Insight into The Price of EOS RAM
Dan Larimer, the founder of EOS, undoubtedly has been one of the biggest news stories of this week. During the week, the EOS community has been spurred by his every move, from DRAM talks, to 20% annual RAM expansion, and to the launch of its DApp platform. As the fundamental principles behind the EOS’s constant changes has caused the prospects of the project to become quite confusing.
In this article, TokenInsight will focus on the recent EOS RAM discussion mentioned by its founder Dan Larimer. The reason why we are paying attention to RAM is its price fluctuation. Second, economically, the development and applications of EOS require matching RAM to be stored, so the price of RAM directly constitutes the cost of its developments. If RAM prices are set irrationally, it will inevitably lead to an “uneconomical” application allocation. This is problematic as it causes an inefficient allocation of resources and does not provide a service to its users.
Since the main network of EOS was launched in June, RAM prices rose significantly from 0.017EOS/KB on June 19 to nearly 0.9 EOS/KB on July 3. However, since July 4th, RAM prices fell all the way down to 0.5EOS/KB. On July 8th, it fell by nearly 97% to 0.4588 EOS/KB in just 4 hours, and quickly rose back to its original level on the early morning of July 9.
(1) What is EOS RAM exactly?
(2) Why does the RAM price skyrocket in a short term?
The purpose of EOS is to build a blockchain operating system, so EOS introduces computer architecture concepts into the design process. EOS computing resources mainly include two types: one is memory (RAM), the other is CPU and network bandwidth. RAM is mainly used to store account information, perform execution, smart contract information and other data surrounding the blockchain platform.
Before EOS Dawn 4.0, the allocation of RAM, CPU, bandwidth, and other resources were implemented by pledging EOS. However, this pledging model has obvious drawbacks which is similar to the subprime mortgage crisis back in 2008. In this case, EOS can be compared to a house while RAM can be seen as the mortgage. Since RAM is scarce, its price would increase with the decrease in supply. When the value of the mortgage (RAM) is higher than the house (EOS), individuals become reluctant to pay off the mortgage and redeem the house.
To solve this problem, the RAM allocated in EOS Dawn 4.0 is implemented through a buy and sell model. This price can be thus calculated by Bancor algorithm. Bancor was a supranational currency that John Maynard Keynes and E. F. Schumacher conceptualized in the years 1940–1942. Keynes made his proposal the official British proposal at the Bretton Woods Conference. But it was not accepted. The Bancor algorithm can be applied to RAM transactions in this case. The current price of RAM can be calculated based on the total current amount of EOS and the amount of available RAM. That is, as RAM becomes less, EOS becomes more, and thus raising the overall price of RAM altogether. The mechanism was designed to ensure that RAM, as a relatively scarce resource, is priced to meet the economic principles of supply and demand, avoiding the impact of speculators.
As for the recent sharp fluctuations in RAM prices, the direct reason may lie in the speculative mentality of its users and the idea of hoarding EOS resources. As a result, the price of RAM is correspondingly elevated. In addition, Dan Larimers’s attitude to this effected many of the EOS users. On July 4, Dan began to consider modifying the Bancor algorithm and using SSD to enlarge physical RAM, causing a certain degree of panicked selling. The dramatic decrease on July 8 can partly be attributed to the popularity of DRAM, a derivative of RAM, among the EOS community. This essentially made the public think that this RAM was a substitute and thus no longer a scarce resource.
RAM’s price is still at a high level (0.35EOS/KB or so). To reasonably reduce the application cost for developers and improve resource allocation efficiency in the short term, efforts should be made to change the supply-demand relationship by growing its RAM reserves. While in the long-term, addition mechanisms will need to be introduced such as side-chains used to separately run DApp applications and develop reasonable prices of RAM.
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