Plutocracy Is Still Bad, Proposed EOS Overhaul Confirms

Hate to say I told you so...

CoinDesk Insights
Apr 26, 2021 at 5:13 p.m. UTC
Updated Sep 14, 2021 at 12:46 p.m. UTC

I have been writing about EOS, once a top-10 blockchain, now in the top 30, since before the network launched.

By and large, EOS token holders have disliked my reporting. Every time I put out a new post it would get roundly critiqued as "FUD" and even occasionally attacked specifically by Block.One founder Brendan Blumer.

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What no one ever did, though, was show where any of my reporting was substantively wrong on the facts. In fact, on occasion members of the community would admit the facts had been correct even if they pointed to an uncomfortable truth.

What did happen, though, was I would put out a report on some facet of EOS that would frustrate its proponents. I would ignore the blockchain for a while, usually until someone in the ecosystem would bring something to my attention. More often than not, I would hear voices that had once decried my past “FUD” now decrying EOS or its creators.

And, in fact, a new proposal from Block.One seems to implicitly acknowledge a number of points made in my past reporting.

The proposal for stake-based voting and rewards on EOS basically follows the model that blockchains like Cosmos and Cardano use and that Ethereum has been working to deploy: sharing block rewards directly with users who stake to support validators (like Bitcoin's miners) on the network.

As of now, EOS holders can stake their EOS to vote for a slate of block producers (BPs, what EOS calls validators). They could vote for as few as one and as many as 30; all their tokens vote equally for all the block producers a voter supports.

Further, voting is basically continuous.

The top 21 block producer candidates automatically share a quarter of the annual inflation (i.e., new supply) of new EOS distributed with each block. Some of the rest went to other block producer candidates who contributed to the network in other ways.

The original plan had also included some inflation for developing the network but it turned out no one really cared about that so it was all burned.

So let's go through the proposal and point out how it squares with concerns raised in my prior reporting. Each of the bolded parts below are straight from the post linked above.

"Proposal: We are proposing a staking pool system that can directly reward token holders in exchange for their vote (required) and securing the network."

So this is the key change: Everyone who stakes and votes gets rewarded for doing so.

When EOS kicked off there was this high-minded idea the block producers who did the best work for the network (not just validating, but developing apps and tools) would get the votes to earn the most rewards.

That's not what happened at all, though, and the hardest-working block producers started leaving the network in frustration.

Instead, block producers started paying people for their votes, something Ethereum creator Vitalik Buterin had predicted would happen on his blog.

As early EOS supporters left and new ones came into this new regime, the viewpoint on this reality went from being a bit of an embarrassing truth to becoming something Block.One's CEO described as aligning the validators with token holders.

So instead of block producers offering stakers specific deals for backing them, under this new vision the network itself would pay wallets that participate in governance, if the proposal is adopted.

"Proposal: To reduce this gap we are proposing the removal of bpay rewards and instead propose to distribute all rewards through vpay."Proposal: To help facilitate a healthy distribution of vpay rewards, all votes must include 21 block producer candidates."

Under the current system a quarter of inflation goes to the top 21 block producers automatically (the ones who have complete power over network consensus) and the rest gets distributed to pretty much everyone who has users voting for them, pro-rata. Most of that goes to the top 21, too.

So EOS proposes stripping out that automatic carve-out and distributing it all pro rata, assuming the leading BPs will still get the most payout anyway.

This, to me, reads as an acknowledgement that frequently the BPs doing the most work for the network weren't actually the ones in the top 21. The ones earning the most were the BPs backed by whales turning their large holdings into even more EOS.

Proposal: We are proposing that block producers who underperform, or fail to produce blocks at their designated time, will create a penalty effect that decreases the total inflation in the system.

This was the real black mark of the prior system: Many of the BPs just weren't validating blocks. It's kind of crazy when you think about it, but the system aligned them so poorly with the network that blocks would get missed all the time. Check out the data on AlohaEOS' reliability tracker.

One entrepreneur told us he had to completely revise his code strategy for an EOS-based app because he couldn't trust it to do what he needed from block to block.

So under this new approach, the entire system would be punished if blocks are missed. The theory is it will give all voters an incentive to support BPs who won't miss blocks.

Which seems ... obvious.

This is only a proposal, of course, and Block.One doesn't directly have the power to impose it on EOS. However, if it does move through without much difficulty, there's a good chance the network will work much better.

That could be good, but it will illuminate one more issue that has hung over the network from the start.

Most crypto true believers have already thought 21 organizations was much too few for a truly decentralized blockchain. But the progress of this proposal could reveal that the number is smaller still: That really just one organization has the power in EOS, and that's Block.One itself.

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