Review of Juno’s Confiscation of Japanese Giant Whale Token: Defects and Improvements of DAO Governance
Wu said blockchainWu said blockchain
With the official release of the Juno Network Proposal 17, the two-week Juno whale sanction incident seems to have reached a new turning point.
The coordination and negotiation between the Juno core development team Core-1 and the Japanese giant whale CCN, the high-intensity line-up between the various camps on Twitter, and influential figures in the encryption field joined the discussion one after another. Mi Hua watched this Netflix series (a pioneering democratic experiment in on-chain governance).
A trusted verification node @polka_chu of the Juno network made a precise explanation of the giant whale incident and its behavior: https://twitter.com/polka_chu/status/1502880775460450305
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Source: Juno Network official website
Even with the "whale cap", a Japanese whale (Twitter @takumiasano_jp, whose address starts with "juno1aeh") still took advantage of the Genesis airdrop loophole to win a large amount of JUNO cheap chips.
According to the background investigation, Whale is a Japanese fund whose business is to host and operate the ATOM wallets of its Japanese customers (it is said that they bring elderly people to speculate in coins, which is a bit of a cx nature), so they have gathered a large amount of ATOM assets. The whale gamed the Juno airdrop rules by splitting a large amount of ATOM assets into 50 wallets, thereby circumventing the 50,000 cap set by the Juno airdrop, and finally collected 2.5 million JUNO tokens from 50 addresses to a single address. A series of operations on the address on the giant whale chain: https://docs.google.com/spreadsheets/d/1McQE3Ot-QkAElou6_Qs1TS9ZaCHeTVp0dYRAWZ7TOYM/edit#gid=0
This behavior was quickly detected by the Juno Core-1 team, and C1 subsequently initiated Proposal 4: https://www.mintscan.io/juno/proposals/4. The proposal explained that the address broke the rule of "each entity can obtain a maximum of 50,000 JUNO", and proposed to reduce 90% of the address's JUNO balance to avoid the problem of chip centralization and dumping. However, during the proposal voting period, the whale contacted @wolfcontract (a core member of Juno Core-1), indicating that he is a Japanese fund, and promised to pledge the illegally obtained JUNO airdrop to support network security.
The weirdness of the whole incident is that the Juno team accepted the verbal promise of the whale (there is currently no strong evidence to prove that there is a shady deal between the giant whale and the team).
This attempt to establish a "tacit contractual relationship" has actually worked in the web3 world where trust is more fragile. Wolfcontract accepted the giant whale’s apology and expressed its opinion on Twitter. The entire community also accepted the giant whale’s promise. Proposition 4 finally failed with a 56.4% opposition rate, and the community gradually forgot about the potential threat of giant whales.
However, in recent months, giant whales have begun to dump JUNO in large quantities. Before Proposition 16, whales sold 17,000 JUNOs a day to exchange for OSMO, and then exchanged from OSMO for ATOM, and sent ATOM to the new address. The behavior of the giant whale on the chain address clearly betrayed its original promise, which once again caused panic in the community.
This prompted Wolfcontract and the Core-1 team to initiate Proposition 16 on March 11 to re-suit the whales: https://www.mintscan.io/juno/proposals/16. It is proposed to reduce the number of coins held by the 52 accounts of the giant whale from 3 million (total value of 120 million US dollars at the time) to 50,000, and transfer the same amount of funds to the community treasury.
The release of this proposal ignited discussions among Juno token holders. Juno was out of the circle, and got heated discussions on Twitter. Many people learned about the Juno whale incident. I compiled a list of key opinion figures in the Juno proposal event: https://twitter.com/i/lists/1509897211739799552?s=20.
On March 11, the first day the proposal was released, the support rate exceeded 90%, and the support rate once crushed the opposition rate;
On March 15th, the Juno Network development team Core-1 tweeted that they hoped that community members would vote against Proposal 16 regarding the removal of giant whale account assets, and would formulate new proposals to provide more alternative solutions ;
In the early morning of March 16th, the Cosmos ecological smart contract platform chain Juno Network's Proposal No. 16 on the removal of giant whale account assets was finally passed. The voting rate of the final proposal reached 98.58% (unprecedented governance participation), of which 40.85% of the voters agree with the proposal.
The voting results are distributed as follows:
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Source: mintscan.io
The split in the community over proposals to curtail the forfeiture of whale assets resulted in Proposition 16 not being implemented immediately after its passage. After the release of Proposition 16, giant whales kept apologizing and explaining, still using the verbal promise of "trust me bro" to seek forgiveness from the community, and gain sympathy with the interests of innocent clients of fund companies. (In fact, whales have already reaped huge profits through JUNO airdrop staking rewards, and are fully capable of compensating their customers with vested profits)
However, as more and more off-chain behaviors of giant whales are excavated, the essence of whale behavior gradually surfaced. Credible investigations show that after the whale harvested the airdrop, it did not inform customers of the JUNO earnings, and most customers did not know that there was an airdrop. JUNO actually belongs to the Japanese client entrusted to this foundation, but it has become the whale's own huge profits. The whale essentially runs a business that hides important information from customers and keeps Juno airdrop profits for itself, which is unfair.
This kind of behavior aroused the anger of the community. Opponents of the proposal originally held views such as "it is unjust to divide the land by the local tyrants, private property is inviolable, and the error of airdrop loopholes" has gradually shifted to "this is a just recovery, the giant whale Gamed the system, cheated customers, burned the Token".
The Juno C1 team made unremitting efforts for the giant whale incident, and the negotiations with the whale lasted for more than two weeks, trying to find a safer and cleaner way to deal with it. Thousands of eyes are watching how this drama plays out and how the JUNO token price will behave.
On March 28, C1 issued a statement, intending to upgrade Lupercalia through Proposal No. 17. The content of the upgrade includes: performance improvement, instantiation of governance modules, and implementation of smart contract calls. The proposal details said the upgrade would not take direct action on ongoing whale issues.
The upgrade includes: security fixes; performance improvements; upgrade to CosmWasm/wasmd 0.24.0; move Juno to mainline CosmWasm/wasmd instead of a fork; upgrade to Cosmos SDK 45 and Tendermint 0.34.16. Crucially, an upgrade to the CosmWasm module allows governance to enforce smart contracts.
On March 30, Proposition 17 voting officially started:
https://www.mintscan.io/juno/proposals/17, the voting ended on April 4th, and the proposal passed with 98.53% of the votes in favor. Judging from the voting results, the community seems to have reached a high degree of unity in regard to the whale incident, and everyone is looking forward to the actions of Core-1 after the first phase of Lupercalia's upgrade. Although Core-1 has not elaborated on the details of this upgrade, people speculate that C1 may want to use code and mathematics as community law to sanction whales.
Distribution of voting results:
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Source: mintscan.io
Afterwards, the Juno community successively initiated proposals No. 18 and No. 19.
Proposition 18 proposes a compromise solution to the CCN issue:
https://www.mintscan.io/juno/proposals/18
Vote Yes, and all JUNO, including staking rewards in addresses, is split equally between the "Community" (50%) and "CCN Clients" (50%). The "community portion" of funds allocated to JUNO will be used in smart contracts, and the "CCN customer portion" allocated to JUNO will be distributed by CCN to CCN customer addresses at a rate of 5% per month for 20 months. But Proposition 18 was voted down by the community.
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Source: mintscan.io
After Proposition 18 was rejected by the community, Proposition 19 proposed to ask a neutral third-party auditor to confirm the identity of CCN customers through the standard KYC system and confirm the appropriate amount of JUNO allocated to each address. A yes vote means consent to the distribution of tokens to the address of a CCN client, and a negative vote means disapproval of the distribution to a CCN client address, even if the client address has been verified by a neutral third-party audit. Proposition 19 will end on April 24, and the current voting distribution is as follows:
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Source: mintscan, 2022/4/21
Even if the giant whales start to give away JUNO tokens from the 11th, 50 JUNO will be given out to 10 lucky winners every day: https://www.mintscan.io/juno/txs/D3B59A483117173E3FD41FC7CCE2C55197D79C5F558AAD79B1CA6AB82A33DF86
But community opinion has gone to extremes. @JoeAbbey, one of the main participants in the Juno event, initiated the draft proposal (updated April 18):
https://commonwealth.im/juno/discussion/4044-softwareupgradeproposal-stakedrop-remediation-for-gameccndebo
Joe Abbey discussed from Japan's "Payment Service Law" and Whale CCN's company registration place, pointing out that CCN is not actually eligible to participate in the Genesis Airdrop for the following reasons: Whale CCN's business meets the definition of "encrypted asset exchange services" in Japan's Payment Service Law, The CCN agent receives the customer's Bitcoin deposit and exchanges it for $ATOM. CCN has stated that it owns the verification nodes GAME (formerly CCN) and DEBO, so these two verification nodes are actually operated by the exchange, and the airdrop rule is pledged Tokens on exchange nodes are not eligible for airdrops.
Joe Abbey also proposed repair measures for the airdrop incident. If he votes for this draft, he agrees that CCN should not have received the Genesis airdrop, and agrees to perform a software upgrade to adjust the balance of JUNO held by CCN. The adjustments include: canceling all current authorizations of CCN, releasing all delegations (bypassing the 28-day unlocking period), and sending the balance of the CCN address to an address with a public key of 0.
The Juno whale incident has been going on for more than a month, and the community still hasn't got an optimal solution. The opinion of the Juno core team and participants such as Joe Abbey is that whale assets will be allocated on the basis of software upgrades after Proposition 17 is passed.
"On April 24, Proposition 20 will be voted on,
https://www.mintscan.io/juno/proposals/20. This proposal was released after the needlecast node, Abbey and other nodes conducted three testnets on Juno. The content of the proposal is: the implementation of the No. 16 community proposal, including adjusting CCN's JUNO balance and sending its available JUNO to the smart contract controlled by the Juno Network community. "
From the perspective of code, C1 chooses to handle the giant whale event during the upgrade, which seems to be heading for a fork. It is necessary for us to review the previous fork upgrades of Bitcoin and Ethereum, the difference between POW mechanism and POS mechanism in chain governance, the history and advantages and disadvantages of DAO. Finally, where on-chain governance will go, and possible solutions, are also within the scope of the next section.
I believe that even those who have just learned about the encryption world for a week will have heard about forks. Forking is one of the ways blockchain systems evolve, but it weakens consensus. It takes time to recover after a fork, and of course it may never recover.
A large number of forks in the early Bitcoin were mostly due to differences in technical solutions resulting in community disagreements. Motivated by the "Bitcoin scalability problem", under the POW consensus mechanism, the community reached a consensus through computing power, and many forks derived blockchain. The first Bitcoin fork occurred in October 2011, creating Litecoin. In 2017, Bitcoin also underwent a hard fork, resulting in two separate blockchains: the original Bitcoin and Bitcoin Cash (BCH). Here is a summary of fork coins: https://forkdrop.io/.
DAO users advocate a more decentralized autonomous, technology-driven solution to designing virtual-centric organizations. DAOs represent innovations in organizational design, emphasizing computerized rules and contracts, member-owned communities, and consensus-based governance at the helm. The influence of centralized structures.
Following the initial popularity of the blockchain, the DAO concept gained more attention with the introduction of Ethereum "The DAO" in 2016. In 2016, the well-known ICO project "The DAO" on the Ethereum platform was hacked, and ETH worth more than $60 million was stolen. Therefore, the Ethereum community decided to roll back the transaction in the form of a hard fork to recover the stolen losses of investors:
https://ethereum.org/zh/history/#dao-fork 。
In the Ethereum hard fork event, some community members believed that rolling back transactions did not conform to the basic principles of the blockchain world, and investors should take their own risks. They stick to the original chain of Ethereum, and this original chain will be called "Ethereum Classic ETC" hereafter. Now V God is leading the forked Ethereum ETH.
With the birth of the POS mechanism, a large number of public chains have shifted from POW to POS. The POS mechanism emphasizes community autonomy, and the DAO concept has once again become a trend.
The POS mechanism supports entrusted pledge of native tokens on the chain. Early projects are often airdropped to early participants to ensure network protocol security with decentralized assets and high pledge rates. This way of using blockchain-native tokens to verify the blockchain decouples the connection between mining and network security.
Governance on the DAO chain (publishing proposals through the community) greatly reduces the possibility of blockchain hard forks (modifying codes), because each proposal needs to be voted by community members (not just passed by a small number of votes of validating nodes) ), on-chain governance also provides economic incentives for nodes participating in the voting process through the use of rewards.
It sounds very NICE and democratic, but this Juno whale sanction incident has exposed the defects of the POS mechanism and the governance problems on the DAO chain to the greatest extent.
1. Uneven distribution of governance weight
Protocols based on the POS mechanism often spread tokens through genesis airdrops to encourage early users to pledge to protect network security, but this allows early participants to easily obtain a large amount of capital. As more investors come in, the demand for tokens is greater than the supply, so token prices rise accordingly. Since users participate in DAO governance through a series of proposals, members vote on them through the blockchain, and having more governance tokens usually translates into greater voting rights, and governance power is gradually concentrated to a small group of rich people In the hands of friends of /institutions/project parties, they are actually controlling the entire system.
2. Governance procedures are tedious
Boredom in democratic arrangements, whether virtual or real, prevents participants from allocating energy to cause functions after considering cost-benefit calculations, and voter turnout is low.
3. Legal risk
The DAO governance on the chain is similar to the general partnership structure of web2, rather than the corporate system, which makes the participants bear unlimited responsibilities. There is a terrible legal burden in the governance. The underlying accountability structure needs to comply with the legal framework. However, many development teams are anonymous Yes, there is a rug risk at any time.
4. Voter manipulation
Once one or more parties conspire, bribe or privately acquire tokens, control more than 50% of the tokens in the network, and accumulate enough token concentration, they will have the opportunity to issue proposals or launch a coup by voting. There will also be the case of giant whales on the Juno network. First, the funds are dispersed in many small accounts to hide the concentration of their own tokens. The giant whales will gradually control the entire network, or once the tokens are sold, the price of the currency will plummet. The panic selling caused the currency price to drop, and the entire POS system collapsed.
5. The tyranny of the majority
The Juno Network bills itself as a groundbreaking democracy, but the low barriers to entry for such a democratic process (as long as you own the protocol's pledged tokens and a bit of gas fee, you have the right to vote on proposals) confuse the process. This is similar to the political elections and corporate governance in the web2 world, which greatly expands the voice of weak people. The community voting mechanism makes decision-making more personal, but people's hearts are easy to be manipulated. For example, the false promises made by Juno giant whale twice and three times actually planted such a drama for the future. Democracy as a corrective mechanism needs to be kept in moderation.
The following are several DAO governance optimization solutions:
1. Increase voting activity and participation rate
Set a reward decreasing schedule, and the voting reward gradually decreases with the voting time until it becomes 0 at the end. This setup helps stakers with strong governance initiatives earn more rewards.
2. Improve the prudence and professionalism of voting
Further play the role of node validators, promote the revival of delegated voting, and develop the delegated market, so that both active nodes and independent delegates can be rewarded by proxy voting. The pledger entrusts the voting rights to nodes or independent delegators, and the entrusted nodes/people get voting incentives and return a certain percentage of rewards to the pledgers.
Entrusted nodes/individuals must pass the market review standard to perform entrusted agency work. The audit evaluation can include multiple dimensions: professional ability (can understand proposals, can design proposals), governance activity, reputation background (whether the operator is compliant and legal), whether it is credible and neutral, whether it is a centralized exchange, whether it is a 0 commission node (risk of running away), client relationship (effective communication between client and node/individual).
3. Code as law
Upgrade the smart contract to automatically determine the increase/decrease, incentive/deprivation of an address token. Using computer intelligence to make decisions and achieve automation, of course, requires regular review and adjustment by the community. Keep an eye on the implementation of Juno 17 and the sanctions on whales.
4. Different rights for the same share
Core team: the soul of the agreement, the equity should be larger, but "dictatorship" should be avoided;
Professional investment institutions: the source of funds, the guarantee of POS network security, but to avoid "power monopoly";
Node verifier: There are individuals, there is a centralized exchange, they need to hold more pledged tokens and are proficient in network architecture;
Large currency holders: interests are deeply related, usually have a deep understanding of the protocol and active governance, and even spontaneously build nodes to become validators to contribute value to the product;
Small investors: The purpose of staking may only be to obtain airdrops and staking rewards, the governance is relatively indifferent, free-riding voting, many votes with their feet;
The interests, objectives, length of investment horizon and capabilities of different groups vary widely. Governance weights should be adjusted for the components of DAO community diversity. For example: consider assigning governance weights based on community contribution scores; time weights (that is, token lock-up time, but not friendly enough for new players); pledge weights (the proportion of pledged quantities), etc.
The crypto world is developing rapidly along the trend of POS mechanism and DAO. Although there are so many bugs, it is worth experimenting, striving and imagining. Juno's sanctioning of the whales was a great experiment, and we continue to monitor developments closely to wrap up this Netflix series as quickly as possible.
Citations and recommended reading:
GAME-ing Stakedrops?
https://jabbey-io.medium.com/game-ing-stakedrops-d02a826ff791
Whale Drop Compromise
https://commonwealth.im/juno/discussion/4157-whale-drop-compromise
People vs. Juno Whale
https://polkachu.com/blogs/people-vs-juno-whale
The Decentralized Autonomous Organization and Governance Issues
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3082055
Hard Fork Completed
https://blog.ethereum.org/2016/07/20/hard-fork-completed/
