With the official release of Juno Network Proposition 17, the two-week Juno whale sanctions event seems to have reached a new turning point.

The coordinated negotiation between the core development team of Juno and the Japanese giant whale CCN, the high-intensity alignment of all camps on Twitter, and the influential figures in the encryption field have joined the discussion. People are watching this “Netflix Show” while eating popcorn (a pioneering democratic experiment in on-chain governance).

@polka_chu, a trusted validator on Juno Network, gave a precise explanation of the giant whale event and its behavioral picture:

Polkachu @polka_chu

We affirm that we vote "Yes" on Juno Prop 16. People vs. Juno Whale | PolkachuOur Vote: Yes on Juno Prop 16polkachu.com

March 13th 2022

42 Retweets207 Likes

On October 1, 2021, when Juno conducted the Genesis Airdrop, most of the initial supply was given to ATOM holders (Cosmos ecological native Token), and JUNO worth 30 million US dollars was distributed to 46,137 unique tokens at a ratio of 1:1 to ATOM address. During the Genesis Airdrop, in order to avoid the risk of network insecurity and dumping caused by the concentration of a large number of airdrop tokens in the same address, the team stipulated a “whale cap” of 50,000 JUNOs in writing.

(Source: Juno Network official website)

Even with the “whale cap” set, a Japanese whale (Twitter @takumiasano_jp, whose address starts with “juno1aeh”) used the Genesis Airdrop loophole to win a lot of cheap JUNO chips.

According to the background check, Whale is a Japanese fund whose business is to host the ATOM wallets of its Japanese customers (supposedly with elderly people speculating on coins, a bit cx nature), so it has gathered a large amount of ATOM assets. The whales played the Juno airdrop rules by splitting a large amount of ATOM assets into 50 wallets, thus circumventing the 50,000 cap set by the Juno airdrop, and eventually collected 2.5 million JUNO tokens from 50 addresses to a single address. A series of operations on the address on the 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 launched Proposition 4: https://www.mintscan.io/juno/proposals/4 . The proposal explains that the address breaks the “up to 50,000 JUNO per entity” rule, and proposes to cut 90% of the address’s JUNO balance to avoid chip centralization and dumping issues. However, during the vote on the proposal, Whale contacted @wolfcontract (a core member of Juno Core-1), identified itself as a Japanese fund, and promised to pledge illegally obtained JUNO airdrops to support cybersecurity.

The weird thing about the whole thing is that the Juno team accepted the whale’s verbal promise at the time (there is currently no strong evidence that there was a shady deal between the 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 ultimately failed with a 56.4% opposition rate, and the community gradually forgot the potential threat of the giant whale.

But in recent months, giant whales began to dump JUNO in large quantities. Before the 16th proposal, whales sold 17,000 JUNOs every day to OSMO, and then from OSMO to ATOM, and sent ATOM to the new address. The behavior of the whale’s on-chain address clearly betrayed its original promise, which once again caused panic in the community. This prompted the Wolfcontract and Core-1 teams to launch a Proposition 16 re-suit against whales on March 11: https://www.mintscan.io/juno/proposals/16 . It is proposed to reduce the number of coins held by 52 accounts of the giant whale from 3 million (the total value at the time of 120 million US dollars) to 50,000, and to transfer the same amount of funds to the community treasury.

The release of this proposal has sparked discussions among Juno token holders, Juno has been out of the circle and has received heated discussions on Twitter, and many people have learned about the Juno whale incident. I put together a list of key voices in the Juno proposal event: https://twitter.com/i/lists/1509897211739799552?s=20 .

On March 11, the first day of the proposal’s release, the support rate exceeded 90%, and the support rate once overwhelmed the opposition rate.

On March 15th, the Juno Network development team Core-1 tweeted that it hoped that community members would vote against the 16th proposal to remove the assets of the giant whale account, and will develop new proposals to provide more alternative solutions.

In the early morning of March 16, the Cosmos ecological smart contract platform chain Juno Network announced the removal of the giant whale account assets. Proposition 16 was finally passed, with a voter turnout of 98.58% (unprecedented governance participation), with 40.85% of voters agreeing with the proposal.

The voting results are distributed as follows:

The validator votes are as follows:

(Source: mintscan.io)

The split in the community on the proposal to reduce the confiscation of whale assets caused Proposition 16 to not be implemented immediately after it was passed. After the release of Proposition 16, the giant whale continued to apologize and explain, and was still using the verbal promise of “trust me bro” to seek forgiveness from the community, and to gain sympathy with the interests of the fund company’s innocent customers. (In fact, whales have already harvested huge profits through JUNO airdrop pledge rewards, and they are fully capable of compensating their customers with vested profits.)

However, as more and more giant whales are mining off-chain behavior, 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 revenue, and most customers were unaware of the airdrop. JUNO actually belongs to the Japanese customers entrusted to this foundation, but it has become the whale’s own huge profit. The whale is essentially running a business that hides important information from customers and keeps Juno airdrop profits for itself, which is unfair.

This kind of behavior caused a lot of excitement, and the original views of the opponents of the proposal, such as “it is unjust to divide the land between local tyrants, the inviolability of private property, and the error of airdrop loopholes.” have gradually turned to “this is a just recovery behavior, and the giant whale is playing with it. The system is deceived, the customer is deceived, and the Token is burned.”

The Juno C1 team worked tirelessly for the giant whale incident, and negotiated with the whale 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 ends and how the JUNO token price will behave.

On March 28, C1 issued a statement that it plans to upgrade Lupercalia through Proposition 17. The upgrades include: performance improvement, instantiation of governance modules, and implementation of smart contract calls. Proposal details say the upgrade will not take direct action on the ongoing whale issue.

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, the upgrade to the CosmWasm module allows governance to execute smart contracts.

On March 30, Proposition 17 was officially started: https://www.mintscan.io/juno/proposals/17 . Voting closed on April 4, and the proposal passed with 98.53% of the votes in favor. Judging from the voting results, the community’s will on the whale incident seems to have reached a high degree of unity, and much attention is looking forward to the actions of Core-1 after the first phase of Lupercalia’s upgrade. While Core-1 has yet to elaborate on the upgrade, it has been speculated that C1 may be trying to sanction whales through code and math as community law.

Distribution of voting results:

Node voting distribution:

(Source: mintscan.io)

After that, the Juno community launched proposals 18 and 19 successively. Proposition 18 proposes a compromise solution to the CCN problem: https://www.mintscan.io/juno/proposals/18. Voting yes, all JUNOs, including staking rewards in addresses, are split equally between “Community” (50%) and “CCN Clients” (50%). The “community portion” of funds allocated to JUNO will be used for smart contracts, and the “CCN customer portion” allocated to JUNO will be distributed by CCN to CCN customer addresses at a monthly rate of 5% for 20 months. But Proposition 18 was voted down by the community.

The voting results are distributed as follows:

(Source: mintscan.io)

After Proposition 18 was rejected by the community, Proposition 19 called for a neutral third-party auditor to confirm the identity of CCN customers through a standard KYC system, confirming the appropriate amount of JUNO allocated to each address. Voting yes means agreeing to distribute tokens to addresses of CCN clients, and voting against means disapproving of distribution to addresses of CCN clients, even if client addresses have been verified by a neutral third-party audit. Proposition 19 will close on April 24, and the current vote distribution is as follows:

Validator votes:

(Source: mintscan.io, 2022/4/21)

Even Whales will giveaway JUNO tokens from the 11th, giving away 50 JUNOs 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 a 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 the company registration place of Whale CCN, pointing out that CCN is not actually eligible to participate in the Genesis airdrop, for the following reasons: Whale CCN’s business conforms to the definition of “encrypted asset exchange service” 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 has the ownership of the verification nodes GAME (formerly CCN) and DEBO, so these two verification nodes are actually operated by the exchange, and the airdrop rule is pledge Tokens on exchange nodes are not eligible for airdrops.

Joe Abbey also proposed fixes for the airdrop event. If you vote in favor of this draft, you agree that CCN should not have received the Genesis airdrop, and agree to perform software upgrades to adjust the JUNO balance held by CCN. Adjustments include: canceling all current authorizations of CCN, canceling all delegations (bypassing the 28-day unlock period), and sending CCN address balances to addresses with a public key of 0. The Juno whale incident has been going on for more than a month, and the community still has not got the optimal solution. The opinion of the Juno core team and participants such as Joe Abbey is that whale assets will be distributed on the basis of software upgrades after the passage of Proposition 17.

C1 cuts in from the code point of view and chooses to handle the whale event during the upgrade, which seems to be heading for a fork. It is necessary for us to review the previous forks and upgrades of Bitcoin and Ethereum, as well as the difference between the POW mechanism and the POS mechanism in on-chain governance, and the history, advantages and disadvantages of DAO. Finally, where on-chain governance is headed, and possible solutions, is also discussed in the next section.

I believe that even people who have just learned about the crypto world for a week will have heard of forks. Forks are one of the ways in which blockchain systems evolve, but they weaken consensus. It takes time to recover after a fork, and of course it may never recover.

A large number of early Bitcoin forks were mostly caused by community disagreements due to different technical solutions. Motivated by the “Bitcoin scalability issue”, under the POW consensus mechanism, the community reached a consensus through computing power, and forks spawned many blockchains. The first Bitcoin fork occurred in October 2011, creating Litecoin. In 2017, Bitcoin also underwent a hard fork, which eventually resulted in the formation of two separate blockchains: the original Bitcoin and Bitcoin Cash BCH. Here is a summary of forked coins:

https://forkdrop.io/

DAO users advocate a more decentralized autonomous, technology-driven solution for 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, free from The influence of centralized structures.

Following the initial popularity of 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. The Ethereum community therefore decided to roll back the transaction by means 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 believe that rolling back transactions is not in line with the basic principles of the blockchain world, and investors should bear their own risks. They stick to the original chain of Ethereum, and this original chain is hereafter called “Ethereum Classic ETC”. Now @VitalikButerin leads 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 the delegated 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 use of blockchain-native tokens to verify the blockchain decouples the link between mining and network security.

The DAO on-chain governance (proposals issued by the community) greatly reduces the possibility of blockchain hard forks (code changes), because each proposal requires community members to vote (not just a few votes from validators). ), on-chain governance also provides economic incentives for nodes participating in the voting process through the use of rewards.

It sounds very NICE and very democratic, but this Juno giant whale sanctions incident has exposed the defects of the POS mechanism and the governance of the DAO chain to the greatest extent.

1. Uneven distribution of governance weights

Protocols based on the POS mechanism often spread tokens through Genesis Airdrops to incentivize 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 the token exceeds the supply, so the price of the token rises. Since users participate in DAO governance through a series of proposals, members vote on them through the blockchain, having more governance tokens usually translates into greater voting power, and governance power is gradually concentrated in the hands of a small number of rich people/institutions/project friends, who actually control the entire system.

2. Bland governance procedures

Blandness in democratic arrangements, whether virtual or real, prevents participants from allocating energy to cause functions after considering cost-benefit calculations, resulting in low voter turnout.

3. Legal risks

The DAO governance on the legal risk chain is similar to the general partnership structure of web2, rather than the corporate system, which makes the participants bear unlimited responsibility, and there is a terrible legal burden in governance. The underlying accountability structure needs to conform to the legal framework, but many The development team is anonymous and is at risk of rugs at any time.

4. Voter manipulation

Once one or more parties conspire, pay bribes or acquire tokens privately, control more than 50% of the tokens in the network, and accumulate enough token concentration, there is an opportunity to issue a proposal or launch a coup through voting. There will also be a Juno network giant whale. First, the funds are dispersed in many small accounts to hide their token concentration. The giant whale will gradually control the entire network, or sell tokens once and cause the currency price to plummet. The panic selling caused the price of the currency to drop, and the entire POS system collapsed.

5. Tyranny of the majority

Juno network claims to be a pioneering democratic system, but the threshold for participation in such democratic procedures is very low (as long as you have the pledged tokens of the protocol and a little gas fee, you have the right to vote for proposals) , which messes up the process. This is related to political elections and corporate governance in the web2 world, which expands the voice of weak people to a greater extent. The community voting mechanism makes decision-making more personal, but people’s hearts are easily manipulated. For example, the false promises made by the giant Juno whale twice and three times have actually buried such dramas for the future. Democracy as a corrective mechanism needs to be kept in moderation.

The following are several DAO governance optimization solutions:

1. Improve voting activity and participation rate

Set a reward decrement 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 initiative get more rewards.

2. Improve the prudence and professionalism of voting

Further play the role of validators, promote the revival of proxy voting, develop the delegation market, and enable active nodes and independent delegators to obtain rewards by proxy voting. The staker delegates voting rights to nodes or independent delegates, and the delegated node/person gets voting incentives and returns a certain percentage of rewards to the stakers.

Delegated nodes/individuals must pass market auditing standards before they can perform proxy work. The review and evaluation can include multiple dimensions: professional ability (understand the proposal, will design the proposal), 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 (runaway risk), client relationship (the degree of effective communication between the client and the node/individual).

3. Code as law

Upgrade the smart contract, automatically decide the increase/cut, incentive/deprivation of an address token. Using computer intelligence to make decisions and automate them will of course require regular community reviews of adjustments. Keep an eye out for Juno Proposition 17 implementation and sanctions on giant whales.

4. Same shares with different rights

1\ Core team: the soul of the agreement, the equity should be larger, but “dictatorship” should be avoided;

2\ Professional investment institutions: the source of funds, the guarantee of POS network security, but to avoid “power monopoly”;

3\ Validator People: There are individuals, there are centralized exchanges, they need to hold more pledged tokens and are proficient in network architecture;

4\ Large token holders: The interests are deeply related, usually have a deep understanding of the protocol and active governance, and even spontaneously build nodes to become validators as a product Contribution value;

5\ Small investors: The purpose of staking may only be to obtain airdrops and staking rewards, governance is relatively indifferent, free-rider voting, and a lot of votes with feet;

The interests, goals, length of investment period and ability of different groups vary greatly. Governance weights should be adjusted somewhat for the components of DAO community diversity. For example: consider assigning governance weights based on community contribution scores; time weights (that is, token lock time, but not friendly enough for new players); pledge weights (proportion of pledged quantity), etc.

The crypto world is rapidly evolving along the POS mechanism and DAO bandwagon, and despite so many bugs, it is worth experimenting, working, and imagining. Juno’s sanctioning of whales was a great experiment, and we continue to monitor developments closely to bring this Netflix series to a close as soon 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/

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