ENTER THE RAM MARKET

Resource Allocation Stablecoins pt2: The EOS RAM Market

Update: I’ll be adding updates to the bottom of the article as I discuss it with others. My first response is at the bottom….

In part one of this proposition I referenced Myles Snider’s article An overview of Stablecoins by MultiCoin Capital which lays out three designs for stablecoins:

1. Centralized IOU Issuance
2. Collateral Backed
3. Seigniorage Shares

To which I posited the possibility of a 4th kind of stable coin: resource activity. With a resource activity stablecoin, backing comes not from an arrangment of meta-value tokens or off-chain assets, but rather by using on-chain resources and an internal network-native market. At the time I had been inspired by the work of the GasToken Team, but with the limits of the current ethereum network, and the suggestion that the mechanism by which GasToken function will eventually be eliminated, I went looking elsewhere.

At the time EOS had not yet launched so it was relatively unknown how the network would work in practice. Now that the network has launched and is live, it seems like the ideal place to try building resource activity backed stablecoin.

THE RAM MARKET

The behavior of the EOS Ram market was one of many unknowns going in to the EOS network launch. Speculation, Dan Larimer posited, would be tempered by the fact that block producers could unexpectedly add ram to the network and render a ram-speculators’ holdings vastly depreciated. The reality has been however that such a risk has been interpreted by speculators as “a cost of business” at worst and the market has surged.

While there is substantial discussion going on about how to manage skyrocketing RAM prices, with many calling for it’s elimination, what many commentators fail to recognize is that the RAM market represents the first true on-chain resource market in the blockchain world I am aware of. This is a BIG DEAL in my opinion. Neo and Ethereum have Gas, but they don’t implement network-native markets. This is the first time we both have a resource intrinsic to the network to which it belongs, critical for the use of the network, denominated in network-native currency (eos), and a market that lives on-chain.

Why is this important?

Being network-native is important because:

1. Decentralized: While EOS RAM is already starting to trade on exchanges, it is inherently a decentralized asset. It exists on-chain and users can buy RAM today through Scatter directly without 3rd parties.
2. Intrinsically Valuable: Just like Ethereum’s Gas, RAM is intrinsically valuable. It’s necessary for deploying applications, and minimally necessary for owning EOS names (although not necessary for making transactions- users can transact for free on EOS). Its value is derived directly from the perceived usefulness of the EOS network in the present and future, and as EOS grows, it will grow in value, demand and supply.
3. Inherits EOS Network Characteristics: Perhaps most importantly — EOS RAM as a resource inherits the native characteristics of the EOS chain. This means that enterprises can count on block-producers being at least partially responsible and interested for solving structural problems that might arise from security concerns.

What this means is that RAM is a more secure on-chain, (and network-native) resource than the off-chain collateral held by some stablecoins. Indeed with the recent Bancor Hack it’s worth questioning how ready we technically are for “code is law”. While complete and total decentralization is a noble (and desirable) goal, the complexity of smart-contracts doesn’t align well with our current expertise in deploying them and this limits the trust/utility of non-network native stablecoins. With current stablecoin implementations, a failure of smart contracts can lead to irreversible loss.

An EOS stablecoin backed by network-native resources gives the EOS network the unique position of being able to have an fast, cheap, internal market that can balance system resources, demand, and on-chain seigniorage. To build complicated on-chain financial products, we need the internal markets afforded by EOS. I propose that we keep the internal RAM market and work towards developing economic systems that will stabilize market forces.

In the meantime, I am watching the RAM debate closely.

(…to be continued — )

UPDATE: In response to a comment by Natoshi Sakamoto and Gilgamesh in the EOSIO Gov telegram channel, I wanted to clarify a couple points.

I do not intend Block Producers to be the sole “backers” of a RAM stablecoin, they are at most, the “sheppard’s of last resort”, as Block Producers physically have control over ram, they do have a special position of being able to physically control supply. That said, I believe Block Producers can be trusted in this role as they are responsible for the entire network as a whole. The day to day operation of such a stablecoin though would come through market forces and on-chain smart contracts. The really unique part of network-native stablecoin is that EOS markets don’t require oracles a major weakness of the established stablecoins. We can do everything on-chain, and much like Maker’s Maker-coin which works as a last-resort voting mechanism for DAI, BlockProducers act as a last-resort for RAM. (BTW: RAM is only one of the network-native resources on EOS that can back a stable coin, so it’s not RAM alone). In the case of a blackswan event, BlockProducers have the ability to step in and shore up a network-resource backed stablecoin which should bring enormous peace of mind to Enterprises building on EOS. Unlike Ethereum, where a hack such as the Bancor hack, means the money is gone forever, a dire situation or a mistake can be rectified if necessary.