An adhoc poll about keeping your EOS tokens on exchanges
This past week Scatter ran an adhoc poll on why users keep their tokens on exchanges. It's very informal, and the data is likely dirty because the users we targeted were through our channels (Twitter, Telegram, and email). Rami is also not a statistician :)
The poll was largely prompted by Colin’s video in which he mentions that a certain percentage of users just don’t understand that by keeping their tokens on exchanges they are ceding their rights as voters in the EOS ecosystem. We're big fans and if you prefer to proxy your votes, we highly recommend him.
Then again, if all this stuff about voting and proxying and exchanges sounds like Greek to you, let us give you a quick primer on how voting works in EOS so that you can be up to speed when we get to the actual results of the poll.
Then we will get to the interesting results that we had from just over 650 respondents. There are concrete steps we can take to make substantive changes to how our ecosystem works, and we think we can do them together if we are smart and dedicated to the cause.
Block production and DPOS
EOS runs a distributed proof of stake system. There are hundreds of servers in the running who want to crunch your blocks, but only the top 21 actually perform the consensus functionality which keeps the public ledger up to date. Scatter even started running our own BP!
But, who gets to choose who gets to be in the top 21? You do! All token holders get 30 votes, that you can assign to 30 block producers, for each token that you hold. The EOS Mainnet is intended to be a democratic network, governed by its own users, according to the stake in the network. Hence, proof of stake.
The important point here is that there are lots of Block Producers and many of them are run by large apps such as exchanges. Currently, there is a lot of debate in the community about whether these exchanges hold an undemocratic advantage over their competitor BPs. This is because when a user holds tokens in an exchange’s account, and not in their personal EOS Mainnet account, the exchange usurps that user’s right to vote. In most cases, the exchange votes for itself or its allies, as you would expect in a democracy. The end effect here is that many of the top 21 BPs are exchanges.
If you take a look at the top 25 BPs, this is what you see:
The vast majority of the top BPs are running solid infrastructure and doing dapp or tool development. There is some collusion (centralization), but it doesn’t seem to be, on the face of it, anywhere near as bad as the clamouring on social media would make it out to be.
The funds that a Block Producer earns scales from 1 to 21 as the highest earners, and after 69 not earning anything at all. If you’re interested in the specifics of what each BP has earned, you can see them here. The expected use of these earnings is to maintain and upgrade infrastructure, hire staff to run services, and to develop new software which is critical for the ecosystem to thrive. For top BPs, they make in the order of 800EOS a day, which is about $3000 at the time of writing this article.
We think that the system is mostly working as intended. It isn’t great, but it isn’t crashing and burning either.
The point of these questions was for us at Scatter to understand how much of our user’s assets are self-managed (generally with Scatter), and how much sits on an exchange. We’ll go question by question and I’ll share the results. I’m sure that you’ll find them as fascinating as we did! If you still want to add your voice, you can access the poll here.
Do you keep your EOS tokens on an exchange?
Fully one third of users leave their tokens on exchanges.
Why do you keep your EOS tokens on an exchange?
Of the users who keep their tokens on exchanges, we tried to understand the main reasons why. It turns out the for most of them that do, it is for easy access to liquidity. This means that they are actively trading and are using the exchanges to do so. We’ll get back to the last 12% here that do not know how to easily move their tokens off the exchanges, as we think that there is likely something we can do to help them.
How important is voting for a Block Producer to you?
The majority of users who answered the poll are engaged voting participants. This, unfortunately, is likely swayed by the fact that users who answered this questionnaire are exactly the type who would be engaged participants! I’d be curious to hear from the 35% or so from the 1 to 3 categories who don’t find voting interesting, engaging, or worthwhile. Why do you not engage? What are your expectations?
Do you understand that leaving EOS tokens on an exchange allows them to act as a proxy and that they use your tokens to vote?
This is really a worrying statistic. Almost 30% of users of exchanges either did not know or do not care that their voting rights are being ceded to exchanges. There is definitely an education problem within the community, and there absolutely needs to be more transparency by the exchanges.
If you manage your tokens on your own, which wallet do you use?
You guys sure do love Scatter :) the feeling is mutual!
We think that we have a few key takeaways to think about here.
First, we do not believe that as things stand currently that exchanges have “usurped” control over the Mainnet in any permanent way. They have a lot of power, but they also provide a lot of value to the ecosystem by creating liquidity and providing a way to convert fiat to crypto. Users trust the exchanges with their funds. We who are interested in the infrastructure and tooling should take a moment and consider that.
We’re not particularly happy about the BPs who are being voted into positions of power without providing much in return other than basic infrastructure, but the nature of all complex system is that people will try to find loopholes. If we want to take the issue of collusion more seriously, we think that converting from one token equals thirty votes to one token equals one vote may help shake things up by disrupting the current methods of collusion. That being said, we also think the real solution here is that there needs to be more disincentive to spin up a BP that does nothing more than hold a position which earns tokens for a shadow partner. Value needs to be used to improve the ecosystem and BPs which do not provide added value should be disincentivized. Please remember that we defined exchanges as valuable assets to the ecosystem.
Finally, we think that there needs to be an educational push both to get users to move tokens off of exchanges when they are not in active use, and to expand the general voting population on the Mainnet. How to do this is a marketing problem and outside the scope of this technical document. We would love to open this to public debate. Come join us on Telegram @Scatter or send us an email to [email protected]