Key Insights
- EOS is a Layer-1 (L1) blockchain built using the open-source Antelope protocol (formerly EOSIO).
- EOS’s founding team Block.one raised around $4.1 billion in a 2017-18 ICO but slowly stopped supporting the network with core development and ecosystem funding.
- The community-led rebuild features several technical upgrades, including the recently launched IBC implementation and upcoming consensus mechanism upgrade and EVM solution.
- Although some key metrics like transaction count recently reversed their long-time downward trends, the EOS ecosystem still has some way to go to be on par with leading L1s.
EOS was once considered one of the most promising developments in the L1 blockchain space. It raised a staggering $4.1 billion in its ICO, almost a quarter of the total amount raised during the ICO boom from 2017-18. At launch, EOS was a top five cryptocurrency by market cap. But since then, EOS has failed to live up to early expectations, which community members largely credit to a lack of development and investing from the founding team.
In 2021, the EOS community began to reverse course, starting by formally distancing the founding team from the project. Led by a community-formed EOS Network Foundation (ENF), the community voted to freeze the founding team’s token vesting contract in 2021 and fork the open-source codebase in 2022. ENF working groups have led to ecosystem and protocol improvements, including most recently an IBC implementation. EOS has some lost years to make up for, but the ENF plans to attract a new wave of users by implementing a consensus mechanism upgrade, an EVM solution, and a renewed growth strategy.
Background
The open-source EOSIO blockchain protocol was founded in 2017 by blockchain software company Block.one (B1). B1 was led by CEO Brendan Blumer, who previously founded several software and gaming-related companies, and CTO Dan Larimer, a well-known figure in the crypto space credited for creating the Proof-of-Stake (PoS) variant Delegated PoS and the concept of a decentralized autonomous organization (DAO).
Beginning in June 2017, B1 conducted a year-long initial coin offering (ICO) on Ethereum. By the end, B1 raised $4.1 billion, by far the largest in ICO history. In 2019, the SEC charged B1 with conducting an unregistered securities offering, and B1 consented to paying a $24 million civil penalty, without either admitting or denying the findings.
B1 released the open-source EOSIO codebase in mid-2018. A week after, the EOS Network, built using the EOSIO framework, launched. After launch, B1 slowly stopped upgrading and maintaining the core EOSIO protocol. It largely did not re-invest ICO proceeds back into the EOS Network and ecosystem and instead directed resources to other projects outside of EOS, including social network Voice and centralized exchange Bullish.
The EOS community grew increasingly frustrated by B1’s lack of commitment and failed promises. They soon realized they’d need to take action to prevent further decay 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 EOS Nation, a block producer and node infrastructure company. With funding support from the network’s block producers, the ENF began taking a broad review of EOS’s technology and ecosystem, identifying improvement areas and proposing solutions through working groups and grants.
In December 2021, EOS block producers passed a proposal to freeze B1’s EOS token vesting contract (beyond the ICO, B1 had received 10% of the initial EOS supply at launch, which was unlocking linearly over 10 years). The vesting contract freeze was a decisive step in officially distancing EOS from B1 and bringing ownership back to the community.
In September 2022, the community-ownership effort culminated in a hard fork from the EOSIO codebase to a new Antelope codebase, along with several new features. 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 networks that were originally based on EOSIO.
Technology
Consensus
Mechanism
EOS is a Byzantine Fault Tolerance (BFT) based blockchain that uses the popular Proof-of-Stake (PoS) variant Delegated PoS (DPoS). In this system, EOS tokenholders can delegate their tokens to validators (“block producers” or “BPs”), who produce and validate blocks.
Unlike some other PoS systems, delegators do not stake their tokens to a specific block producer. Instead, they generally stake their tokens to the system and then vote for up to 30 BPs. If a user stakes 1 million tokens, each BP they vote for will receive 1 million votes (ignoring voting power decay, detailed below), whether the user votes for 1 or 30 BPs.
The top 21 block producers based on voting rank are known as “active BPs”, and they participate in consensus each round. Consensus rounds last 126 seconds, consisting of 252 blocks (each lasting half a second). At the beginning of each round, active BPs are selected and sorted alphabetically. Each BP then produces 12 blocks at a time until the round ends, at which point the process repeats.
With each active BP producing 4.76% of the blocks each round, regardless of stake, EOS limits the concentration of block production. Block producers outside the top 21 are known as “standby BPs” and do not participate in consensus for that round.
Rewards and Penalties
Block producers earn block rewards funded by 1% network inflation. Of this 1%:
- 75% (0.75% total inflation) is allocated to block producers in proportion to the number of votes they received in the past day, thus rewarding both active and standby BPs.
- 25% (0.25% total inflation) is allocated to block producers in proportion to the number of blocks they produced in the past day, thus rewarding only BPs who were active then.
Delegators need to vote weekly (i.e., delegate their tokens to BPs) to keep their full voting power. If they don’t, their voting power slowly decays with a half-life of one year, but the power can be returned to full strength as soon as they vote again. Instead of managing this themselves, delegators can have proxies vote on their behalf. There are no protocol-level rewards for delegators, but many BPs share a portion of their rewards with proxies, who pass them on to delegators.
Aside from missing a share of the 0.25% inflationary rewards, there are no protocol-level penalties for BPs misbehaving or being inactive.
Computation
Smart Contract Programming Language
EOS’s smart contracts are written in C++, but further SDKs for Rust, Go, and AssemblyScript are under development. Developer teams are also building an EVM solution that supports the most popular Web3 language Solidity (more details in the Roadmap section).
Resource Model
Many blockchains have a gas-based resource model. Users spend a gas token to cover the various costs of a transaction, including processing the transaction and storing the data. On EOS, the resources typically combined into one gas fee are separated into their own components.
The three resource components on EOS are:
- NET — A space-denominated resource that measures the network’s throughput capacity in bytes.
- CPU — A time-denominated resource that measures the processing time of a transaction in microseconds.
- RAM — Measures the network’s data storage capabilities in kilobytes.
Bandwidth
Together, NET and CPU cover the bandwidth costs of the network. The allocation model for these resources has evolved several times.
Originally, NET and CPU were regenerable resources that a user could reserve in proportion to their share of staked EOS. When a user made a transaction, their available bandwidth decreased by the NET and CPU required for that transaction. But the resource was only temporarily consumed. After 24 hours, the user would once again have access to their full amount of NET and CPU.
To prevent inefficient resource allocation, EOS launched the Resource Exchange (REX) in 2019. This feature allowed users to stake EOS and lend their excess bandwidth resources to borrowers. In return, lenders received a REX token, a rebasing version of the EOS token that accrues REX borrowing fees, RAM trading fees (see below), and fees generated from premium EOS account name auctions.
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 staking EOS to reserve bandwidth, users can pay a small EOS fee to power up their account bandwidth for 24 hours. To further improve user experience, many wallets provide free PowerUp subsidies daily and abstract resource management away from users. Users can often also receive free PowerUp subsidies from other infrastructure providers like block explorers.
As it stands, the REX is no longer used for resource lending and borrowing, but it still distributes all the fees from the previously mentioned sources, as well as PowerUp fees, to EOS stakers. At the moment, REX TVL is over $62 million.
State Storage
Through RAM, users directly pay for the costs associated with storing data in their account, including any fungible tokens, NFTs, NFT listings, and more. RAM is a finite resource that can be bought and sold against EOS. The RAM/EOS market is priced using the Bancor liquidity algorithm. The market has a 0.5% fee which is collected and redistributed to EOS stakers in the Resource Exchange. Unlike typical gas tokens, RAM is not always permanently spent. For example, if a user allocates RAM to an NFT they hold, that RAM is returned to them if they burn the NFT (selling or transferring the NFT to another account will not release back RAM).
Accounts
EOS accounts have two different types of keys:
- Owner keys add, remove, and manage active keys. Each account has one owner key.
- Active keys sign transactions. Each account can have many active keys.
Furthermore, owner keys can set up active keys with custom permissions. For example, there could be an active key that can only mint NFTs from one specified contract. A user could also create several keys and require multiple signatures to execute transactions. A wait timer feature allows owner keys to set up active keys such that there is an inputted time delay before a signed transaction is executed.
This system has similar effects to account abstraction, as it significantly improves UX and security compared to traditional accounts that are not smart contracts. Account abstraction has notably been on Ethereum’s roadmap for many years.
Antelope IBC
One of the Antelope Coalition’s first initiatives was to implement a light-client-based inter-blockchain communication (IBC) protocol. The design is similar to Cosmos’ IBC and built on the work of 0rigin, the development team of Antelope-based chain UX Network. Implementing Antelope IBC allows Antelope-based blockchains to securely communicate with each other and scale horizontally. For example, a popular dapp could spin up an Antelope sidechain and validator set to have its own execution environment while remaining connected to the ecosystem.
In January 2023, Antelope IBC launched on EOS mainnet, with a successful pilot transaction between EOS and UX Network.
Tokenomics
Overview
EOS Network’s native token EOS is used for security (validator and delegator staking) and resource allocation (CPU, NET, and RAM fees). Since launch, EOS tokenomics has changed several times. As it stands, EOS inflates at a 3% yearly rate with no burn mechanism.
Initial Distribution
Public token sale (90%): B1 sold 900 million tokens for around $4.1 billion over a year-long reverse Dutch auction with 24 hour intervals from mid-2017 to mid-2018. It publicly committed to deploying $1 billion of the proceeds into the EOS ecosystem and development. However, B1 had no legal obligation to this commitment and decided to not invest as much as promised back into EOS.
Team and founders (10%): At network launch, participants agreed to distribute another 100 million EOS tokens to B1, vesting linearly over 10 years. In December 2021, EOS block producers voted to stop the token vesting due to lack of development from B1. Before the freeze, B1 received around 32 million tokens, leaving around 68 million frozen. These tokens are currently still being staked, with no plans to unfreeze, burn, or do anything else with them.
Historical Tokenomics Changes
At launch, EOS inflation was set to 5%:
- 20% (1% total inflation) was allocated to block producers.
- 80% (4% total inflation) went to a system savings account, which served as a treasury fund that block producers could allocate to approved proposals for operational and development costs.
Savings Account: Despite 4% total inflation going to the savings account, there was never a defined use for it. Block producers saw the fund as becoming excessive and a potential honeypot for attackers. As a result, block producers chose to burn all the tokens in the account several times. They first burned 34 million tokens (worth $165 million at the time) in May 2019. In February 2020 they burned the remaining 34 million tokens in the account (worth around $140 million at the time). Along with the second burn, they passed a proposal to eliminate the savings account allocation, reducing inflation to 1%. The savings account was later re-enabled at 2% in August 2021, to create ongoing funding for the ENF.
RAM Trading Fees: At launch, the 0.5% fee on RAM trading went to an eosio.ramfee account, which was under the control of block producers. In May 2019, block producers passed a proposal to instead send the fees to the Resource Exchange. However, the block producers still needed to decide what to do with the fees accumulated in the eosio.ramfee account. Block producers later passed a proposal in August 2021 to transfer these tokens to an eosio.grants account, along with the accumulated fees from previous premium EOS account name auction. Together these fees formed the initial funding for the ENF (worth around $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 ~68 million tokens, matching the amount previously burned. The ENV uses the fund to invest in ecosystem projects and also to launch accelerator and incubation programs.
Current Inflation
Inflation currently sits at 3%. A third of this is allocated to block producers, and two-thirds is distributed to the ENF.
Network Activity
Users
Since the start of 2021, daily transactions have fallen 65%, but daily active addresses have increased 7%. The downtrend in daily transaction count reversed in October 2022. Since then, daily transactions have increased 218%, although daily active addresses have decreased 25%. This recent trend indicates a rise in power users.
Year-to-date, the network is averaging 1.3 million daily transactions and 38,000 daily active addresses. However, the latter figure is inflated by a large outlier. On January 31, 2023, daily active addresses spiked to 436,000. There is no clear cause for the spike, and the ENF is unsure what drove it. Almost the entire spike was due to addresses interacting with the EOS system contract – which manages functions like delegation, resource management, and more – rather than an increase in any dapp-related activity.
So far in 2023, EOS is averaging 1,785 new addresses per day, a decline from 2022 (over 2,600) and 2021 (almost 13,000).
Validators and Delegators
Although only 21 BPs can participate at a time, there have been 65 total BPs since launch who have produced a block. Others have participated just as standby BPs, and there are currently 100 BPs with votes.
In total, over 317 million EOS (27.6% of the token’s total supply) from almost 100,000 addresses is staked. However, only around two-thirds of staked tokens are used for voting. Most notably, the frozen B1 tokens (64 million tokens) are staked but are not participating in governance. Thus, the amount of tokens delegated to BPs is closer to 212 million EOS ($254 million as of February 22, 2023), around 18.5% of the total supply.
Ecosystem
Overview
EOS’s ecosystem comprises DeFi applications and programs, NFT marketplaces and projects, gaming applications, and more.
Daily active addresses across all EOS dapps increased in 2021 and peaked in January 2022, before declining in 2022. This trajectory largely aligns with the broader shift from the crypto bull to bear market. In that time span, the popular dapps by daily active addresses included virtual property game Upland, decentralized social application Yup, MMO strategy game Prospectors, Play-to-Earn game Crypto Dynasty, and NFT marketplace AtomicHub.
Factoring in all contract interactions, instead of just dapp contracts, the Upland app and its token currently have more daily unique addresses than all other contracts on EOS combined.
However, the data looks very different when only filtering for new address interactions, which is measured as an address calling a contract on the same day as the address was created. Among new addresses, Upland and its token combine for a 6% share of unique address contract interactions, significantly smaller than the 56% share of all contract interactions.
In fact, new addresses are often not interacting with any dapp – the EOS system contract and the EOS token contract account for almost all new address interactions. This perhaps is a sign that new addresses join EOS generally to hold EOS on the network or stake it, rather than for a specific dapp use case.
DeFi
In the past year, EOS DeFi TVL in USD terms has fallen 62%, now ranking around 37th among all chains. However, DeFi TVL in EOS terms only fell 32%, indicating that the drop in USD TVL could partially be attributed to price depreciations.
Over 75% of TVL comes from Defibox, a decentralized exchange and lending protocol. Defibox averages around $470,000 in daily trading volume as of February 21, 2023. The exchange’s top trading pool is EOS/USDT with around $6.2 million in TVL and around $380,000 in daily trading volume as of February 21, 2023.
EOS is one of 11 blockchains that Tether officially supports with native USDT minting and redeeming. In December 2022, the Binance exchange listed EOS native USDT, further helping liquidity and network onboarding. There are currently over 85 million USDT tokens circulating on EOS.
Two programs emerged from ENF working groups to bolster EOS’s DeFi ecosystem:
- Yield+ is a liquidity incentive program that launched in Q3’22. The program distributes EOS to DeFi protocols for them to use as yield farming rewards. To earn rewards, protocols need to have at least 200,000 TVL denominated in EOS (only counting EOS and USDT tokens) and register through KYC, among other requirements. The program is currently funded by the ENF with 300,000 EOS combined per quarter to approved protocols, which will later be increased as TVL grows. Fourteen protocols have joined the program so far.
- Recover+ is an insurance program for the same protocols participating in Yield+. The program features funding for bug bounties and whitehat incentives. It also includes a crisis management framework in the event of an exploit, offering emergency contacts, best practices, and more. Furthermore, the program can help the affected protocol put together a proposal to freeze the account with the stolen funds. If it passes with super-majority block producer approval (15/21), block producers can reconfigure the permissions of the account to seize 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 is averaging around 20,000 daily active addresses and 60 daily new addresses.
Other games include Prospectors, Crypto Dynasty, and Wombat, but Upland by far accounts for the most activity with respect to active addresses.
AtomicHub is the network’s primary NFT marketplace with over 5,000 collections.
AtomicHub has $1,400 in daily sales volume as of March 2, 2023.
Grants and Hackathons
Since the community overhaul, there have been several different grant programs and other growth initiatives founded.
Pomelo
Pomelo is an open-source public good crowdfunding platform modeled after Gitcoin. Like Gitcoin, Pomelo uses a quadratic funding mechanism, which uses a matching pool funded by partners to boost individual donations. The first season of Pomelo launched in Q4’21 with a $500,000 matching pool from ENF. In its four seasons, Pomelo has raised a combined $2.6 million across hundreds of projects.
ENF Direct Grant Framework
The ENF also gives out grants directly to projects based on milestone completion rather than up-front funding like with Pomelo. The Direct Grant Framework targets protocol development with categories including Antelope upgrades, developer tools, UI and backend development, and cryptography. Applications are assessed by a committee of senior EOS community members, including some with technical expertise. Since launch in Q2’22, the ENF has approved 11 applications out of 52, 4 of which have been completed. A total of $211,000 has been allocated to these projects so far, with another $444,000 agreed to and pending further milestone completions.
EOS Network Ventures (ENV)
As mentioned above, in November 2022 EOS block producers passed a proposal to mint about 68 million EOS (around $80 million as of February 22, 2023) for an ecosystem fund managed by ENV. Besides investing in ecosystem projects, ENV also plans to launch accelerator and incubation programs.
Hackathons
In Q4’22, the ENF held two hackathons. It co-ran the EVMxIdeation hackathon with Helios, granting $88,000 in prizes toward EOS builders. They also hosted the DoraHacks Trust EVM hackathon, targeting EOS GameFi and EVM development.
Roadmap
Technical Improvements
Driven by working groups since taking over, the ENF has been examining all aspects of the EOS Network and looking for improvement areas. It plans to release a new whitepaper that reflects changes made so far and details planned technical upgrades. The technical roadmap will include a new consensus mechanism bringing instant finality and an EVM solution.
Consensus Mechanism: Along with the rest of the Coalition, the ENF has been working to overhaul Antelope’s consensus mechanism. In mid 2022, EOS, WAX, and Telos agreed to give a 24-month, milestone-based grant worth $3.8 million in their native tokens to UX Network development team 0rigin. The team was tasked with upgrading the consensus mechanism to enable instant finality and developing Antelope IBC.
Driven by 0rigin’s work, the Coalition plans to implement a modified variant of HotStuff, a BFT-based protocol developed by the Facebook team working on Libra, which now powers the Aptos network. The upgrade will enable several improvements including expanding the validator count beyond 21 and bringing near-instant finality. Aside from addressing Antelope’s three-minute transaction process, instant finality will also complement Antelope IBC and allow for near-instant cross-chain messaging. These upgrades are set to go live on the testnet in the summer of 2023, launching on mainnet by the end of the year.
EOS EVM: Since the beginning of 2022, the ENF has been funding and developing an EOS EVM solution. 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 launched on a testnet in January 2023. The planned mainnet launch is April 14, 2023.
Growth Strategy
EOS Network growth will continue to be driven by the ENF. As detailed above, the ENF has established several grant systems and ecosystem funds, including Pomelo, the Direct Grant Framework, and EOS Network Ventures. The ENF receives funding via 2% network inflation, which currently amounts to a yearly funding of around $26 million worth of EOS.
The ENF are also helping fund and develop technical improvements as part of the Antelope Coalition. The Coalition committed to providing $8 million in annual funding toward Antelope development.
Summary
EOS is one of the most well-known blockchain projects — but not always for the best reasons. Driven by the ENF, the community has been working in the past year and a half to rebuild EOS’s tech stack and ecosystem. Although some metrics like transaction count have recently improved, there’s still a lot of work to be done to bring EOS’s ecosystem and network metrics on par with top smart contract platforms. Recent and planned technical upgrades including Antelope IBC, a new consensus mechanism, and EOS EVM, and a renewed growth strategy could lay the groundwork for a new wave of EOS users and developers. If the upgrades are successful and adoption follows suit, EOS could be in store for a grassroots revival.
