Authored by Eyal Hertzog, Bancor Co-founder & Product Architect
Following the BP conference call on Mon, July 2nd, I would like to share some thoughts regarding the EOS RAM model and the balance between free market price speculation and the need for dApp developers to have access to affordable RAM for the success of the network.
The main reason speculation can be harmful in this particular case is that unlike many other tokens - RAM is “backed” by a scarce resource (memory) which cannot be practically rented. An analogy would be a real estate market in which property rentals are not possible. In such a market, real estate speculators will essentially own empty properties, adding upward pressure to prices, while decreasing the overall resource utilization as many properties remain expensive and empty.
One solution that was proposed during the call is to continuously burn EOS tokens from the RAM contract (e.g. 10% a month). This would theoretically drive the prices down at rate of a 11.11% per month assuming there were no other trades. As Dan Larimer mentioned in the call, this solution represents a form of “rent” costs on the RAM that is being used.
Speculation would still make sense, but in fewer cases. Currently, if someone speculates that even just a few big dApps are able to afford the current price, the rational strategy would be to hold RAM for the long term, until some dApp eventually coughs up the cost and the value rises. We think this incentive structure could be problematic for the ecosystem.
Clay Shirky coined the term “Low Cost of Failure” which he describes as the main driver behind the success of user-generated content platforms such as Blogger, YouTube, Reddit, etc. It is the low cost of failure that allows the long tail of users to participate in an ecosystem. And it is this long tail of users that increases creativity, access and distribution. One of the main benefits of blockchain technology is its ability to dramatically reduce the cost of failure for online transactional and financial networks. In this case, a potential killer app on the EOS ecosystem may simply die for not being economically viable due to RAM costs, while at the same time most of the available RAM is not even in use, but is held by speculators for future profit.
By changing the RAM contract to burn EOS at a constant rate, speculation becomes riskier. Speculators must predict that dApps (or additional speculators) will buy RAM at a certain rate, rather than simply anytime in the future. This would have a similar effect to continuously adding RAM to the contract; however, adding RAM is labor intensive and could take some time for testing and community readiness.
An additional step could be to issue RAM “futures”, which could be traded in the same way, and represent the next 64G of RAM that will be added in the future. Since this RAM is not actually being used, no “rent” should be charged for it until it is added to the active pool. This would allow speculators to still speculate on the future price, without paying rent, and without preventing dApp developers from having affordable access to the resources they need to build on the network.
We look forward to discussing this and other topics with BP teams and the greater EOS and blockchain communities, and welcome any feedback and improvements on this proposed solution.
To liquidity and beyond,
The LiquidEOS Team
LiquidEOS Telegram: @BPLiquidEOS
Bancor Telegram: @Bancor