Tokenomics

Decentralization

SOL’s current circulation supply is 355,724,682.025 SOL, and the EOS supply is about 1 billion EOS, according to Coinbase. While tokenomics involves understanding the incentive and model of the entire network, it's essential first to understand the token allocation and ownership. Solana has had a history of controversy regarding its decentralization and token allocation. In May 2021, research firm Messari pointed out a significant amount of SOL tokens allocated to insiders, such as venture capital firms and developers, compared to other networks, such as Ethereum. EOS attempts to address the centralization issue by stating that no user can own more than 10% of the total supply. However, even if EOS’s constitution actively promotes decentralization, it might not be possible to verify the existence of multiple wallets owned by a single user, and there were no codified practices against the earlier distribution of tokens. Thus, decentralization may be many network’s catchphrase and affect their tokenomics, but the actual token allocation may not be as decentralized as these networks claim.

According to Solana, there are typically about 2,000 validators and 30 super minority on the network. A super minority is the smallest number of validators that can control 33% of the total active stake, which allows them to halve the network and prevent transactions from being recorded on the blockchain. Solana is more centralized when considering the percentage of validators needed for a super minority. On Solana, 30/2000 = 1.5% of validators are a super minority, while 7/21 = 33% are a super minority on EOS. This distribution means a smaller percentage of validators is needed for transaction veto power on Solana than on EOS. However, EOS has a much smaller magnitude of validators (BPs) than Solana, with 21 limited validator spots vs. 2,000 validators. Strictly considering the number of validators on the blockchains, Solana is more decentralized because a new node on Solana will have an easier time becoming a validator than a new node on EOS. Nevertheless, both protocols lack fundamental decentralization.

Tokenomic Details

On another level, these tokens’ functionality also changes their incentivization, which fundamentally structures tokenomics. SOL performs several functions, the most essential being staking and fees. Staking authorizes Solana token holders to stake their SOL to validators on the Solana network and earn a yield based on the inflation rate, thereby increasing the validator’s voting weight. The benefit of staking to the network is that the more stake delegated to the validators, the more difficult it becomes for an attack on the network to alter the consensus protocol. One of the risks associated with staking in PoS networks is “slashing,” where validators lose their tokens for getting caught performing malicious actions against the network. Currently, Solana doesn’t have a “slashing” policy.

Another critical aspect of staking is the inflation rate, which is calculated through a “predetermined disinflationary schedule,” helping stabilize the supply of tokens. Solana launched with an inflation rate of 8%, and it's set to decrease by 15% every year, eventually reaching the targeted goal of 1.5%.

Another use for SOL is in paying transaction fees. Fees are used to process network transactions and paid as compensation to the validation network, which confirms the transaction. Many other blockchains also use transaction fees to support the network’s long-term economic stability. However, specific to Solana is that 50% of the transaction fees in each transaction are destroyed. The transaction fees are primarily calculated on the computational resources needed to process each transaction, but additional fees, called “prioritization fees,” can be paid to decrease transaction times.

Unlike Solana, EOS doesn’t impose any transaction fees. In order to maintain the free service, EOS allocates transactions with restricted resources. Each account can use up to as much computing power proportionate to the number of tokens staked. Unlike other blockchain tokenomics that use utility tokens, EOS’s economic structure allows developers with enough RAM to trade RAM with others on the network. In other words, the EOS token allows users to claim resources on the network, and this resource–processing speed–is also available for trading. One benefit of this trading price for RAM is its independence of the availability of RAM to the EOS token’s value, which differs from other blockchain networks where the fluctuating token price often affects transaction costs.

Some also consider RAM trading as the de facto EOS token. Moreover, a 1% fee is applied to every transaction, split evenly between the seller and buyer, to prevent speculative trading and control inflation. Because of the limited supply, even for the foreseeable future, EOS supporters hope the supply of RAM will follow Moore’s law, doubling roughly every 18 months.

Consensus

Solana and EOS use a proof-of-stake (PoS) consensus mechanism, which offsets the higher overhead time incurred from proof of work (PoW) and allows select validator nodes to verify transactions via staked tokens.

EOS uses Byzantine fault-tolerant Delegated proof of stake (BFT-DPoS). EOS users can stake their tokens to obtain voting rights, which have a half-life of 30 days. Using these voting tokens, EOS stakers vote for Block Producers (BPs) who run an application to validate the blockchain. BPs take turns validating the blockchain in 126 block cycles. Blocks are produced every 0.5 seconds, and each of the 21 BPs produces six blocks.

Two independent layers exist in the EOS BFT-DPoS consensus mechanism that works together. The first layer of the protocol, Asynchronous Byzantine Fault Tolerance (aBFT), is used for recording and validating the blocks. A Byzantine Fault Tolerance system refers to a system’s ability to operate even if some components fail, in this case, the nodes in EOS. aBFT offers a unique solution to the Byzantine General Fault problem by making each node independent and leaderless while going through a two-stage confirmation process. A Last Irreversible Block (LIB), containing finalized transactions, is produced during the first stage and the second stage ensures the irreversibility of the block. A block is then considered immutable or unable to be changed if a supermajority confirms it on the EOS chain. The fact that a producer can't sign two block numbers ensures its security.

DPoS typically processes transactions faster than PoW and PoS, which provides scalability to many applications. This finality also means DPoS usually requires less computational hardware, resulting in fewer costs. DPoS is more decentralized by allowing the removal of BPs through a voting process and granting more token holders the ability to vote compared to other models. However, DPoS governance is also more susceptible to attack because there are typically fewer BPs and delegates than in other networks, meaning it's easier to organize a 51% majority in a DPoS mechanism than in other networks. Moreover, DPoS’s decentralization also requires a high level of user participation, as low participation and low voting turnouts will inevitably result in centralization.

While all EOS BPs have equal time validating the blockchain when they have enough votes to be in the top 21 BPs, Solana validators compete against each other to be lead validators and write transactions. Competition to become a lead validator on Solana is based on the amount staked because the leaders are selected by stake-weighted ordering. For example, if a validator has 5% of all stake, they’ll be the lead validator for 5% of the time. Thus, the percentage of stake in a SOL validator is essential and affects individual validators' power.

Solana stands out as it uses proof of history (PoH) and PoS. On typical blockchains, different nodes in a network use their local clock. On Solana, PoH cryptographically verifies the passage of time between events, letting all nodes trustlessly agree on the recorded passage of time, which eliminates the time that validators would otherwise spend ordering the transactions. When new data is created on the chain, it's appended to the most recent hash to create the next one. This process allows us to see that the data must have been created before the next hash because inputting the new data creates a different hash than if the new data was not appended to the previous hash. The speed to verify the hashes is linearly proportional to the number of cores on the GPU. More cores mean faster verification time. Verifying the hashes is much faster than initially generating them because they can be split up and verified in parallel. In short, PoH increases Solana’s transactions per second (TPS).

Transaction Speed

Transaction speeds are ultimately relative, so before identifying whether a protocol is “faster” from simply observing the TPS, it's necessary to gauge how safe and non-faulty the transactions are likely to be. Bitcoin, the most secure PoW-based protocol, has an average of 7 TPS, and Ethereum, a now PoS-based chain, can handle an average of 21 TPS. These transaction speeds are a function of these tokens' limited supply and higher demand. Due to the congestion of demand, transaction and gas fees can be very high on these networks.

Solana unapologetically relies heavily on advancements in hardware to scale its blockchain. The Solana team is betting that the computer hardware industry will keep improving (Moore’s Law) despite this relationship showing signs of slowing down in the last five years.

In the monolithic blockchain approach, network scalability is constrained to what the single weakest node can process. This constraint denotes the performance of the chain is thereby limited by hardware/computer performance, e.g., only more expensive, performant hardware can achieve higher throughput. As of Q4 2022, Solana has achieved a blazing-fast blockchain for today’s standards with a sufficient amount of nodes (relative), making it a great choice on the performance-decentralization spectrum.

However, ~1,000 or even 50,000 TPS won’t be sufficient if adoption continues to grow and Solana delivers on some of its dapp and DeFi promises. Therefore, more specialized and expensive hardware will be required to run the chain. Therefore, if Solana continues to grow, network health and governance will be maintained by a select few with the access, technical prowess, and capital to run these machines. Solana’s growth makes it more challenging to maintain the same performance and decentralization guarantees.

Solana has a notoriously low transaction fee of $0.00025 and a higher average TPS of 2,000+. Solana uses its “Turbine” mechanism to make the validating process faster. Leaders bundle transactions onto the “data plane,” where the rest of the validators can confirm that the entry is valid. Because the time it takes for nodes to synchronize is the square of the number of nodes, validator nodes in a cluster are separated into neighborhoods, and the leader sends different batches of transactions to the different neighborhoods. The validators in the neighborhood share their received data with all the other validators in the same neighborhood. Then, they only share data with one single node in a different neighborhood.

Another reason for Solana’s high TPS is that most transactions on Solana account for voting and validator synchronization transactions. Transactions on Solana can be divided into either consensus votes or token transfers and smart contract logic. Non-vote transactions are analogous to EVM transaction counts and represent the actual economic activity on the network. If validators on the network increase, vote transactions also increase regardless of any meaningful financial activity or adoption.

Image: Successful Daily Transaction Counts. Source: Dune Analytics

This disparity suggests that Solana purported TPS numbers aren’t an “apples-to-apples” comparison with most other chains that don’t count such metrics. This is because Solana is (one of) the only blockchains that hold consensus votes on-chain—a process that accounts for up to ~85% of the TPS numbers. Filtering for consensus votes, Solana operates much closer to 300-1,000 TPS, depending on the period.

Since EOS only has 21 BPs, its transactions can be verified quickly (4,000 TPS in testnet environments). However, this doesn’t necessarily mean that all validated transactions are secure. PoW consensus mechanisms have rigorous built-in security, as does a non-DPoS mechanism, where faulty validator nodes are “kicked” out, thereby increasing network security. If a major BP was validating invalid transactions, the chain’s security is compromised writ large as invalid data blocks could more likely be added to the chain in the future. In short, there's a tradeoff between the speed and validity of transactions.

Image: Minimum number of Validators Required for a 33% Attack on SOL, ALGO, AVAX, COS. Source: Kraken.

EOS is currently inactive compared to Solana. Although EOS can potentially reach 4,000 TPS, its average TPS is below 10. Unfortunately, EOS’s blockchain uses aren’t fully leveraged, as indicated by its low TPS and usage.

Image: EOS blocks and number of included transactions, November 17, 2022. Source: EOSflare.io.

Scalability

EOS uses separate layer-2 solutions and sidechains to offload specific use case transactions to other sub-chains with their native tokens. Sidechains reduce the time to process a by redirecting transaction subsets to a separate processing network from the Mainnet blockchain, thereby reducing network traffic. Sidechains use EOS tokens to conduct their processes, and distributed processing allows them to communicate with the Mainnet. Sidechains involve having a subset of the validator nodes communicate synchronously when verifying transactions without communicating with all of the validator nodes. While EOS has the upside of incorporating different sidechain architectures to reduce congestion, EOS cannot prevent block provider centralization. EOS’s DPoS mechanism necessitates cannibalization by having only 21 BPs process and verify a transaction to create a block.

In some cases, EOS sidechains are used to prevent this specific centralization issue by implementing consensus mechanisms that are more evenly distributed. Sidechains specifically handpick block providers from the Mainnet to validate sidechain transactions. Examples of EOS-based sidechain solutions include Telos, a sidechain used to build decentralized applications (dapps), and EOSForce. Dapps built on Telos use more distributing voting, similar to Solana’s architecture. Whereas EOSForce aims to decentralize with one-BP-per-token votes. Even though some sidechains have tried to tackle the problem of EOS’ centralization, some propagate the presence of more centralized BPs. One example, Worbli, is a sidechain that maintains strict regulatory compliance and a vetting process for potential block providers.

The Solana network has been sustainable in furthering its growth by relying on innovative protocols to remove the congestion in hash processing while maintaining its decentralized nature. While Solana’s pure PoS format without any necessary layer 2 solutions to process transactions theoretically sounds ideal for stability, Solana has been plagued by repeated “degraded performance” and even six separate network outages in just two years.

While Solana’s monolithic design can be seen as a hindrance to its future scalability, even without the usage of side chains or sharding of chains, the chain can forgo a more complex distribution scheme. This includes facilitating communication between different chains and being more flexible in un-staking validator nodes to verify transactions if there were to be a network failure, causing nodes to become isolated and inactive.

Another downside to monolithic blockchains is the validator cost to maintain a highly competitive blockchain. While there is no hard-coded minimum amount of SOL required to become a validator, it’s been stated that simply voting to agree with each block can cost up to 1.1 SOL daily. This could cost 33 SOL per month or the equivalent of ~$10,000 per year based on Q4 2022 prices or ~$300,000 per year based on all-time high SOL prices. Due to the costs of running a validator (~50,000 SOL/$1 million delegated stake break-even cost), everyday users may choose to delegate their SOL.

For most of the population, this is simply already out of reach. Additionally, the hardware requirements for becoming a validator are also out of reach for many.

Image: Validator Note Specifications. Source: Galaxy Digital Research.

Hardware requirements on Solana compared to Bitcoin and Ethereum:

Bitcoin¹: 350GB HDD disk space, 5 Mbit/s connection, 1GB RAM, CPU >1 GHz. Number of nodes: ~10,000
Ethereum²: 500GB+ SSD disk space, 25 Mbit/s connection, 4–8GB RAM, CPU 2–4 cores. Number of nodes: ~6,000
Solana³: 1.5TB+ SSD disk space, 300 Mbit/s connection, 128GB RAM CPU 12+ cores. Number of nodes: ~1,900

Taking Jameson Lopp’s 2020 Bitcoin Node and 2021 Node Sync Tests as an indicator, Table 1 compares the time it takes to sync a full node of Bitcoin vs. Ethereum vs. Solana on an average consumer-grade PC.

Image: Comparing Throughput and Lopp's Node-Sync Time

Blockchain throughput and node-sync comparison

Solana has also pumped out various successful DeFi projects and protocols, such as Raydium, a powerful automated market maker (AMM) provider/exchange that provides liquidity for Solana-based projects and NFT collectible marketplaces. Because Solana reduces the resources necessary to stake and be on the network, there's a higher likelihood for more node validators to receive transaction fees. Also, more users can indicate increases in transaction demands, meaning there's a sustained stickiness to the Solana blockchain, which EOS doesn’t provide as much.

While Solana generally better prioritizes the availability of validator nodes by “kicking out” specific validator nodes and using other available nodes to lower transaction overhead. Solana and EOS have experienced some exploitations of vulnerabilities that implicate future use and reduce privacy. An exchange on EOS verified and accepted tokens called “EOS” without making sure they were legitimate EOS tokens created by the system account. Decentralized applications built on EOS, such as EOSBet (a gambling dapp), have been hacked numerous times.

Regarding known Solana network vulnerabilities, in 2022, over 8,000 Solana hot wallets on popular wallets, such as Phantom, Slope, and TrustWallet, were drained of over USD 5 million in SOL without the users’ knowledge. Additionally, Solana has suffered several network outages that have lasted for hours due to network resource exhaustion and the reduced volume of blocks added to the chain. These examples of exploitation may pose as disincentives to potential developers in both ecosystems. The relatively low and restricted number of block providers and validators on the EOS network increases the risk of a network security compromise as fewer validators could verify new information being encoded into the newly produced blocks.

Development and Future Timeline

Even though Solana launched a few years after EOS, it’s currently referred to as a prominent “Ethereum killer,” while EOS’s media presence has mostly faded away. The appeal to developing in the EOS ecosystem stems from its high throughput and potentially cheap dapp deployment. But, since the inception of Solana, EOS’s appeal for cheap and fast use has been outshined by Solana’s own technology and growth. Solana ranks in the top 10 of total value locked, which measures the amount staked in the protocol. EOS ranks in the top 30.

Solana is vastly outpacing EOS in terms of development. Currently, the Solana community has built a large ecosystem of over 1,000 dApps since the network’s inception. These dapp projects span many popular fields of interest, such as DeFi, Web 3.0, and NFTs. Orca, Solana’s most popular decentralized exchange, features a total value locked of over $17 million. EOS, however, claims slightly more than 250 dApps within its ecosystem, with a small fraction of the dApps being software ported over from Ethereum. Since integrating Antelope as a supporting protocol for EOS, developers have used Antelope for applications ranging from DeFi to NFTs to gaming. Additionally, EOS has had an issue with decentralization and censorship through its history of BPs, proving their ability to freeze user accounts without warning or reason. This poses another disincentive for developers to build on EOS.

Why has EOS’s development faltered? After EOS’s initial coin offering (I.C.O.), Co-Founder and C.T.O. Dan Larimer began to post less and less on its GitHub. This was very concerning because Larimer’s heavy GitHub contribution was essential to EOS. Without Larimer, EOS couldn't sustain user engagement and growth. When Larimer began to work less on developing the network code, EOS still had not reached the critical mass to be self-sustaining. In addition, a 2019 study on EOS found that 75% of transactions were from bots. Finally, after four years of being with EOS, Larimer resigned at the end of 2020, causing the price of the EOS coin to drop by 15% in 24 hours.

There needs to be an updated roadmap for either Solana or EOS. However, Solana’s GitHub and website look more closely at network updates. New features include stake-weighted quality of service (QoS) and the introduction of fee markets. Also, Solana is expecting a full Mainnet release to replace its current beta version. There's currently no timeline for the full Mainnet launch.

EOS’s creator, Block.one, has had little communication around the base layer’s future and has not had its roadmap updated since 2018. However, a new organization called the EOS Network Foundation (ENF), led by former C.T.O. Dan Larimer had been established that has since taken legal action against Block.one over malpractice concerns. In 2021, Block.one stopped supporting EOSIO development and ENF has taken over by developing initiatives to preserve the codebase through actions, such as a hard fork supported by Antelope, a community-run blockchain protocol. In 2022, the Antelope Coalition has proposed faster finality, software development kits, and peer-to-peer code improvements, signaling a shift towards more proactive development in the EOS ecosystem. For example, in September 2022, EOS BPs began executing a new consensus upgrade called Leap 3.1, the first community-run implementation of the Antelope protocol. Additionally, ENF and Zaisan, one of the first regulatory-compliant blockchains in Europe, have partnered so that Zaisan can help oversee EOS development in Europe and Dubai.

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