EOS in reconstruction: Is the “first generation Ethereum killer” coming back?

EOS was once considered one of the most promising blockchains, but it did not develop as expected. Currently, various reconstruction works are underway on EOS. Can EOS be revived again?

EOS was once considered one of the most promising blockchains in the Layer 1 space. At the time of its launch, EOS was a top-5 cryptocurrency by market cap. But since then, EOS has failed to live up to early expectations, which community members largely attribute to a lack of development and investment from the founding team.

In 2021, the EOS community began to reverse course, first formally distancing the founding team from the project. Led by the community-based EOS Network Foundation (ENF), the community voted to freeze the founding team's token release contracts in 2021 and fork the open source codebase in 2022. The ENF working group has driven ecosystem and protocol improvements, including the recent IBC implementation. EOS has some lost time to make up, but ENF plans to attract a new wave of users by implementing consensus mechanism upgrades, EVM solutions, and new growth strategies.

Some background information

The open-source EOSIO blockchain protocol was founded in 2017 by blockchain software company Block.one (B1). B1 is led by CEO Brendan Blumer, who has founded several software and gaming companies, and CTO Dan Larimer, a well-known figure in the crypto space who created the Delegated PoS variant of Proof of Stake (PoS) and the concept of a decentralized autonomous organization (DAO).

B1 conducted a year-long initial coin offering on Ethereum starting in June 2017. By the end, B1 had raised $4.1 billion, the largest in history. In 2019, the SEC charged B1 with conducting an unregistered securities offering, and B1 agreed to pay a $24 million civil penalty without admitting or denying the findings.

B1 released the open source EOSIO codebase in mid-2018. A week later, the EOS network built using the EOSIO framework was launched. After going online, B1 slowly stopped upgrading and maintaining the core EOSIO protocol. Basically, it did not reinvest the proceeds back into the EOS network and ecosystem, but instead directed resources to other projects outside of EOS, including the social network Voice and the centralized exchange Bullish.

The EOS community grew increasingly frustrated with B1’s lack of commitment. They soon realized they needed to take action to prevent further decline of the EOSIO codebase and the EOS ecosystem. In August 2021, the non-profit EOS Network Foundation (ENF) was founded by Yves La Rose, former CEO of block producer and node infrastructure company EOS Nation. With financial support from the network’s block producers, ENF began an extensive review of EOS’s technology and ecosystem, identifying areas for improvement and proposing solutions through working groups and grants.

In December 2021, EOS block producers passed a proposal to freeze the EOS token release contract for B1 (B1 received 10% of the initial EOS supply at launch, unlocked linearly over 10 years). Freezing the contract is a decisive step to formally separate EOS from B1 and return ownership to the community.

The community ownership efforts culminated in a hard fork from the EOSIO codebase to the new Antelope codebase, along with several new features, in September 2022. The open-source Antelope protocol is maintained and upgraded by the Antelope Coalition, a group of teams from EOS, WAX, Telos, and UX Network — all of which were originally based on EOSIO.

technology

Consensus Mechanism

EOS is a Byzantine Fault Tolerant (BFT) based blockchain that uses a popular Proof of Stake (PoS) variant called Delegated Proof of Stake (DPoS). In this system, EOS token holders can delegate their tokens to validators (“block producers” or “BPs”), who produce and verify blocks.

Unlike some other PoS systems, delegators do not stake their tokens to specific block producers. Instead, they typically stake their tokens to the system and then vote for up to 30 BPs. If a user stakes 1 million tokens, then each BP they vote for will receive 1 million votes, regardless of whether the user votes for 1 or 30 BPs (ignoring voting power decay, see below for more details).

The top 21 block producers based on voting ranking are called "active BPs" and they participate in each round of consensus. A consensus round lasts 126 seconds and consists of 252 blocks (each lasting half a second). At the beginning of each round, the active BPs are selected and sorted in alphabetical order. Each BP then produces 12 blocks at a time until the round ends, and the process repeats.

Each active BP produces 4.76% of blocks per round, regardless of stake, EOS limits the concentration of block production. Block producers outside the top 21 are called "standby BPs" and do not participate in the consensus of that round.

rewards and punishments

Block producers receive block rewards through 1% of network inflation. Of this 1%:

• 75% (0.75% of total inflation) is distributed to block producers in proportion to the number of votes they received in the past day, thus rewarding active and standby BPs.

• 25% (0.25% of total inflation) is distributed to block producers in proportion to the number of blocks they produced in the past day, so only BPs who were active at the time are rewarded.

Delegators need to vote (i.e., delegate their tokens to a BP) weekly to maintain their full voting power. If they fail to do so, their voting power slowly decays with a one-year half-life, but once they vote again, voting power is restored to maximum. Delegators can have proxies vote on their behalf, rather than managing it themselves. Delegators do not have protocol-level rewards, but many BPs share part of their rewards with proxies, who pass on rewards to delegators.

Aside from missing out on a portion of the 0.25% inflation reward, there are no protocol-level penalties for BP misbehavior or inactivity.

Smart contract programming language

EOS's smart contracts are written in C++, but more SDKs for Rust, Go, and AssemblyScript are in development. The development team is also building an EVM solution that supports Solidity, the most popular Web3 language.

Resource Model

Many blockchains have a gas-based resource model. Users spend gas tokens to pay for the various costs of a transaction, including processing transactions and storing data. On EOS, resources are often combined into a single gas fee, which is then split into its individual components.

The three resource components on EOS are:

• NET — A spatially named resource that measures the throughput of a network in bytes.

• CPU — A resource measured in time, measuring the processing time of a transaction in microseconds.

• RAM — A measure of a network's data storage capacity in kilobytes.

bandwidth

The NET and the CPU share the cost of network bandwidth. The allocation model for these resources has evolved several times.

Initially, NET and CPU are renewable resources that users can reserve in proportion to their EOS holdings. When a user makes a transaction, their available bandwidth is reduced by the NET and CPU required for that transaction. But the resources are only consumed temporarily. After 24 hours, the user will have access to their full NET and CPU again.

To prevent inefficient resource allocation, EOS launched the Resource Exchange (REX) in 2019. This feature allows users to stake EOS and lend their excess bandwidth resources to borrowers. In return, lenders receive a REX token, a rebased version of the EOS token, which incurs REX lending fees, RAM transaction fees (see below), and fees generated by the auction of premium EOS account names.

In early 2021, EOS began transitioning to the current PowerUp resource model proposed by B1. This model helps make resource management more user-friendly and efficient. Instead of pledging EOS to reserve bandwidth, users can pay a small EOS fee to provide 24-hour service for their account bandwidth. To further enhance the user experience, many wallets provide free PowerUp subsidies every day and abstract resource management to users. Users can also usually get free PowerUp subsidies from other infrastructure providers such as block explorers.

As it stands, REX is no longer used for resource lending, but it still distributes all fees from the previously mentioned sources as well as PowerUp fees to EOS stakers. Currently, REX TVL exceeds $62 million.

State Storage

With RAM, users directly pay the fees associated with storing data in their accounts, including any fungible tokens, NFTs, NFT listings, etc. RAM is a finite resource that can be bought and sold with EOS. The RAM/EOS market is priced using the Bancor liquidity algorithm. The market charges a 0.5% fee that is collected on the resource exchange and redistributed to EOS stakeholders. Unlike typical gas tokens, RAM is not always consumed forever. For example, if a user allocates RAM to an NFT they hold, then if they destroy the NFT, then that RAM will be returned to them (selling or transferring the NFT to another account does not release RAM back).

account

EOS accounts have two different types of keys:

• Owner KeysAdd, delete, and manage active keys. Each account has one owner key.

• Active keys sign transactions. Each account can have many active keys.

Additionally, the owner key can set an active key with custom permissions. For example, there may be an active key that can only mint NFTs from one specified contract. Users can also create multiple keys and require multiple signatures to execute transactions. The wait timer feature allows the owner key to set the active key so that there is an input time delay before executing the signed transaction.

The system has a similar effect to account abstraction, which has been on Ethereum’s roadmap for years, in that it significantly improves user experience and security compared to traditional accounts without smart contracts.

Antelope IBC

One of Antelope’s first initiatives is to implement a light client-based inter-blockchain communication (IBC) protocol. The design is similar to Cosmos’ IBC and builds on the work of Origin, the development team behind UX Network, a chain based on Antelope. Implementing Antelope IBC allows Antelope-based blockchains to securely communicate with each other and scale horizontally. For example, a popular dapp can launch an Antelope sidechain and validator set to have its own execution environment while remaining connected to the ecosystem.

In January 2023, Antelope IBC was launched on the EOS mainnet, and the pilot transaction between EOS and UX Network was successful.

Token Economics

Overview

EOS Network's native token, EOS, is used for security (validator and delegator staking) and resource allocation (CPU, NET, and RAM fees). The EOS token economics have changed several times since its launch. Currently, EOS is inflated at a rate of 3% per year with no burn mechanism.

Initial Allocation

Public Token Sale (90%): B1 sold 900 million tokens for approximately $4.1 billion in a year-long reverse Dutch auction, once every 24 hours from mid-2017 to mid-2018. It publicly pledged to invest $1 billion of the proceeds into the EOS ecosystem and development. However, B1 had no legal obligation to this commitment and decided not to invest the pledged amount back into EOS.

Team and Founders (10%): At network launch, participants agreed to distribute an additional 100 million EOS tokens to B1, to be released linearly over 10 years. In December 2021, EOS block producers voted to stop the release of tokens due to lack of development on B1. Prior to the freeze, B1 received approximately 32 million tokens, with approximately 68 million frozen. These tokens are currently still staked, with no plans to unfreeze, destroy, or do anything else with them.

Historical Token Economics Changes

At the time of publication, the EOS inflation rate is set at 5%:

• 20% (1% of total inflation) goes to block producers.

• 80% (4% of total inflation) goes into a system savings account which serves as a treasury fund that block producers can allocate to approved proposals for operational and development costs.

Savings Account: Despite the total inflation rate of 4% in the savings account, it never had a clear purpose. Block producers believed that the fund had become too large and a potential target for attackers. As a result, block producers chose to destroy all tokens in the account on multiple occasions. They first destroyed 34 million tokens in May 2019 (worth $165 million at the time). In February 2020, they destroyed the remaining 34 million tokens in the account (worth about $140 million at the time). Along with the second burn, they passed a proposal to remove the savings account allocation, reducing inflation to 1%. The savings account was later re-enabled in August 2021 at a 2% interest rate to create ongoing funding for ENF.

RAM Transaction Fees: At launch, a 0.5% fee on RAM transactions went into the eosio.ramfee account, which is controlled by block producers. In May 2019, block producers passed a proposal to send fees to the Resources exchange instead. However, block producers still had to decide what to do with the fees accumulated in the eosio.ramfee account. Block producers later passed a proposal in August 2021 to move these tokens, along with accumulated fees from previous premium EOS account name auctions, to the eosio.grants account. Together, these fees made up the initial funding of ENF (worth approximately $16 million at the time).

ENV Fund: In November 2022, block producers passed a proposal to create and fund a new ecosystem fund managed by EOS Network Ventures (ENV) with approximately 68 million tokens, which is comparable to the amount previously burned. ENV uses the fund to invest in ecosystem projects and launch accelerator and incubation programs.

Current inflation rate

The current inflation rate is 3%, of which one-third is allocated to block producers and two-thirds to ENF.

Networking activities

user

Since the beginning of 2021, daily transactions have fallen 65%, but daily active addresses have increased 7%. The downward trend in daily transactions reversed in October 2022. Since then, daily transactions have increased 218%, despite a 25% decrease in daily active addresses. This recent trend indicates an increase in advanced users.

Year-to-date, the network has averaged 1.3 million transactions per day and 38,000 daily active addresses. However, the latter number is inflated by a large outlier. On January 31, 2023, daily active addresses surged to 436,000. There is no clear reason for the spike, and ENF is unsure what caused it. Almost the entire surge is due to addresses interacting with the EOS system contract — which manages functions such as delegation, resource management, etc. — rather than any increase in dapp-related activity.

So far in 2023, EOS has averaged 1,785 new addresses per day, down from 2022 (over 2,600) and 2021 (nearly 13,000).

Validators and Delegators

Although only 21 BPs can participate at a time, a total of 65 BPs have produced blocks since launch. Others only participate as backup BPs, and currently 100 BPs have voting rights.

In total, over 317 million EOS (27.6% of the total token supply) are staked from nearly 100,000 addresses. However, only about two-thirds of the staked tokens are used for voting. Most notably, the frozen B1 tokens (64 million tokens) are staked but do not participate in governance. Therefore, the number of tokens delegated to BPs is close to 212 million EOS ($254 million as of February 22, 2023), which is about 18.5% of the total supply.

Ecosystem

Overview

EOS’s ecosystem includes DeFi applications and programs, NFT markets and projects, gaming applications, and more.

Daily active addresses for all EOS dapps increased in 2021 and peaked in January 2022 before declining in 2022. This trajectory is largely consistent with the broader shift from a crypto bull to a bear market. During that time, popular dapps by daily active addresses included virtual property game Upland, decentralized social app Yup, MMO strategy game Prospectors, instant play and earn game Crypto Dynasty, and NFT marketplace AtomicHub.

Taking into account all contract interactions, not just dapp contracts, the Upland application and its token currently have more daily unique addresses than all other contracts on EOS combined.

However, the data looks very different when filtering only for new address interactions, which are addresses that called the contract on the same day the address was created. Among new addresses, Upland and its tokens account for 6% of unique address contract interactions, which is significantly lower than the 56% of all contract interactions.

In fact, new addresses generally do not interact with any dapps - the EOS system contract and EOS token contract account for almost all new address interactions. This may be a sign that new addresses joining EOS are generally joining to hold EOS on the network or stake it, rather than for a specific dapp use case.

DeFi

Over the past year, EOS DeFi TVL in USD terms has fallen by 62% and currently ranks around 37th among all chains. However, DeFi TVL in EOS terms has only fallen by 32%, suggesting that the decline in USD TVL may be partially due to price depreciation.

More than 75% of TVL comes from the decentralized exchange and lending protocol Defibox. As of February 21, 2023, Defibox's average daily trading volume is approximately $470,000. The exchange's top trading pool is EOS/USDT, with a TVL of approximately $6.2 million and a daily trading volume of approximately $380,000 as of February 21, 2023.

EOS is one of the 11 blockchains that Tether officially supports for minting and redemption of native USDT. In December 2022, Binance Exchange launched EOS native USDT, further helping liquidity and network access. There are currently more than 85 million USDT tokens in circulation on EOS.

The ENF working group proposed two plans to support the DeFi ecosystem on EOS:

• Yield+ is a liquidity incentive program launched in Q3 22. The program allocates EOS to DeFi protocols for them to use as liquidity mining rewards. In order to receive rewards, protocols need to have at least 200,000 TVL denominated in EOS (only EOS and USDT tokens are counted) and pass KYC registration, among other requirements. The program is currently funded by ENF, with a total of 300,000 EOS given to passing protocols each quarter, and will increase as TVL grows. So far, fourteen protocols have joined the program.

• Recover+ is an insurance program for the same protocols that participate in Yield+. The program features funding for bug bounties and white hat rewards. It also includes a crisis management framework in case of vulnerabilities, emergency contacts, best practices, etc. In addition, the program can help affected protocols make recommendations to freeze accounts with stolen funds. If approved by a supermajority of block producers (15/21), block producers can reconfigure the permissions of the account to access the funds.

NFTs and Gaming

The most popular dapp on EOS is Upland, a Play-to-Earn digital real estate and metaverse game that launched in 2019. Year-to-date, Upland has averaged around 20,000 daily active addresses and 60 daily new addresses.

Other games included Prospectors, Crypto Dynasty, and Wombat, but Upland had the most activity in terms of active addresses by far.

AtomicHub is the network’s main NFT marketplace, with over 5,000 collectibles.

As of March 2, 2023, AtomicHub's daily sales are $1,400.

Grants

Several different grant programs and other growth initiatives have been established since the community reforms.

Pomelo

Pomelo is an open-source charitable crowdfunding platform modeled after Gitcoin. Like Gitcoin, Pomelo uses a quadratic funding mechanism, which uses a matching pool funded by partners to augment individual donations. Pomelo's first season launched in Q4 2021, with ENF providing a $500,000 matching pool. In its four seasons, Pomelo has raised a total of $2.6 million through hundreds of projects.

ENF Direct Grant Framework

ENF also provides grants directly to projects based on milestone completion, rather than providing upfront funding like Pomelo. The Direct Grant Framework targets protocol development, with categories including Antelope upgrades, developer tooling, UI and backend development, and cryptography. Applications are evaluated by a committee of senior members of the EOS community, including some with technical expertise. Since its launch in Q2 2022, ENF has approved 11 of 52 applications, of which 4 have been completed. So far, a total of $211,000 has been allocated to these projects, with an additional $444,000 agreed and pending further milestone completion.

EOS Network Ventures(ENV)

As mentioned above, in November 2022, EOS block producers passed a proposal to mint approximately 68 million EOS (approximately $80 million as of February 22, 2023) for an ecosystem fund managed by ENV. In addition to investing in ecosystem projects, ENV also plans to launch an accelerator and incubator program.

hackathon

In Q4 of 22, ENF held two hackathons. It co-hosted the EVMxIdeation hackathon with Helios, offering $88,000 in prizes to EOS builders. They also held the DoraHacks Trust EVM hackathon for EOS GameFi and EVM development.

Roadmap

Technical improvements

Since taking over, and driven by the working group, ENF has been examining various aspects of the EOS network and looking for areas for improvement. It plans to release a new white paper to reflect the changes made so far and detail the planned technical upgrades. The technical roadmap will include a new consensus mechanism that brings instant finality and an EVM solution.

Consensus Mechanism: ENF, along with other members of the alliance, has been working to reform Antelope's consensus mechanism. In mid-2022, EOS, WAX, and Telos agreed to provide a 24-month, milestone-based grant of $3.8 million in native tokens to UX Network development team Origin. The team was tasked with upgrading the consensus mechanism to achieve instant finality and developing Antelope IBC.

Driven by the work of 0rigin, the alliance plans to implement a modified variant of HotStuff, a BFT-based protocol developed by the Facebook team working on Libra and now powering the Aptos network. The upgrade will enable several improvements, including expanding the number of validators to more than 21 and bringing near-instant finality. In addition to solving Antelope's three-minute transaction process, instant finality will also complement Antelope IBC and allow for near-instant cross-chain messaging. These upgrades will go live on testnet in the summer of 2023 and launch on mainnet by the end of the year.

EOS EVM: ENF has been funding and developing the EOS EVM solution since early 2022. Like Aurora on NEAR, the EOS EVM will be implemented as a smart contract on EOS. The EOS EVM will use EOS as its native token. The latest version successfully completed an audit and was launched on the testnet in January 2023. The planned mainnet launch is April 14, 2023.

Growth Strategy

The growth of the EOS network will continue to be driven by ENF. As mentioned above, ENF has established multiple grant systems and ecosystem funds, including Pomelo, Direct Grant Framework, and EOS Network Ventures. ENF is funded through 2% network inflation, which currently equates to approximately $26 million worth of EOS funding per year.

ENF is also helping to fund and develop technology improvements as part of the Antelope Coalition, which has pledged $8 million per year in funding for Antelope development.

Summarize

EOS is one of the most well-known blockchain projects — but not always the best. Driven by ENF, the community has spent the past year and a half working to rebuild EOS’s technology stack and ecosystem. While some metrics, such as transaction counts, have recently improved, there is still much work to be done to bring EOS’s ecosystem and network metrics on par with the top smart contract platforms. Recent and planned technical upgrades, including Antelope IBC, a new consensus mechanism, and the EOS EVM, as well as new growth strategies, could lay the foundation for a new wave of EOS users and developers. If the upgrades are successful and adoption follows, EOS could see another resurgence.