I believe that Koinos's killer feature is that it enables the possibility of creating dApps that don't require the first step to be "purchase token". This seems pertinent for anything that aims to capture mainstream adoption. It will be much easier to onboard "normies" into blockchain apps if they don't need to buy anything to participate.

Aside from that, while everyone is battling over PoW vs PoS, this chain uses neither and has the best mix between these two. With proof of burn it won't be possible for large stakeholders to easily "take over" the chain because you have to burn your stake upfront. This means exchanges can't vote with user's assets and anyone who wants to effect governance has to be in it for the long run (because they'll need to earn their stake back over time by actually producing blocks). Another way to think of this consensus method is that it's PoW but instead of physical mining hardware and electricity it's virtual.

Bitcoin will always be bitcoin, but, we have a need to use blockchain technology in ways in which bitcoin can't currently be used. It's not a competition or trying to be a "second best" - it's just about doing different things in new innovative ways that weren't currently possible. I believe that if Satoshi created a general purpose smart contracts chain today it would be of similar design to Koinos.

Only the initial distribution is an ERC-20 on the Ethereum blockchain, it will seed balances for the upcoming mainnet launch. This project is a Layer-1 that does not run on the Ethereum blockchain.

The answer to how it provides free transactions and free smart contracts is called "Mana". Any account that holds Koin automatically has Mana (no staking required, it's always liquid). Transactions are charged in Mana which automatically regenerates over a short period of time. The network automatically adjusts Mana cost for transactions based on network congestion. For simple transactions (like transfers) you can perform quite a lot of them without burning very much Mana (and in either case it always regenerates, so, it never will be too long before your Mana is full again).

Mana is not transferable by design - it cannot be traded, it is just a regenerative property of holding Koin. It can however be delegated to other users - the advantage of this is that dApp owners can temporarily delegate their Mana to new users of their apps so that they can be used without holding any Koin at all (this is at no cost to them since Mana regenerates). The reason this is important is that likely the dApps that will take cryptocurrency mainstream will be frictionless and not require the first step for usage being "buy token". Cryptocurrency can be so much more than just a store of value or easy international transfers... we need frictionless and free-to-use experiences for the average human, this can potentially help us get there.

There's a fully functional testnet up and running currently where you can test it out for yourself - it works.