How to fix REX and increase EOS adoption
The EOS Resources Exchange (REX) the main topic of debate and major concern for many community members. Transacting with few staked EOS is thing of the past and counting on BPs to change anything is wishful thinking. EIDOS miners relentlessly reserving most of the network resources effectively pushed everyone the edge. As scammy as it may look to many, EIDOS has the right to operate their scheme. After all, nothing is prohibited, no rules exist and the code executes what it’s been created for. The network is working as designed.
The source of the problem
The REX was born as a cheap market for resources needed by dapps. With few EOS, application developers were able to rent resources and deploy their contracts, leaving the transaction cost to the user. EIDOS miners used cheap REX resources to send thousands of tiny EOS transactions, which has usurped everyone else’s right to use the network. This mining activity pushed the network into a congested state, but is not malicious. It is a core design flaw in REX.
One may look at it as spam as currently it doesn’t provide any value. The line is blurred because each transaction costs RAM and RAM fees go to REX to be redistributed between the REX holders, who are benefitting from the current situation. EIDOS was the cause of a major surge in REX rewards that have never seen before, although it is still an unknown what will happen when most of the 30-days lease periods will end in two days. The EIDOS creator said that he’s building a DEX, in which case could prove for mining to be worth the hassle but who knows if it will ever happen. The thing that was the most positive in all this mess is that it helped expose an issue with the 20% threshold put on the Bancor algorithm in REX which prohibits the price of the resources from going up.
The current state of the REX
Currently, borrowing resources from REX has stopped because not enough people send their EOS to REX. There is simply not enough liquidity in REX and most apps and users are starved for resources and cannot use the network.
EOS reached the all-time high of the number of transactions due to the mining but it dropped significantly in the number of active users. That means that more transactions are performed by fewer users. It’s like the wealth gap is growing between the rich and the poor that we all know too well how usually ends. The war (hard fork) of some kind or the total abandonment of the network is what we’re talking about. I don’t think this is what the whales, the BPs, the dapps or the little fish want. There would be only losers and no winners, and one more failed project.
Some solutions have been proposed to fix the situation. Tal Muskal and Beni Hakak from Liquidapps have thought about an Immunity Token while EOS Argentina has its own solution for REX pricing adjustment. Block.one has created the code to remove the multiplier but the top 21 BPs didn’t merge it. So what now? Do we let EOS die?
Dan Larimer acknowledged lately on Twitter that Block.one is working on changes. Until they deploy viable code I wanted to propose for discussion a system that could align all involved parties: exchanges, token holders and dapps.
Where do we get the liquidity for REX
REX needs liquidity but the token holders don’t seem to be incentivized enough to move their tokens from the exchanges. They may not even know about the existence of REX rewards at all. If they don't move their tokens to the EOS wallets that probably means they're comfortable with what they're being offered. The network, though, needs its tokens to operate at peak efficiency. The dapps need them to thrive and new projects need them to be able to build. On the other hand, the exchanges don't want to give up on the votes they get from these users. This would make them drop in the rankings which would cost them in bpay and vpay. They would never implement a change that costs them money. But there is something they can do to help the network and still retain their votes.
After all, the EOS network is good for them as long as there's someone to build and use it. If dapps and the users move to other chains because they do not have access to resources what good EOS Mainnet is?
There's no doubt that EOS needs cheap resources from REX. If there are not enough resources in REX then there’s a liquidity crunch like the one we're experiencing now. The demand is higher than the availability. REX needs more EOS and these are locked mainly in whale accounts many of which belong to the exchanges. For example, binancecold1 account (which I assume belongs to Binance) has over 38M tokens, vuniyuoxoeub (which I believe belongs to Huobi) has over 24M EOS, okexoffiline has almost 8M, bitfinexcw55 has 6.5M. There are other accounts belonging to exchanges which are their official BP accounts and not one of them uses REX. These accounts don’t stake their EOS and don’t use them in any way.
I’m not sure if they belong to these exchanges as part of their own business budget or they are EOS belonging to the users who bought them and think they own them on the exchange. This is something no one can verify. The relevant thing now is that these tokens could be used for the benefit of the network while aligning the interests of all the participants.
If they are the property of the exchanges then they could be simply sent to REX in change for the rewards.
If they're users' tokens, the exchanges could create REX access directly from their platform's interface. Each user would see a REX button in their exchange wallet and have the possibility to send EOS to REX and earn passive income.
To make it work correctly, an exchange would need to create EOS accounts for its users. The users would then be able to buy and sell REX still remaining on the exchange’s platform and the exchanges would retain the votes. While there would be some costs pertaining to the account creation they could be reduced thanks to the solutions offered by liquidapps.io. There are obvious advantages coming from the adoption of this system
a token holder would get a free account; getting an account is currently one of the biggest roadblocks for EOS adoption and this automatic onramp would be a major facilitator in using EOS dapps straight away
a token holder would have easy access to REX which is one of the biggest DeFi projects out there and an additional source of passive income
an exchange wouldn’t need to worry about the users' tokens because the REX security is the responsibility of the whole EOS network and not of an individual exchange
an exchange would provide liquidity to REX which not only helps dapps to get the resources they need to thrive but would ultimately help the whole network boosting its activity which translates into bigger rewards for the REX users; it’s a circular economy
all accounts created by the exchanges are already verified; each user needs to undergo KYC/AML verification which means that an eventual hack will be easier to track and stop
The exchanges have always been the major actors of the EOS network. Their advantage over other BPs resulted in most of them becoming the top 21 BPs. Being on top means that they need to govern the network and care for the community. Ignoring the issue doesn't help anyone and is a loss for everyone, exchanges included. Whatever will be the solution, EOS needs it now.