This Halloween, the EOS network got a real and severe trick and no treat. The EIDOS token launched that day, and since then, the EOS network has been slowed to a crawl due to the massive spam attack the airdrop has induced, as will be explored in this article. Unfortunately, the airdrop will continue for the next 15 months, and the cat is out of the bag in general on how easy it is to cripple the EOS network.
The devil is in the airdrop details. Users can send any amount of EOS to the EIDOS smart contract address, with as little as 0.0001 EOS being sufficient, and then the EIDOS smart contract sends back an equal amount of EOS and 0.01% of all the EIDOS tokens it holds.
EOS users can repeat this process as many times as they are capable of, which is limited by the amount of CPU and NET that users have access to. Essentially, users who stake EOS tokens for at least three days begin to steadily earn CPU, which is the amount of computer processing power they are allowed to use, and NET which is the amount of network bandwidth they are allowed to use.
Several exchanges including Bithumb Global quickly listed EIDOS and offered the ability to exchange EIDOS for EOS or Tether (USDT). This inflamed the situation since now users could earn free money from participating in the EIDOS airdrop. As the EIDOS Founder put it, essentially, users could mine with their CPU and NET resources rather than letting them go to waste.
Then it got even more insidious. TokenPocket released an easy to use application that automatically mined EIDOS via sending as many microtransactions of EOS as possible.
— TokenPocket (@TokenPocket_TP) November 1, 2019
All of these ingredients, the ability to earn free money by sending EOS to the EIDOS smart contract, the capability to send as many times as a user could afford which was only limited by their CPU and NET holdings, the fact that EIDOS could be exchanged for real money, and programs to automate the process, created the perfect storm for a spam attack on the EOS network.
But then it got even worse. In 2018, the EOS developers created the Resource Exchange (REX), in order to address the scalability problem that arose because users were required to stake EOS to earn the ability to perform transactions. Essentially, someone who wanted to heavily use the EOS network would be required to stake a large amount of EOS, making that user prone to losing money due to market fluctuations.
The solution was to allow users who were holding their EOS to loan the CPU and NET that they were staking to other users for minimal interest rates — well less than 0.5% per year. This REX pool of CPU and NET became an essential resource for any businesses that were using the EOS network.
Before the airdrop started on Halloween, 60 million EOS worth of resources on REX were rented for somewhere around $58,000, completely draining the REX pool of all of its resources. Further, the EIDOS team made deals with several large EOS stakeholders to directly receive their CPU and NET.
As the airdrop launched participants quickly burned through their own CPU and NET resources, and there were practically no REX resources available for anyone else. Even Coinbase was no longer able to use the EOS network for some time since they were dependent on REX. Coinbase was forced to stake large amounts of EOS tokens to earn the CPU and NET needed to get customer’s transactions unstuck, as well as to increase the CPU quota, but withdraws at this point continue to be slow and unpredictable.
The final blow was that the massive amount of spam being produced by the EIDOS airdrop, which accounts for 95% of all EOS transactions, caused the EOS network to enter congestion mode. Basically, once congestion mode is reached, there is a cap on the amount of CPU that a user can utilize based on the amount of EOS they hold, meaning they cannot just spend all of their CPU freely to push as many transactions as they want.
Congestion mode is designed so users have a fair shot at getting in a block during times of high traffic, rather than one user taking up the whole block, but this EIDOS debacle has caused this system to become very unfair.
The CPU quota has declined to 0.098 ms per EOS, with 1 ms being required to send a transaction, so users with less than 10 EOS cannot use the network at all for over a week. This has resulted in EOS users on Reddit begging for some CPU to get their EOS unstuck.
The EIDOS Founder says that this is all fair and good for the EOS network because it makes the chain more active and drastically increases the competition for resources. Indeed, aside from the EIDOS Founder and those who borrowed all the REX to capitalize on the EIDOS airdrop, people who hold large amounts of EOS stand to win big long term since now CPU and NET is a precious resource, whereas before it was worth very little.
There are a few ways that this situation can resolve itself. First, the EIDOS token could lose all of its value since it is being continuously dumped, and that would take away the incentive for this spam attack to continue. However, EIDOS is dropping steadily, but it seems it may be approaching an equilibrium somewhere between $0.001 and $0.003 per token.
Another way for this situation to resolve itself is the leases for all of the REX that was borrowed before the airdrop will expire in just over 3 weeks. At that point the borrowers likely will not buy it again since it will be much more expensive — due to the rise in CPU prices — and simply not worth it.
That being said, those who borrowed all of that REX will likely keep spamming the network until the leases expire since they have already paid for it and have a need to earn as much from the EIDOS airdrop as possible to cover the borrowing costs. This means that the EOS network will remain in this congested state for over three weeks at least.
The final way this situation could resolve itself is if other EOS stakeholders put large amounts of EOS into the REX market to bring CPU prices back down. There is an incentive to do this since the interest rates are much higher, but simultaneously there is also an incentive for EOS stakeholders to use their CPU to capitalize on the EIDOS airdrop. It seems at this point that EOS stakeholders are choosing to participate in the EIDOS airdrop rather than loan via REX, but that could change if the price of EIDOS drops low enough.
Regardless of how this EIDOS airdrop/spam attack resolves itself, now, the cat is out of the bag, and copycats will likely follow. Clearly it is profitable for people to create similar tokens to EIDOS, and there are apparently tens of thousands of users who are participating, so there is a demand in the community for this sort of scheme. Also, EOS stakeholders can profit from this sort of scheme as well.
Unfortunately, it seems EOS users who do not have much money are literally being disenfranchised from using the network due to these other market participants who are seeking profits. Simultaneously, developers and businesses who build platforms on the EOS network are being disenfranchised as well unless they have a ton of money to spend on the CPU and NET needed to keep their smart contracts running.
It will require a fundamental change in the EOS system to truly resolve this situation, but there is no sign of that. The EOS block producers and developers have not posted anything about this situation even though it has been going on for almost two weeks. Perhaps this makes sense since those with the most EOS have the biggest potential to make money in these sorts of schemes. Further, the EOS market price has actually been rising since the launch of EIDOS perhaps as other crypto users rush in to buy EOS to participate.
That being said, this situation has made it so that most average users in the crypto space cannot afford to use the EOS network, and running a platform on the EOS network has become prohibitively expensive. The EOS developers need to choose between EOS following its original goals as a world supercomputer, or letting it primarily be used by people participating in airdrop shenanigans.