The whole market has finally seen some green color and EOS was one of the coins that lead the pack in percentage gains for the last 2 days although they dropped of a bit today.
What caused the rally in EOS?
Many would assume it was organic interest caused by their mainnet launch but is it really?
There have been reports that Block.one, the company behind the EOS software that collected a stunning $4 billion on the year-long ICO, has moved around $115 million of ETH to the exchanges. Selling large amount of coins via an exchange and not via OTC sellers is not too common and can only mean one thing: Block.one wanted to artificially boost EOS price and create a sentiment the market loves their coin. And additional bonus for them would be a downward pressure on their main competitor, Ethereum.
EOS daily volume at the moment is more than half that of Bitcoin, and more than Ethereum and Ripple combined! This is what is called Wash Trading in financial circles. You inflate the volume yourself in order to attract more investors, by leading them to think there is a rally.
Why would they be buying EOS?
They know EOS ecosystem best, they designed it after all. DPOS consensus mechanism that will secure and maintain the new blockchain has a huge flaw – it makes the rich richer. The more coins you have, the richer you get with time as you can dominate small owners by voting your preferences over theirs all the time.
Many experts have been warning of cartels that will form in DPOS systems and small holders will have no chance to influence governing decisions on the blockchain. The cartels form because the block producers themselves get a lot of tokens, and therefore a lot of voting power. Then they agree to trade votes to keep themselves in power.
If you look at Lisk, the only way you can receive block rewards is if you vote for all members of a cartel. The majority of the block producers or delegates are part of a cartel that vote for each other.
I believe the majority of people are good, but people are also self interested individuals. What prevents people from not following the constitution and voting in block producers that bribe votes with block rewards? What monetary incentive do voters have?
This type of governance is even worse than Bitcoin loose, informal social consensus that often ends in hard forks and new shitcoins created from Bitcoin.
This problem is intrinsic to dPOS and there are better proof of stake consensus algorithms out there. Just take a look at Zilliqa model. Or even ARK.
Ark is a great example of dPoS done right. The delegates are actively working to make the platform better by contributing to the platform via developing code, marketing etc while still returning 85%+ of the staking rewards to the voters. Delegates who are not beneficial to the network have been voted out in the past so it’s a pretty effective system that incentivizes good behavior and punishes bad behavior.
