EOS Token Sale Review: Delicious Smoke and Beautiful Mirrors

Company: Block.one (EOS)

Website: https://eos.io

Year: 2017 

Country of incorporation: Cayman Islands

Ticker: EOS

Token Sale launch: June 26th 2017 

Token Sale end: 350 days after launch

Cap: 100,000,000

Blockchain competitors: Ethereum, Ethereum classic, Waves, and Lisk 

Whitepaper: https://github.com/EOSIO/Documentation/blob/master/TechnicalWhitePaper.md

Blog and updates: https://steemit.com/@eosio

Few (if any) blockchain projects have attracted as much attention and caused as much anticipation as EOS. By day five of its year-long token sale, EOS already broke through the record set by Bancor in June. The token sale has already gathered $185 million and, in absence of a monetary cap, this upward trend will only continue. The promises behind EOS are very attractive and the timing rides high on the success of Bancor and TenX, while exploiting the fear of the looming Bitcoin fork. EOS plans to introduce a new blockchain architecture designed to enable vertical and horizontal scaling of decentralized applications. It takes on some of the most deliberating problems in the blockchain industry, such as scalability and high fees. Through resolving these issues, EOS plans to make blockchain technology mainstream, reaching millions of regular users with an adoption of a unified infrastructure and app creation interface. The project is also backed by industry heavyweights and is executing an impeccable marketing campaign in the run-up to the token sale. Together, all these factors contribute to a potentially record setting and industry defining token sale. However, it is important to consider the investment perspective of this project. Usually things that look too good to be true actually are too good to be true. The Tokenguide team did some digging around the EOS project to figure out if this is the case. 

PROs

The EOS proposition is jam-packed with impressive tech, at least on paper. The proposed platform stretches far beyond the capabilities of any blockchain that is currently in operation. Among other things, the EOS ecosystem would provide an extensive toolkit to easily create, manage and update decentralized apps (Dapps). Meanwhile, the platform would offer free transactions to its users. Speaking of transactions, the team expects that the EOS platform would be able to process millions of transaction per second. By comparison, for example, the Visa payment system is currently able to process 24,000 transactions per second. The EOS ecosystem will also provide solutions for both vertical and horizontal scaling and introduce a new feature called “Delegated Proof of Stake” which will provide users with influence over block producers. Together, this array of features could solve some of the most pressing problems in the blockchain industry, notably scaling and transaction price.

With its spot-on positioning and range of user-centric features, the EOS platform could gather enough momentum to make blockchain technology truly mainstream. EOS intends to streamline the process of developing, launching and using Dapps, which could make the industry’s landscape less fragmented and therefore more accessible to newcomers. If EOS manages to populate its ecosystem with a sufficient number of publishers, it could become the go-to infrastructure and app building interface for future development within the industry. The project’s marketing strategy ensures that mainstream media gladly picked up this story, meaning that potential blockchain newcomers could already be aware of the development, which is an important aspect of early widespread user acquisition.

EOS is developed by a group of experienced industry leaders under the CEO of block.one Brendan Blumer and CTO Daniel Larimer. Larimer famously founded BitShares, a decentralized exchange and banking system, and Steemit, the blockchain-based media platform where upvotes are converted into digital tokens. Both of these projects have been well-received and adequately successful, attracting a dedicated userbase and challenging well-established industries. Some observers have suggested that both BitShares and Steemit were “testing grounds” of sorts for a bigger and more ubiquitous project, such as EOS.

In addition to the promising technical innovations, a clever marketing strategy and an impressive team, the EOS token sale stands out in terms of the token distribution process. Instead of setting a monetary cap and a limited timeframe, as is currently the industry standard, EOS plans to distribute its tokens over 350 days with a variable price. During the first phase, which lasted for 5 days, 20% (200,000,000) of the total number of tokens have been distributed. The second phase is going to last for 341 days, with 70% (700,000,000) of the tokens distributed in equal shares every day. The remaining 10% of the tokens will not be distributed and remain with the project creators. The purchase price will be determined independently, based on the amount of Ethereum coins committed by potential buyers for each new release. This process provides ample room for investors to participate in the token sale, while the length of distribution ensures a high level of inclusivity, without providing large purchasers with an unfair advantage.

Upon some extensive digging, however, it has come to our attention that a lot of the EOS proposition is mostly smoke and mirrors. The technology description currently glosses over the most important bits, the team has a dubious track record and the extensive media coverage seems to divert attention from the project’s unsightly bits, while simultaneously generating hype.

CONs

 The biggest technical question that EOS currently faces is scaling. For all its claims to resolve the scalability problems of incumbent blockchains, EOS does little to go into detail on how exactly it plans to achieve this. If, however, EOS is to deliver on its all-important scalability promise, it must do so sooner rather than later. The Ethereum network is currently struggling to overcome ICO congestion, which leaves a bitter taste in visionaries’ mouth, since scalability is crucial for widespread adoption. Nevertheless, if Ethereum resolves its scalability problems, or a competitor comes along, delivering faster than EOS, the project’s key value proposition becomes obsolete. We note similar concerns in relation to the transaction price. Although the promise is to keep transactions free for users, there is no mention of who will actually be covering the cost of these transactions. 

In addition to actually delivering on its multiple promises, EOS needs to do so promptly. The market for scalable blockchains is very hot right now and, although there are no conspicuous competitors within the space at the moment, it’s only a matter of time before the market catches on. The EOS development cycle is incredibly long by industry standards. Although this might be a safety net on the founders’ part, ensuring that they can keep to their promises, this also leaves competitors with ample time to develop their own alternative solutions. If Ethereum manages to resolve its scalability problems in time, for example, it is unlikely that projects and developers used to the Ethereum ecosystem will rush off to join an unknown and untested development environment, such as EOS.

The EOS team, while impressive in its track record, has demonstrated a lack of commitment to its projects. Many industry insiders believe that Larimer has departed both of his previous projects before they had been fully developed, causing them to stall. If this fate awaits EOS, it could prove to be catastrophic, since a united team with a clear delivery schedule is imperative for this project to succeed. The EOS website also displays an array of reputable companies which are allegedly involved in the token sale: Fenbushi Capital, Blockchain Capital, Li Xia Lai, Michael Cao, Bitfinex, Yunbi, Aurora Investment advisors and Hyperchain Capital. However, nowhere is it mentioned how exactly these companies are involved in the token sale.

Lastly, and perhaps most importantly, although the token distribution process is innovative, this does not automatically make it effective. The pricing mechanism is untested and unusual, which in and of itself does not make it wrong, but should make investors cautious. What is more, the situation with the tokens’ secondary market and price fluctuations is unclear, especially when it comes to how exactly it affects the token price during distribution. Finally, the EOS purchase agreement explicitly states that “the EOS Tokens do not have any rights, uses, purpose, attributes, functionalities or features, express or implied,” meaning that it is unclear what is the driver that is linked to potential token appreciation. We would like to understand more of underlying mechanics of token economics.

Tokenguide conclusion

EOS (or, as some joke, “Ethereum On Steroids”) is a perfect lesson in how you build a successful crypto sale. Take Ethereum and Bitcoin as they are becoming more and more mainstream and name their biggest problems: scaling and transaction price. Gather a team which is credible to solve these problems. Get a substantial marketing budget to promote your team and product. Make people aware of the vision that the team has and approach to solve the most pressing problems of two largest existing blockchains.At the time of writing, the EOS token was traded and made nearly $600 million in trading volume over the last 24 hours. The price per token has increased fourfold in just two days. Meanwhile, Ethereum gathered a (modest, by today’s standards) $18 million and delivered an infrastructure that feeds today’s blockchain ecosystem. We are very curious to see how EOS (which already gathered tenfold more) will deliver. It’s a grand vision that if delivers on its promise can be a game changer. It is interesting to see how EOS will match investors expectations. 

We would like to remind you that all opinions expressed in this piece are our own and are based on the research our team conducted independently. If you are serious about participating in an ICO, token sale or crowdsale of any kind, we strongly recommend that you conduct your own due diligence by familiarizing yourself with the projects, their background, white papers and the market(s) in which they operate. Stay safe!

Tokenguide Team

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