EOS CTO Dan Larimer Proposes Way to Lower Capital Costs, Make Renting Safer
Daniel Larimer took to Medium today to launch a blog post titled, “Proposal for EOS Resource Renting & Rent Distribution.” In that blog post, Larimer explained a system for lowering capital costs of using the EOS network while also making it easy to rent from the network.
“We present a solution for lowering the capital costs of using network and CPU resources on EOSIO based blockchains,” explained Larimer.
Today, the EOS network allows, at most, 400ms per second of CPU time to be billed and an average of 40ms per second sustained. This CPU time will be divided evenly among all EOS token holders that chose to stake them for 3 days. Unused CPU time is allocated on a fractional reserve basis, meaning unused time is given to those who stake and decide to use it.
Larimer wants to implement a system where you can delegate bandwidth to others – similar to the proposal outlined in the original EOSIO whitepaper.
“The ability to delegate bandwidth implies the ability to rent unused bandwidth. From this token holders have an opportunity cost associated with not renting their unused bandwidth.”
The next step is to create an efficient rental market involving price discovery and liquidity. An efficient rental market ensures resources are always available at a competitive price. In this market, token holders should be able to lend their EOS at a fee in exchange for some loss of liquidity for the duration of the loan. There’s no risk of losing capital to the lender.
How Will Lending Tokens Work?
Today, an EOS token holder can lend tokens to the Resource Exchange on the EOS network, then receive REX tokens at the current book value. The REX tokens generate fees by lending the EOS, increasing the book value. You can convert your REX tokens back to EOS at book value at any time.
Larimer proposes an improved solution:
“In addition to earning fees for renting CPU and NET resources, we propose the fees from RAM trading, name auctions, and any other resource offered by the EOSIO chain will be added to the books of the REX. This will cause the rewards from network operation to accrue to REX holders (staked EOS holders) and generate an effective reward for holding EOS for at least 30 days (the rental period).”
Borrowing Stake Tokens
Meanwhile, as mentioned above, Larimer proposes a system where we can borrow stake tokens. When EOS is contributed to the books of the Resource Exchange, Larimer suggests that a number of staked EOS tokens (SEOS) should be created. Here’s what happens next:
“The SEOS and EOS are deposited into two connectors of a Bancor Relay. The initial number of SEOS per EOS created is 1 to 1. From this point traders can buy and sell SEOS for EOS with a small trading fee (e.g. 0.5%).”
Larimer then further outlines a system where SEOS can be converted into delegated EOS for either CPU or NET resources over a 30 day period.
How Will This Affect Resource Prices?
EOS’s network is designed so that the cost of using the network for one month is equal to the cost of buying the right to use it forever minus the proceeds of selling 30 days later. This is the current EOS resource allocation model.
The problem with this resource allocation model is that, during the 30 day period, the user is exposed to price volatility within EOS. Users could double their money – or lose half of it.
Here’s the system proposed by Larimer to counter this issue:
“Under heavy congestion (sustained load over 10%), the staking algorithm of EOS would give about 100 microseconds per day of guaranteed CPU time per 1 EOS staked. A trader wanting to transact once per minute (where each transaction requires 1ms) would require stake of about 15,000 EOS (or about $100,000 dollars as of August 2018). Many traders lack that much capital and few would want to expose it to volatility risks just to trade.”
How to Trade SEOS and EOS Tokens Under the New System
Up above, we mentioned staked EOS tokens (SEOS) and EOS tokens. The creation of the SEOS/EOS market, in the eyes of Larimer, will allow speculators to set the interest rate for 30 days of delegated CPU or NET bandwidth.
A speculator that accurately predicts future price movements will make money. Speculators will also help find the optimum price within the network.
Larimer highlights a number of other changes to EOS under his proposal, including:
Updates to the System Contract: To implement Larimer’s proposal, the EOS system contract will need to be updated in order for it to intersect with voting rights and distribution of fees from other network activities.
Automatic Renewal: Users can choose to automatically renew contracts at the end of a 30 day delegation period. Upon automatic renewal, the user would stake for another 30 days for a 10% discount.
Voting Requirements: Under Larimer’s proposal, an account must set and maintain a voting proxy or approve at least 21 block producers (BPs) in order to buy Resource Exchange (REX) tokens. Users can change their votes, but they can’t remove them while they hold REX tokens. Once an account has sold all its REX tokens, it may vote for fewer than 21 producers.
Larimer sums up his proposal like this:
“We believe that this proposal will lower the cost of using the EOS network and decouple cost of CPU and NET use from capital appriciation/loss [sic] of EOS. It will make EOS usable by people who do not want to have high exposure to EOS price volatility and it will create incentives to participate in the governance of the EOS network.”
By adopting a resource rental model, Larimer believes we can enhance the usability and price-finding of the EOS network while still allowing users to speculate on the price of EOS without harming stakers.