Evolution of EOS: CPU congestion — A network issue or a giant leap to future?
If you are an active EOS token holder or EOS dApp user, you already know that EOS network is going through some heavy usage and CPU congestion. We discuss in this article if it is a major issue or a good thing for future of EOS.
Many users who had small stake for CPU are struggling to even make a single transaction on network.
There is an unease in the community whether the network is broken. Perhaps this stems from the fact that EOS is designed in a way that it prices the network resources based on demand and supply. In that manner, EOS resources are like a real world commodity (Oil, Corn, Maple Syrup, Tequila). There is no commodity in free market which is protected from price shock. Till now, EOS was providing cheap transactions for everyone as there is another mechanism at play in EOS, which can be summarized as taking unused bandwidth and equally spreading to all staked tokens. As network was operating at way below potential, every small stake got much higher allocation and we were able to do many transactions with as little as 1 EOS staked. But this changed the moment big stakers started exercising the rights to use the network.
At this moment, EOS is doing almost 14m+ token transfer transactions per day. As a comparison, Bitcoin can rarely sustain 1m+ transfers per day. But this has also meant that resources on EOS have become very expensive and CPU cost (amount of EOS staked to make a transaction) has gone up significantly.
EOS has one of the best DeFi market for blockchain resources. One can lend from REX pool to stake to CPU and NET for using blockchain. Currently, around 83m tokens are borrowed from REX which amounts to almost $300m worth of resource loan.
Good news is that EOS network is still functioning well at peak loads and due to the latest features of EOS 1.8 upgrade dApps can pay for CPU for its users. Many big dApps are fully operational as they migrated to this model already and many others are in process of migrating. Also, token holders can use wallets like bloks.io to make any wallet actions using Scatter login as they get 5 free transactions per day. This is an example of how EOS technology is so far ahead of future problems, we sometime do not realize that blockchain is in its early days.
Background: EIDOS project is issuing a token that rewards you to send EOS token transfers as fast as you can. They return all the EOS you send them, but give EIDOS tokens as well. Very limited info is available about what the project intends to do beyond this “innovative” airdrop that is consuming almost all CPU bandwidth on EOS. Many major exchanges and big wallet providers are supporting this project by offering free CPU for “miners”, a market making for token and significant publicity on social media.
The issue still remains, as some people are using HW wallets which do not have option to use wallets that are providing free transactions. Also, many dApps who are not able to afford paying for CPU or never implemented this feature are completely offline. This has caused widespread concern in EOS community and people are also spreading FUD that EOS is broken.
First of all, let us review if the system is broken. The app consuming the resources has widespread interest from miners and people see that token “valuable” and worth mining. The wallets or accounts that are supporting the CPU payments for this mining believe there is a business case for them to justify paying for these resources. In a decentralized ecosystem, nobody should be able to question the validity of a project as long as they have a market and paying their fair share of cost for joining the network.
Some people have highlighted the fact that REX was cheaper earlier and hence the miners got the CPU for less cost. But again, that was open market. Many valid dApps and wallets are operational right now and offering free CPU for users, they planned ahead of time. So could everyone else. If you are in a marketplace and using a commodity as raw material, you can not complain when commodity price goes up. Yes, some businesses go out of business when commodities escalate in price heavily. This is evolution in any market and it helps define who has long term sustainable model. The dApps who can not afford to pay for resources right now or who did not plan for resources ahead of time, they did not have a business model that is sustainable for EOS blockchain. Either they need to redesign, or they need to move out and look for a different business model. Or else, they can hope that things will come to a steady state when current state of cheap REX loans mature. It is a waiting game for many.
Everything is not fine though.
As REX usage started growing, we learnt about the arbitrary limit of 20% liquidity requirement in REX code, that led to REX loans stopping abruptly on Nov 5 when dApps and users were still willing to pay the escalated price. This led to major side-effects for the chain. Some dApps who have been leasing from REX and wanted to increase the stake could not do it. Some dApps who had planned very well and staking through REX for each of their user, they could no longer renew loans. And a user who did not pay attention and wanted to buy REX to make some transaction was told that he has to wait for threshold to come down below 80% usage for him to be able to lease resources.
The problem with this limit is that once REX loans stopped, there is no more reason for new liquidity to come in. So it was a catch-22 situation. We are not promoting new tokens to be added to the REX pool as there is zero return now. And we are in fact seeing people withdrawing from REX as why should one lock their tokens for 30 days (in worst case liquidity crunch) if there is no real reward. This “bug” was highlighted through “investing with a difference” handle on twitter as soon REX loans were stopped.
While community was still trying to understand the background and whether the limit was changed for almost 24 hours, we finally had Dan Larimer confirming that the limit needs to go. This got more action from the community.
The code change was committed within no time by Syed Jafri from EOScafeblock and it is under review from various BPs and EOS community at this moment. Of course, the top 21 BPs will review and define what fix really goes into the code. EOS has always been a fast moving chain with code fixes happening on the fly and network continuously evolving with higher performance and better stability and security.
While we are resolving this issue around artificial limit on REX loan issuance, it is not going to resolve the CPU cost issue for many and make resources cheap suddenly. This will only allow viable businesses who can pay for REX at higher cost to continue paying for it and re-enable free markets.
Within Blockstart, we have been discussing with dApps in our accelerator all the time about long term vision and scaling. We envisioned these issues and we have a roadmap for every dApp that works with us on how we can plan for various scenarios. But even we did not see this resource crunch and escalation in REX cost coming too soon. It has enforced us to move some of our roadmap items ahead in the queue. We are now accelerating enabling technology to allow scaling to next level which may have happened 1 or 2 years from now in normal course. I hope every developer and team in EOSIO is doing the same and building for future
In hindsight, while this hiccup in EOS network is a blow to current dApps, this also gives an opportunity for market forces to allow dApps to evolve and stronger businesses to emerge out as winners. For Blockstart in specific, it is a giant leap of moving some technology roadmap 2 years ahead. Once we are on other end of this problem, we are sure we will be much better prepared for future and scaling of decentralized applications for times to come.
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