EOS, the latest project by Dan Larimer, is launching their token on the Ethereum blockchain. Their ICO has a rather unique structure with a continuous distribution lasting for an entire year. Will this structure fuel heavy speculation and manipulation with regard to the EOS project?
I was hoping to not write much about EOS in the short-term. They have an ambitious whitepaper and a GitHub with with a hundred or so commits by only Dan and Nathan, nothing mature enough to really warrant a deep technical dive. I was saving much of my EOS writing for when more was actually known about the project. After looking at the terms for their ICO sale and seeing that it was going to be released as an ERC-20 token on Ethereum, I felt the need to comment.
I know the steem community has fond ties to Dan and criticism of him or his projects is often not very well received. I hope my words can be seen as nothing personal or accusatory towards Dan and his team. As an independent in this industry I feel it is my duty to outline my concerns, especially when those concerns are not being actively circulated within a media sandbox. I will preface my following comments with a genuine interest and excitement for the EOS project. I think there is a real place for DPoS consensus and I think many applications could benefit from a system designed as such the EOS whitepaper outlines.
I find it quite funny that a project that is marketing themselves as "Ethereum killers" has chosen to launch their token on the Ethereum main net. Certainly showing the future will be full of many blockchains working together. This could be testament to the power of Ethereum as an ICO platform or at least the EOS team recognizes the hype that can be generated around an Ethereum ICO. Either way this confirms the strength and relevance of Ethereum. Right now EOS is dependent on the main Ethereum chain. This might also be taken as insight into the status of EOS, if they need to rely on Ethereum for their token management - it might be a long time until EOS is fully up and running.
The details for the token sale (ICO) are as follows, replicated from the EOSIO GitHub.
No information regarding the final terms and timing or properties of the sale have been released at this time.
The EOS Token sale will be conducted on a continuous distribution model for 1 year. 1,000,000,000 (one billion) EOS tokens will be minted at the start of the sale. These tokens will be split into different rolling windows of availability. The tokens for a window will be split proportional to all contributions made during the window period.
20 EOS are available during the window
Bob contributes 4 ETH
Alice contributes 1 ETH
Bob contributed 80% of the total contributions and gets 16 EOS
Alice contributed 20% of the total contributions and gets 4 EOS
At the start of the sale, 20% of the total minted tokens (200,000,000 EOS) will become available during a 5 day window.
The remaining 800,000,000 EOS will then be split evenly into 360 one-day windows of 2,222,222.222222 EOS tokens each.
369 days after the creation of this contract the EOS ERC-20 token will be frozen and non transferrable.
Now this is an ICO that takes a very different model that anything seen before. After the first five-day window ends and a price for EOS is somewhat established, there is essentially a daily, uncapped ICO for the next 360 days to distribute the remaining 80% of the EOS tokens. Given the early status of the project, I believe this model places a lot of strain on investors finding a reasonable value for EOS; especially when those investors may not be informed or rational. It will be interesting to see how the fear of missing out plays out over the course of the sale. We have seen how FOMO and uninformed investors come together with the mess that was the Gnosis ICO, it will be interesting to watch this play out over the long timeframe granted by the EOS sale.
What worries me is that investors are forced to value a token based mostly on future promises and they are given a year to do that. A lot happens in a year, especially in crypto, how are EOS planning on releasing new information about their product? - there could be some serious 'insider trading' issues regarding their product if they are not completely transparent. As long as the EOS team continues to feed the community good news on the progress, the hype will only continue to drive the price up. With early investors who become increasingly incentivized to keep the price above what they paid, expect a great deal of pumpers and EOS fanboy hype.
This might all be expected to converge on a reasonable price for the EOS tokens released to the market every day. The long time frame really ensures that no single actor is able to get in at the beginning and take everything. This is one of the biggest strengths I have seen in this sale structure. The early investors are incentivized to promote the product for essentially a year - this might result in tons of "free" advertising.
I expect there to be serious arbitrage opportunities with respect to the limited amount of EOS released in each daily offering window. Because only a small group will be able to get into the daily window, they will likely be able to sell the tokens immediately on the open market for a profit. This forms a feedback loop where competition in the daily window contracts could drive prices up across the board. I wonder how each daily offering will fare, will each block be filled to the brim - essentially a BAT ICO each day? Will there be waves of hype followed by pessimism; hype windows slow the network with demand, pessimistic windows essentially giving out free EOS. Time will tell.
I really hope for the best regarding this ICO, EOS seems like a very promising idea for many applications. The unique structure gives me some worries - especially in this industry highlighted by FOMO and uneducated investors. I think there is a real possibility of a "hype feedback loop" forming with very little information actually coming from EOS.IO and mostly from early stakeholders ready to hype. I will not be participating in the ICO, at least not at the beginning. I am going to be watching with wide open eyes though.
I know many of my readers are exited about this project, let me know in the comments how you feel about their ICO structure.