EOS the "Ethereum Killer" with an ERC-20 debut: what is up with this strange ICO?

in ethereum •  last year

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?


EOS and Ethereum?


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.

For example:
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.

Stay open-minded,
Kyle

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Ethereum is far ahead with so many companies and governments onboard and it is far ahead with not much competition . Hard to stop or slow it now

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Competition becomes more complicated when what you are looking at solving different problems. EOS and ETH do different things and make different tradeoffs.

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What are the major tradeoffs btw?

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Mainly stemming from the differences between DPoS and PoS (Casper - slasher style). EOS makes significant tradeoffs to get that speed. Eth keeps some game theory in check with more solid security guarantees.

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Somehow I think STEEM could end up being the one that takes the cake.

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Can't wait to see how things evolve.

Steem is DPoS so maybe there will be also PoS versions of steem.

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I remember when they said the same things with regards to linux versus Microsoft. Linux could never be MS.
The world wide web was designed mostly using Linux with apache and now Google, Facebook, Amazon, Twitter, etc were based upon or still powered by Linux. Things can changed quickly in the tech realm and no one is invincible.

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Yeah.
This is more about the structure of the crowdsale, not the direct competition with Ethereum.

I have much more to say on the competition front. Probably going to have to write those posts sooner than I was expecting.

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It sounds like a good thing but am afraid some anonymous person comes an crash the hold thing and make it centralized like what happened in 2008 with the stock market .Ethereum is so hard to believe just knowing us man kind, good things never last for long.

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None of those companies or governments using public chain. You're making things up. But don't worry, false advertising is how eth went from $6 to $330, as it wasn't based on tech.

thanks, Kyle, following you

very good read. ethereum is definitely the gold rush right now, it has a ton of hype and is getting somewhat of a mainstream bump , but with SO many other projects on the horizon it is hard to believe it is the 'be all, end all' of cryptocurrencies.

It's a very strange auction format, and I'm growing less and less fond of it every minute. The problem is bidding uncertainty - how can an auction be fair or effective if the optimal bid isn't obvious? I'm talking mostly about the first 5 days; on subsequent days, the optimal strategy is easier to understand because by then there will be an established market price.

Stay tuned - I'm working up an auction design that would be far better than what they've proposed. I can't speak to its implementability in Solidity, but it would undoubtedly be a fairer auction.

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Please do! The only strategy i can think of at this moment is to enter some during the 5-day period, and the rest on different days throughout the year to "average" it out as futile as it may sound..

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That sounds like way to go, but does not seem that easy though.

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Because I am sure they are open to different auction styles lol. Good work!

They make these claims about this sale being like PoW but I'm having a hard time evaluating what points they are trying to make. Again, it is wild claims with not much reasoning to back them up.

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Here's the proposed change, FYI: https://steemit.com/eos/@biophil/the-first-5-days-of-the-eos-token-sale-will-be-unfair-here-s-how-to-fix-it

No idea how open they'll be. Dan is famous for proposing weird auctions, and he's never listened to me in the past when I've talked game theory at him. But we'll see.

There is more hype to how this ICO is being Structured! Truly unique in that sense, but a great informative Read! Heads up to more detailed post like this

The structure is different and I see many people uneasy about it. But I think it could have benefits. The year long thing is my biggest concern. That lends itself to so many potential issues. But there will be a breakdown each day of how much ether has been sent in and what the price per token would be at that time. So as long as most are rationale about the price, it could work out for most. And then for those who just want to bid like crazy, their price will be probably be pretty bad.

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So as long as most are rationale about the price, it could work out for most.

That will surely happen.

Very helpful comments as always. Could you please explain one thing to me? What exactly does it mean, practically speaking, for the EOS token tk be launched on ETH? Does that mean that trading the tokens all occurs on the Ethereum network...? I'm behind in my learning about how all these things work.

Also, random question, but how do you feel about the exponential price rise in ETH? I've been waiting for a big correction since $100 so i could get in..... haha

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It means that all trading and everything to do with the token is being handled by the Ethereum network. Their code is not doing any of the work. They are raising Ether for development. Take a look at the guidelines for ERC20 tokens, i think there was a link in the post.

Eth is for ICOs, there are more on the water. Lots of price action to come. I feel the same as you, I just keep doubling down on my stake.

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Ok thanks. That's very interesting. I'm a little confused though. Supposedly, the EOS network will have zero transaction fees (like Steem), but if the transactions of the EOS tokens are actually handled on the Ethereum network, doesn't that mean that gas fees are required?

Thanks again, you are my go to guy for all things ETH :)

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Yeah note:

It is not really true at the moment that you can pay fees in anything except ETH, although there is some discussion about changing this. The way things normally work, you have to pay the fee in ETH. When you sent REP to the exchange you probably used ETH in your own account to deposit tokens in the exchange, and the exchange would have paid for the transaction to send them back out.

In theory, since it's up to the miner whether they include your transaction, you could send a low or zero fee in ETH and have a separate arrangement with a miner where you would give them some ERC 20 token, or send them USD via PayPal, or FedEx them a chicken. This depends on the miner thinking what you are giving them is valuable and being prepared to accept it as payment. If you've sent them a chicken but they don't want one, or you've sent them an ERC 20 token that they've never heard of and don't consider valuable, you shouldn't expect them to mine your transaction.

-ETH stackexchange

So I think you are going to need some ETH to be trading EOS for the next year.

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Cool, thanks again. Also I just realized that the only connection betweem EOS and ETH will be the ico itself. It seems that the eth smart contract locks in the distribution of the EOS tokens, and that distribution will be used as the initial condition for the EOS blockchain, which will function entirely independently of eth. I didn't realize that at first, but it makes sense to me now.

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Yep, keys from Ethereum give you account creation ability on EOS.

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Thanks for this info. It really helped.

I think that the first 5 day window will be so hyped, that EOS will be valued at the same market cap as Ethereum. In total there will be a billion EOS, so I wouldn't be surprised to see the first EOS' sell for $30 each.

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You make a point, after the first 200,000,000 tokens are given out on those 5 days - the market cap is the token price * a billion. Token prices over a dollar equal a market cap higher than a billion. I don't think it is unreasonable to say that some of those won't be tradeing for 30+ dollars. That puts it on par with ETH market cap.

After those 5 days and the hype is at all time highs, it will be interesting to see how the price deals with 80% inflation over the course of a year.

I am not sure.

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It just seems to be such a high profile ICO, that everyone will want a piece. I would expect investment funds buying up the majority of the first 200,000,000 tokens.
After that... You mention arbitrage in your post, which I find very interesting. Like you say, the limited supply might get bought away in seconds. This leaves the "ordinary" investor with no other choice than to buy in at a high price.

With what I know at this point I will try to buy some EOS for less than $10 a piece in the first five day window. After that, I expect the price to drop after 8 months, when there will be almost a billion tokens and all the little investors have gotten their piece. In that case I'll buy some more. If not, then at least I have the tokens from the first five day window.

Of course, this is nothing but speculation at this point.

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< 10 a piece means a market cap of (EOS price) * 1 Billion -- so ~ 1-10 billion.

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How will you buy at less than $10 a piece? It's logically impossible with their auction design because they give you no way to opt out if the actual price goes over $10. Now, $10 a piece means that they've raised $2 billion in 5 days - which seems a tad unlikely.

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You are right, it's harder than I thought. But there must be some kind of counter right? Something like "so far we've raised ... ETH", which would give an indication of the price.

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Yeah, that tells you the minimum price. But since you have no idea how much ETH will be contributed during that period, you have to contribute without knowing anything about the maximum price.

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market cap is usually calculated by currently available tokens, not all possible. see zcash.

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Yes. I am discussing in terms of this weird year long sale.

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EOS seems like an excellent project and good intentions but the distribution of the tokens are flaw. Its to centralized and like the developers has replace the government and gone abit to far with their allocation. We can't preach decentralized technology and practice centralized allocation for benefits, if that is the case, then we are no better than the government and central bankers

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See I just don't know. It might be flawed, it might not be.

Here's a step by step guide to buying and storing EOS: https://buyingeos.com/