Are EOS Block Producers as well-off as we think in the current crypto market?

Join me as I dive into the world of EOS Block Producers to find out how much they are paid, what it takes to run one and how they’re performing in this bear market.

How are Block Producers Paid?

Before we dive into the survey there’s a few things you need to know first. Namely, how Block Producers earn revenue via inflation on the EOSIO network.

The EOS Mainnet grows at a rate of 5% per year, 4% of that is locked away in the Worker Proposal Fund — an untouched account (eosio.saving) currently holding 18.5m EOS established to fund upgrades to the network.

The remaining 1% is reserved for Block Producer pay and many believed this would be enough to prevent them from supplement their income with external sources.

Allocation of Inflation on the EOS Mainnet

The current down-trending price of EOS and the crypto market as a whole is concerning for many reasons, I’d argue the most important of which is BPs receive the same amount of EOS for their efforts while the currency has been devalued to below $3.00 USD from its all-time high of nearly $28 and its launch value of ~$14.

Is the community's perception of BPs earning a fortune, driving Lambo’s and sipping champagne accurate? That’s precisely what I’m trying to figure out…

Communities perception of EOS Block Producers? Image Source: rebloggy.com

The Survey

I recently surveyed EOS Block Producers and collected various data on their organization such as financial stability, team size, annual expenditures, etc… (If you’re a data nerd you can view the raw data here and the original survey here.)

I’ve broken the data down by BP tiers as there are large variances between ranks in terms of earnings. Here’s how I defined my tiers and how many respondents I received per tier:

Tier 1: Block Producers ranked 1–21 (8 responses)

Tier 2:Block Producers ranked 22–42 (10 responses)

Tier 3: Block Producers ranked 43–63 (4 responses)

Tier 4: Block Producers ranked 64–84 (2 responses)

Tier 5: Block Producers ranked 85–105 (1 response)

Tier 6: Block Producers ranked 106 or higher (1 response)

Survey Responses by Block Producer Tier

Teams were asked at which price-point they fall into the following categories (in order): Break-Even, Cuts to Development and Community Projects, Major Layoffs and Bankruptcy. They were asked to assume a stable price of EOS for at least 3 months.

Break-Even

T1. $4.04 | T2. $4.35 | T3. $4.19 | T4. $4.38 | T6. < $2.50

The breakeven point for Tier 1 teams is $4.04 per EOS, which makes them the most resilient group in the network. Tier 2 teams broke even at $4.35, Tier 3 at $4.19 and Tier 4 at $4.38. The only T5 respondent didn’t specify and the T6 indicated a price range of < $2.50. The average breakeven price-point across my dataset was $4.14.

Cuts to Development and Community Projects

When asked at what price they would likely have to make major cuts to community projects and open source development, the average across all tiers was $3.67.

T1. $3.69 | T2. $3.71 | T3. $3.88 | T4. $3.63 | T6. < $2.50

Major Layoffs

The average price across all Tiers at which major layoffs would have to be made is $3.08.

T1. $3.17 | T2. $3.08 | T3. $3.16 | T4. $2.88 | T6. < $2.50

It’s also worth mentioning here that I asked them how many employees they had on payroll. The average team size across all tiers was 6.85 members with T1 teams leading the group with an average team size of 8.63 members.

T1. 8.63 | T2. 6.00 | T3. 6.75 | T4. 5.50 | T5. 8.00 | T6. 3.00

Tier 5 and 6 data is likely unrepresentative due to having only 1 data point in each. These tiers are also likely to have external sources of funding as they do not receive enough in BP rewards to cover their costs.

I’d theorize that team sizes are likely to drop from T1 to T2 — as these teams have more to gain by increasing their rank and rewards — and be unpredictable from T3 to T6 — as they’re likely entirely funded by external sources, making their size dependant on their success at monetizing services like a traditional business.

Bankruptcy

The average price across all Tiers at which bankruptcy is likely is difficult to determine as the lowest option in my form was “<$2.50” and over half of the respondents to this question selected it. That’s my fault, I underestimated how resilient the teams were and should have included lower price options in the survey.

If I had to guess, I’d say it’s very close to $2.50 per EOS since the two least resilient T1 teams estimated a price of $2.88 (sustained for at least 3 months) and a third closely followed at $2.63 while the remaining T1 teams selected <$2.50 (this trend was nearly identical among T2 teams).

The least resilient BP to bankruptcy was a T3 with a token price of $3.63 or less (sustained for 3 months) meaning they’re likely already on the verge of bankruptcy or burning through their savings if they haven’t yet successfully monetized.

Contrarily, the most resilient was also a T3 team and did not provide a price for bankruptcy. They quoted annual expenses of $600 and had other income sources from an ICO/Airdrop/Airgrab. Indicating they’re able to scale their team at an extraordinary rate — likely a feat a T1 team can’t match with the server demands expected of them.

Although I estimated above that the lowest acceptable price per EOS is likely close to $2.50 for most teams, let’s be generous and substitute a value of $2.25 to replace those who selected “< $2.50” to see what the data would look like:

T1. $2.48 | T2. $2.88 | T3. $2.84 | T4. $2.57 | T6. $2.25

At the time of writing this article the price of EOS was $2.53 USD according to CMC.

Costs to be a Block Producer

Another interesting metric is their annual operating expense, what are the costs differences between operating a T1 team vs a standby team (T2, T3, etc..)?

BP Annual Operating Expense in USD

As you can see, it really is significantly more expensive to run a T1 team. The average T1 team spends $925,625.00/year and that average is being brought down quite a bit by a single anomalous T1 team of 13 members that claims to only spend $80,000. If we eliminate them from the average it jumps sharply to $1,046,428.57 — more than double that of the average T2 team and triple that of a T3.

Why is it so much more expensive to operate a T1 team? Likely due to the scale of the projects they can afford to fund with their extra revenue and the larger teams they can afford to drive those projects. Some of that extra revenue is likely also going to fund community projects such as Chintai and my own app My EOS Wallet which is entirely funded by donations, primarily from BPs.

Solutions

Besides major layoffs and cuts to open-source projects what can Block Producers do to fight off bankruptcy?

Monetization of Services (dApps / Airdrops / Etc…)

When asked if BPs had any plans to monetize their services in the future the responses were as follows:

Block Producers vs Monetization of Services

Almost half of all BPs intend to monetize their services while 34% remain uncertain and 23% responded confidently that they would not monetize.

Monetization can take many forms, and it’s unclear which method is the most popular. Some have begun offering enterprise solutions, others transaction fees and even Airdrops. These methods are generally untested in the EOS ecosystem and time will tell how users respond.

Dynamic Inflation

Another potential solution — if we don’t want to see transaction fees on popular EOS services — could be to implement Dynamic Inflation. This would mean scaling of the inflation value in relation to the fiat value of EOS.

Right now inflation rewards are at 1%, an arbitrary number selected pre-mainnet launch when prices were consistently above $10 (Back when our concerns were how to keep BP rewards from being too high…). It was then an appropriate number to limit profits when prices were between $8–14 but also made things extremely lucrative when EOS topped $20+ and is now causing serious problems with prices well below the average $4.14 break-even threshold.

Dynamic inflation would — in theory and if done right — solve all of these issues by putting a stop to the lambo parties in bull markets and preventing bankruptcy in bear markets.

In order to implement this kind of solution we would need an Oracle (an on-chain objective measurement of a real-world value). If an Oracle was coded to evaluate the daily price of EOS — aggregated through many exchanges and averaged over multiple currencies — we could set a constantly moving, yet appropriate, inflation value for BP rewards either above or below the 1% mark to stabilize their revenue.

One possible implementation could be to keep the 5% total inflation value to avoid excessive inflation and wastefulness (at this time we have yet to utilize the Worker Proposal Fund) and simply alter how much is allocated to BPs vs the WPF.

Do Block Producers Support Dynamic Inflation?

When asked if they would support Dynamic Inflation the responses were very interesting. I had a hunch many were too scared to propose such a thing due to the communities general perception of them swimming in cash so I provided the following options:

Yes, we would support this proposal — Simplified to Yes in the chart below. We may support this proposal but are concerned over our public image (Community perception of greed, etc…) — Simplified to Probably (Worried over Image) in the chart below. No, we would not support this proposal — Simplified to No in the chart below. Other (Specify) — Simplified to Uncertain in in the chart below or merged into the most appropriate group.

A full 73% of BP surveyed want Dynamic Inflation, knowing full well it would limit their profits in bull markets and almost 35% of them were too worried about losing their current votes to do anything about it, even while on the verge of bankruptcy.

I think the data is clear that times are tough right now for Block Producers and I also think it’s time for the community to get involved.

Do you support the concept of Dynamic Inflation or would you prefer them to monetize? Either way, make your opinion known (responses limited to 1 per IP and captcha mandatory for anti-spam), you can be sure that block producers are listening.

You can also join the discussion on the r/eos subreddit and in the comments below.