECAF and BPs froze 27 user accounts with no explanation given. On October 17th, the ECAF started the first-ever arbitration case. The ECAF was paid US$400 in EOS for their services. The case involved a stolen wallet, which was acquired through a phishing attempt. The contents of the wallet were returned to the owner following the conclusion of the case on November 8th.

Although funds were restored to the owner, crypto users have became increasingly concerned with centralization. One Reddit user commented that EOS "is basically a less convenient PayPal." Other commenters suggested that, "this type of governance is definitely not scalable." As of September 17th, 433 cases had been filed with the ECAF.

On the network side, 60.8% of all tokens are currently being staked, and the network is confirming around 20 transactions per second. The record number of transactions on the network stands at 3,996 per second. The current number of total transactions per day on the network (line, chart below) stands at ~3.2 million, which has increased substantially since June, and is likely related to dApp activity. The average transaction value (fill, chart below) is currently US$34.5, which is down from a May high of US$38,000 and is also likely related to dApp activity. Data on average transaction fees are not currently available.

Source: coinmetrics.io

The 30-day Kalichkin network value to estimated on-chain daily transactions (NVT) ratio (line, chart below) is currently in the upper-third of historic levels and beginning to flatten. Although NVT is difficult to compare between coins, which use different transactions types, NVT can be useful when comparing a networks relative utility over time. A clear uptrend in NVT suggests a coin is overvalued based on its economic activity and utility, which should be seen as a bearish price indicator, whereas a downtrend in NVT suggests the opposite. Inflection points in NVT can also be leading indicators of a reversal in asset value.

Daily active addresses (fill, chart below) have continued to increase since July. EOS currently has fewer daily active addresses than ETH, but significantly more daily active addresses than NEO. Active addresses are important to consider when determining the fundamental value of the network based on Metcalfe’s law.

Source: coinmetrics.io

The cost of RAM on the EOS virtual machine is currently ~0.0785EOS/kb and continues to decrease. RAM on EOS is subject to supply and demand, as well as speculation, and is required to create new accounts or interact with dApps. New account creation uses 4kb of RAM and the current cost is US$1.42. A few users attempted to corner the RAM market in July when RAM costs skyrocketed to ~900EOS/MB, which meant a new account cost ~US$32 at that time. In response, 15 of the 21 EOS BPs approved a measure to double the supply of RAM, flooding the market and decreasing the cost.

Source: https://eos.feexplorer.io

The top dApps over the past week, ranked by volume, are dominated by gambling apps. Volume across most EOS dApps has increased dramatically over the past month. Gambling dApps are popular because they are normally highly regulated in most countries but are currently outside of legal purview, at least for the moment.

EOS dapps have also been continually under attack over the last several months. The increase in volume likely goes hand in hand with being a target for hackers. In mid-September, a hacker stole 44,427.43 EOS from the gambling dApp EOSbet using fake EOS transfer attacks. This was done by sending a fake EOS transfer notice to the EOSbet contract. The EOSbet contract misread the transfer as a real transfer of EOS tokens and paid the rewards accordingly. Although a claim was filed with the ECAF, it does not appear as though any action was taken.

The EOSbet dApp was hacked again in mid-October for 142,845 EOS in a similar fashion through different smart contract vulnerabilities. The stolen funds were moved to Bitfinex and Poloniex, "where they were quickly frozen" according to EOSbet. On October 31st, a hacker stole 63,014.1 EOS from a different gambling dApp EOSCast, again using fake EOS transfer attacks. The ECAF took swift action in this case and blacklisted numerous accounts.

Fake wallets, which are infamous for stealing user funds, have also emerged for EOS. In early September, over the course of one week, a fake wallet on the Apple app store, which has since been removed, stole 1,500 EOS from users. The ECAF has not taken any action in this case. Earlier this month, another fake wallet, SimplEOS, appeared on the Google Play app store and was quickly removed.

Turning to developer activity, over 160 developers have contributed to the EOS project on GitHub. There have been a cumulative 6,653 commits over the past year, mostly in the main repo (shown below). Most coins use the developer community of GitHub, which was acquired by Microsoft for US$7.5 billion. 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.

Since June, dev activity has declined substantially in the main repo. However, EOSIO V1.4.3 and EOSIO.CDT V1.4.0 were released earlier this week, both of which brought various bug fixes and improvements to the platform.

EOS exchange traded volume in the past 24 hours has predominantly been led by Tether (USDT), with Bitcoin (BTC) and Ethereum (ETH) pairs also accounting for a smaller but substantial percentage of the volume. The majority of trading has occurred on Huobi, OKEx, DOBI trade, and Digifinex.

EOS continues to garner interest from exchanges, both as a trading pair and a platform for trading. On September 20th, EOS was listed on the Circle Invest app. Earlier this week, the Bancor DEX launched a cross-blockchain decentralized liquidity network, BancorX, which enables automated token conversions between ERC20 and EOS-based tokens. EOSfinex, an EOS-based DEX in the works the Bitfinex platform, is still listed as "coming soon" on the website. EOS is not currently listed on Bittrex or Coinbase.

Technical Analysis

EOS has fallen sharply over the past few days, as have all crypto assets across the board. To help determine a possible trend shift or continuation, exponential moving averages (EMAs), Pitchforks, and Ichimoku Cloud can be used to find optimal entry and exits. Further background information on the technical analysis discussed below can be found here.

Bitfinex open interest remains mostly net long, with longs sitting 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. While there are no active RSI divergences on the daily timeframe, a recent volume spike represents a 69 day high.

Price has fallen 45% since the bearish 50/200 EMA cross on March 21st, which occured 111 days ago. Although a bullish entry would not be warranted until a bullish 50/200EMA golden cross occurs, a price move towards the 200EMA is possible simply due to mean reversion. Recently, the 50EMA has consistently acted as resistance for price.

For the past 100 days, price has also found resistance at the median line (ML) of a bearish Pitchfork (PF) with anchor points in December, March, and April. Price will continually attempt to return to the ML (yellow) throughout any given trend. Once the ML is confirmed as resistance, price may attempt to drop to the bottom edge of the PF, or in this case ~US$2.07. Alternatively, a reversal and breach of the ML to the upside could bring prices of US$9-US$13 based on the PFs upper resistance zone. Based on the current position of price relative to the ML, a drop to ~US$2.07 appears to be more 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 singled settings (10/30/60/30) for quicker signals are bearish; price is below Cloud, the Cloud is bearish, the TK cross is bearish, and the Lagging Span below Cloud and below price.

Despite the Kumo breakout a few days ago, the most conservative traditional long entry trade would not be entered until price is above the Cloud with a bullish TK cross, which was not the case. This fake breakout indicates the importance of using the entire Cloud entry checklist when making a trade, especially when using the singled settings.

The status of the current Cloud metrics on the daily time frame with doubled settings (20/60/120/30) for more accurate signals are also bearish: price is below Cloud, the Cloud is bearish, the TK cross is bearish, and the Lagging Span is below Cloud and below price.

A traditional long entry will not trigger until price is above the Cloud with a bullish TK cross. However, as the TK cross turns bullish and price enters the Cloud, a long reversal trade can trigger. This is known as an Edge to Edge trade. Currently however, the rejection of the previous Edge to Edge trade strongly suggests bearish continuation.

Lastly, on the EOS/BTC pair, previous triangle consolidation and Edge to Edge trade appeared to satisfy all conditions for a long entry. These trades were stopped out when price breached both the Kijun and the Cloud a few days ago. The next high probability opportunity for a long trade will likely come with a bullish Kumo breakout with a bullish TK cross. Based on the shrinking Cloud resistance, this may occur just before January. A breach of the 200EMA would add to the possibility of continued bullish momentum.

Conclusion

Network fundamentals show that dApps have driven the number of transactions per day into the multi-millions while sinking average transaction value. Active addresses have also risen substantially on dApp activity. As dApp popularity has risen, so have the funds held by these dApps, which has created a large honeypot for hackers. Poorly written smart contracts also have a vast attack surface, as was seen in the case of the EOSbet contract. Although funds can be frozen and transactions reversed, this has not been the case for all successful hacks. While the ability to freeze or reverse transactions may be a solace to some, this centralization of power can be criticized as antithetical to crypto ideology in general.

Technicals suggest a multi-month bear trend which recently had an opportunity for reversal following an extended consolidation period. Any chance of reversal appears to have evaporated, for now. Continued bearish momentum would likely bring price to ~US$2.07. Price has not yet broken the local low of US$4.20 or US$3.87, both of which will likely act as strong support. Trend indicators suggest new bearish momentum will need to be exhausted before any chance of reversal.