BlockTower’s Corey Miller: Forget the Bitcoin Death Spiral, What About the EOS Block Producers
The changing fortunes of cryptocurrencies has been the subject of much talk. The discussion invariably veers towards Bitcoin [BTC]. Although there is no doubt that the fortunes of the entire blockchain is commanded by the direction BTC takes in the market; after all, it controls over 55 percent share in terms of total capitalization. However, the health of other promising coins needs to be given importance.
Now, Corey Miller, investment analyst at BlockTower Capital has recently noted his concerns about the EOS ecosystem. In a series of tweets, he suggested that
“Instead of discussing a BTC mining death spiral, perhaps we should be talking about EOS Block Producers turning off their operations. Although the narrative is that EOS BPs are financially well-off, many are currently underwater.”
Based on surveys, he says the block producers of EOS feel the break-even cost is at $4 per token. However, the current state of the coin is so frail that the cryptocurrency is currently trading at $1.8, a major problem for BPs. This problem is further magnified as Corey pointed out, “ Given there is no difficulty adjustment mechanism in EOS, BPs are going to be forced to either downsize their operations/cut costs or, in some cases, completely shut down.” This would effectively concentrate control into the hands of the select few who have the monetary resources to weather this crunch period.
The possibility of BPs having to shut down is a very real one, according to the analyst. Of the 80 odd BPs currently active, he feels, at least 10 percent are likely to be turned off and “are quite literally getting free rewards for doing nothing.” When questioned on this stat and how he was determining it, the man from BlockTower reverted back that he did not have raw numbers. He was candid enough to admit “I’m assuming that at least some of the BPs who’s endpoints are down are shutting down.”
Though he doesn't feel the blame should lie solely with Block producers. While in the ideal scenario of an efficient market, people would have already stopped voting for nonperforming BPs, the reality is more complicated. Especially when one factors in the pressures of the loss margin that most of these people are undoubtedly working with.
The only solution out of this quandary is to reinvigorate the prices or restructure the rewards, according to Corey
“Unless EOS price rebounds substantially, I think we are going to see more BPs shut down. The other option is to increase BP rewards.”
A real danger with any industry that is facing a downturn is that if it loses a substantial base, it might trigger an avalanche that sees both talent and money flee; and that is hard to recover from. A long and honest look is required so that an earnest introspection can be done not only by EOS but by the industry in general. If coins that are displaying healthy exteriors have structural problems then they need to be quickly identified and rectified before it becomes a systemic issue.