Something strange is happening with the distribution of votes by the block producers at EOS.
EOS’s human-powered blockchain model met with great skepticism even before it launched, as well as predictions that it would be a flop.
But EOS founders Block.one proved the naysayers wrong by raising $ 4.1 billion during an unrestricted, year-long and frankly pretty gross ICO – though it could have been considerably less if you did potential laundry trade during the EOS ICO.
It turned out that an obviously broken design is not an obstacle to making heroic sums of money.
This method continued after the start. As it was then, EOS now seems to be about capitalizing on a doomed blockchain.
But something interesting has happened in the last few months. EOS block makers seem to have given up the pretext that EOS has some future or is decentralized at all in order to maximize revenue.
The following graph shows the number of votes of the EOS block producers by rank in the last four months. The blue line is this month, the black line is the last month, and the green and yellow lines are July and June, respectively.
As you can see, there was a radical shift between July and August 2019, and the number of votes is now firmly consolidated in the top 21, falling from 23rd to 30th.
It’s complicated, but the EOS block producer system basically works so that the top 21 block producers have complete control over the whole network. With a two-thirds majority vote, they can freeze wallets, block transactions, make any kind of governance decision, and have complete control.
Okay, it’s not that complicated.
Block producers are democratically elected, and anyone with EOS tokens can cast votes. Each EOS token is worth one vote and can be used to vote up to 30 block producers at the same time. The 21 best-chosen block producers wield all of the power but are backed by a field of hundreds of backup block producers, ranked by vote.
At their choice, a block manufacturer’s primary responsibility is to maximize their profits. This is done through as many votes as possible.
These gains come from EOS’s built-in inflation, which is growing by 1% annually. Based on the currently circulating offer from EOS, this equates to the equivalent of $ 28 million per year.
The $ 28 million per year is distributed daily and broken down as follows:
- 25% go to the top 21 block producers
- 75% are distributed among all block manufacturers
The share of each block manufacturer in this second 75% revenue block is weighted based on the number of its votes, the limit being 100 EOS per day. If a block producer doesn’t have enough votes to make that much, they’ll be below the limit and get nothing.
Therefore, the exact limit by block producer rank will vary over time. It currently ranks 66th.
Based on this system, the EOS profit distribution looks something like this:
play ball
If you are a seasoned sociologist, you may have discovered a dark problem lurking in this arrangement. The number of votes someone gets depends on how many EOS tokens they have, but the vast majority of newly created EOS wealth goes to the top 21 who already have the most votes, which leads to the consolidation of power .
That’s exactly what happens.
The usual rule, as described by former block producer EOS Tribe, who called it terminated after a loss of profitability, is for block producers to form blocks of around 30 in which everyone votes for each other.
So if everyone in the block comes to the table with votes worth 100,000 EOS and swaps all votes with everyone else, that’s a benefit of 3 million votes for each of them. If they bring a million EOS votes to the table, that means an advantage of 30 million votes each.
This system has several effects:
- It is impossible for a bloc producer to get anywhere without being in an electoral bloc. Those who refuse to play ball have no chance of climbing the ranks.
- As long as someone has enough EOS tokens, they can buy their way into the top voting block.
- It is easier and more beneficial for top block producers to install sock puppets in the ranks of block producers.
In the long term, this system also inhibits the real growth and functionality of EOS, if you can call it that.
The block producers are the actual network hosts and service providers. However, since they’re only at it for the money, their main goal is to keep the cost as low as possible. This does not mean an investment in the actual EOS network.
Knowing that fuse block manufacturers know that there is no chance of ever replacing the top 21 and that voting at EOS is purely commercial, they shut down their machines and reduce development efforts to save money.
Is there a solution?
The founders of EOS have clung to various straws to solve the problem of buying votes.
For example, Dan Larimer has proposed redistributing inflation among those who abstain, which makes it more profitable not to vote in the hope that the block producers will abstain.
“Let people choose between control and profit,” he suggested.
True to the EOS form, this short-sighted suggestion has been well received by many in the community.
The first problem with this idea is that paying protection funds to large token holders in the hopes that they won’t trash your system is not a good system. The second problem is that no one really cares about steering EOS beyond the profitability that comes with it. The network is mostly inhabited by bots, and very few people are likely to choose. As a result, a network that is more profitable not to choose becomes extremely vulnerable to outside attack.
Meanwhile, Brendan Blumer has proposed a “One Token One Vote” system in hopes of breaking the cartel where a single token allows only one vote instead of 30. This would undermine the extraordinary advantage that the EOS whales currently enjoy. It probably wouldn’t do much to change the underlying system, and wealth would continue to be centered on the top block producers. In addition, the extraordinary apathy of EOS voters to date strongly suggests that not much is about to change.
Is EOS Doomed?
EOS was arguably doomed before it began. No one would ever entrust anything important to the whims of a cabal with random token holders.
The only function of a public blockchain is to be as immutable and trustworthy as possible, while hybrid blockchains allow for the flexible establishment and manipulation of various levels of trust as needed.
EOS was inadvertently targeting a ridiculously specific group of customers: people who would like to trust a random group of whales without wanting any sort of guarantee of immutability or the ability to choose who the whales are.
Good luck with it.
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Disclosure: The author holds BNB and BTC at the time of writing.
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