The EOS network continues to be the most high profile challenger to Ethereum’s dominance as the go-to smart contract and Dapp hosting blockchain platform. The EOS token is currently the 5th largest crypto asset, with a market cap of over $4.2 billion (compared to Ethereum’s $21 billion).
It currently trades at $5.40, down ~74% from an all time high of $20.70 (Index), achieved on April 29th 2018, just over four months ago. Daily exchange-tracked trading volumes are also down approximately 85% from this peak.
It has been a sharp drop in sentiment and price performance over a relatively short time period. The positive sentiment around the network’s mainnet roll out on June the 9th, was badly dented by an apparently botched launch and immediate governance challenges following its detachment from the Ethereum blockchain.
The promise of the EOS mainnet had fueled upward price momentum in the first half of the year, as the new EOS blockchain was supposedly going to deliver a revolutionary Dapp experience for users and developers — with faster transaction times, stable governance and improved security. The pre and post launch issues that plagued EOS replaced this optimism with FUD, however.
That aside, Dapp and user activity are picking up with EOS throughput faster than many PoW networks including Ethereum — since August 14th, EOS price is up ~24%, while over the same period ETH’s price has fallen ~17%.
Exchanges and trading pairs
The most popular trading pairs for EOS are crypto-to-crypto with the USDT/EOS and BTC/EOS pairs making up over 75% of daily trading volumes, with combined 24hr volume of the two pairs worth over 500 million USD. The next five most popular trading on-ramps for EOS are a blend of crypto and fiat options with Ethereum, US dollar and Korean Won trading options all managing sizable daily volumes.
The most popular exchanges for trading USDT/EOS are Okex, Binance and Huobi — globally popular platforms known for their liquidity, promotions and diversity of trading options. Combined, these exchanges handle over $225 million worth of daily trading volume of EOS pairs.
Innovating the consensus model
The EOS Delegated Proof of Stake model was first conceived by blockchain evangelist Dan Larimer in 2015. At the time the idea of removing miners and processing power competition from a blockchain in favour of continuous discussion between block producers, in addition to the issuance of voting rights to the token holding community, was clearly foreign.
However, the proposed improvements to some of the inherent flaws built within traditional PoW and PoS models quickly gained traction with many crypto observers.
Delegated Proof of Stake is a form of technological democracy, or on-chain governance, where staked token holders allocate their tokens for voting-in block producing delegates (more tokens staked, more voting rights). Block producers then settle transactions as miners would on other blockchains, with the rest of the network having a consensus vote on the block’s validity.
In EOS, block producers use SHA-256 to generate the digest and then sign it using either the P1 or K1 key. Every non-zero wallet in EOS has voting rights, and elections are run continuously, with a waiting pool of delegates, ready to step in and take over as one of EOS’s exclusive group of block producers, should performance on the network ever drop.
Currently, ~53% of the total EOS in circulation has been staked for voting, indicating that close to half of the EOS token holding community is either disinterested in the governance of the network, or is simply happy to retain the current status quo of miners.
Regardless of the reason, this greatly diminishes the stakes for the EOS delegates/block producers to maintain high performance levels. Given that community monitoring is designed to be the primary check on node performance, the low-ish voter turnout is concerning.
Delegates/nodes also maintain frequent communication about key network decisions with each other and the community, via group video calls, frequent AMAs (ask-me-anything) and social media discussions. This style of governance has been referred to as ‘consensus by conference call’ and critics have questioned its efficiency.
Nonetheless, this system does deliver significant advantages. With only 21 nodes in the network, compared to 9000 on Bitcoin’s network, consensus on transactions is achieved more quickly and with much less power consumed.
There are currently 4,383 active addresses in the EOS network — a figure dwarfed by the 320,341 on Ethereum and 613,352 on the Bitcoin. However, those addresses appear to be relatively active. In a recent 24 hour period, for example, 128,057 payments were made on the EOS network, compared to 287,623 on Ethereum and 341,989 on Bitcoin — indicating that although EOS appears to have far fewer users than its larger competitors, based on transactions and payments they are more proportionally more active.
Interestingly, the most active Dapp in the entire blockchain ecosystem is EOS hosted ‘EOSbet’ which in a recent seven day period recorded volume of 7,157,869.29 EOS tokens, across 1,215,926 transactions, with a value of ~$46.5 million. This dwarfs the numbers of Ethereum’s most popular Dapp IDEX, which had a transaction volume of 36,602 in the same period — worth ~ $10.4 million.
While observers may question the stability of an ecosystem that is dependent on a dice rolling gambling game for the vast majority of its transactions, the volume is nonetheless legitimate, with EOSbet having small, but responsive, twitter and reddit communities.
Additionally, even if gambling Dapps are not a reflection of how the EOS ecosystem is designed to be used, the level of activity on EOSbet serves as a useful stress test on the ability of the blockchain to handle heavy daily transaction volume. Furthermore, Blockchain based gambling ICOs reportedly raised 776 million dollars in June 2018 which bodes well for a network that has proven its capacity for handling high volumes.
The EOS network monitor indicates that transaction volumes have been as high as 3972 per second in the past. Based on numbers starting from April 2016, the Bitcoin blockchain’s transactions per second has never been higher than 20, with the average over this time period a very modest ~2.5.
Network fundamentals and performance aside, the biggest criticisms of EOS are more ideological. Given that transactions are settled by such a small group of nodes, that are not anonymous, and have been allocated the rights to do so, EOS loses absolute censorship resistance.
EOS also proposes that the 21 nodes, can reverse transactions that do not align with the EOS philosophy, or appear malicious, given the tight knit nature of the node pool. This essentially means transactions on EOS are not permanent or immutable. This goes against the decentralized, anti-establishment ideals of original PoW philosophies and continues to make the EOS model a hard sell to blockchain idealists.
Intriguingly, there is an argument that EOS is, in fact, more decentralized than many of its PoW counterparts. Transactions on EOS are verified evenly across 21 miners, meaning the processing power and block rewards remain & stable constant, without a single entity in the group capable of cornering the hashrate in the network.
With large PoW networks it appears inevitable that as hashrate increases, and mining on the network becomes progressively more processor intensive, large resource-rich mining pools will begin to dominate hash rate and block production.
This is exactly how things have panned out with Bitcoin, as a group seven mining pools dominate — making up ~82% of the network’s hashrate.
This clearly appears to be a more centralized distribution of power as compared EOS, however, the model retains the element of competition. Anyone can become a miner on Bitcoin and challenge the pools, it is not a permissioned network like EOS.
Additionally, miners on Bitcoin have far less power over transactions than delegates on the EOS network, because of the competition. The network is designed to be trustless, and there is no requirement for the block producer’s visions to align with the Bitcoin community. In this sense, Bitcoin’s PoW model retains an element of purity and unbiasedness versus DPoS.
Mean Reversion and Long Term Trends
First, on the 1D chart, price is currently experiencing a short term bounce and holding at ~$5.40. However, since late-April 2018, despite the tremendous hype, EOS has been confined within a sharp downtrend (regression channel) with a Pearson R Correlation between time and price of 0.92. Additionally, the volume flow indicator (VFI) has remained beneath 0 since initial calculation back in July.
Furthermore, the negative VFI trend shows no signs of abating in the near future (black arrow). The VFI interpretation is a value above 0 is bullish and below 0 is bearish, with divergences between price and oscillator being high probability signals.
Second, unfortunately for EOS, asset prices always mean revert. Thus, if the current trend persists, price is likely to bounce back and forth within the regression band, but is destined to fall back towards the ~$1 level (black dashed line).
Third, to date, when price volatility has compressed (bollinger bands) and price “based out” (horizontal black line), a downward breakout has typically ensued (orange arrows). Visual heuristics like the aforementioned can be dangerous in trading given they are “rules of thumb” rather than rules validated in data over an acceptable time period. However, in EOS’s case, this heuristic aligns with our linear trend analysis, which offers a slight boost in probability of recurrence. Unfortunately, for EOS, this falls in line with the prior mean reversion supposition and expected price target of ~$1.
Last, there are two rays of positivity for price. One, since mid-August, price has begun to form a slight uptrend (bottom orange trend line), which was defended during this last downtick from the Goldman Sachs news. Second, a flag pattern is forming from the aforementioned uptrend which has the ability to breakout to the upside (green arrow) or downside (red arrow). The upside probability would be increased by a boost in VFI towards 0 over the coming days and weeks.
Ichimoku Clouds with Relative Strength Indicator (RSI)
The Ichimoku Cloud uses four metrics to determine if a trend exists; the current price in relation to the Cloud, the color of the Cloud (red for bearish, green for bullish), the Tenkan (T) and Kijun (K) cross, Lagging Span (Chikou), and Senkou Span (A & B). The status of the current Cloud metrics on the 1D frame with singled settings (10/30/60/30) for quicker signals is bearish; price is below the Cloud, Cloud is bearish, the TK cross is bearish, and the Lagging Span is below the Cloud and touching price.
A traditional long entry would occur with a price break above the Cloud, known as a Kumo breakout, with price holding above the Cloud. From there, the trader would use either the Tenkan, Kijun, or Senkou A as their trailing stop.
At the time of writing, EOS is sitting at ~$5.45 after hitting off Kijun resistance at $5.54. In late-August, price was making a consistent recovery and potentially marching towards a Kumo breakout attempt when it fell abruptly from the news that Goldman Sachs was not opening its own crypto trading desk. This news sent price into a tailspin from near $6.67 to its current levels. One positive note is that with this recent fall, RSI is back near oversold territory and currently trending higher. This may suggest that a short term price revival is upon EOS, with an eventual Kumo breakout retest. However, the probability for a successful Kumo breakout remains low to medium.
For either scenario, the critical support level is $4.25 (second “base” line). If that support fails, the next, meaningful support levels are $3, $2, and $1. In the unlikely event of a Kumo breakout, price will need to breach $6.77 with targets of $7.83 and $9.
The status of the current Cloud metrics on the daily time frame with doubled settings (20/60/120/30) for more accurate signals is bearish; price is below the Cloud, Cloud is bearish, the TK cross is bearish, and the Lagging Span is below the Cloud and touching price.
Again, in the unlikely event of a Kumo breakout in the near-term, price will need to breach $10 with targets of $11.50 and $12.30.
The EOS token has lost some of its shine following a challenging main network launch earlier in the year. However, with its network currently fully up and running, it has maintained impressive throughput and currently hosts the most popular Dapp in the entire blockchain ecosystem.
The network, however, will likely continue to face ideological differences with cross-sections of the crypto community because of its trust based consensus algorithm. Key challenges EOS should address going forward are the inefficiency of its network governance and the low voter turnout amongst EOS token holders.
The technicals for EOS are firmly bearish despite the hype, positive price trend since mid-August, and supportive RSI. However, both, the prudent short term trader (10/30/60/30) and longer term trader (20/60/120/30), on the 1D chart,will await a positive TK cross and Kumo breakout above $6.77 and $10, respectively, before entering a long position. The critical support level is $4.25 with the next significant ones at $3, $2, and $1.
Disclaimer: This analysis has been designed for informational and educational purposes only. Readers are advised to conduct their own independent research into individual assets before making a purchase decision.
About the authors
Christopher Brookins is the founder and CEO of Pugilist Ventures, a quantitative investment firm focused on digital assets and blockchain technology. Chris has a deep knowledge and unique perspective on digital assets formed by his polymath experience in equity trading, credit investing, and business development at two West Coast startups (one acquired). He has been involved in the blockchain community since 2014. Follow @chris__brookins
Aditya Das is Brave New Coin’s in-house market analyst. Raised in Dubai, UAE, he holds a post-graduate honors degree in Economics from the University of Auckland and a BA in Economics from the University of Sussex. Prior to joining BNC his most recent roles were as a researcher and Economics tutor at the University of Auckland. Follow @Quartlifecrypto