Juno Proposal 16

TL;DR

~~We will be voting abstain but encourage our delegators to vote as individuals.[0]~~

We will be voting no.

Due to new information that has come out (see the links at the bottom of this article), we are changing our vote from abstain to no and will be actively advocating for this position.

We encourage our delegators to vote according to their consciences.[0]

(2022-03-13) Edit:

People have asked us what would happen in the case of a ‘no’ vote. We would immediately want a new gov prop.

We don’t trust the whale any further than we can throw them. Trust is earned. We would move to lock their funds in a vesting wallet rather than altering the balance.

Context

Juno Proposal 16 is controversial. The proposal seeks to reduce a ‘whale’ that gained over 2m Juno in the genesis stakedrop to the intended ‘whale cap’ of 50k JUNO.

Quickly then - the ‘whale’ got around this cap by separating their funds into over 50 wallets, and then consolidating them into a single wallet later. They did this after IBC was enabled, which makes it technically very difficult to re-start the chain from genesis.

If this proposal sounds familiar, that’s because the Juno community already had an early-doors schism over the issue. This disagreement culminated in Proposal 4.

Crypto news outlets have picked up the Prop 16 story, and it doesn’t seem unreasonable that it might even cross over into regular news.

We’ve been holding back from making a call on this, but it’s time to make a tough decision. So it makes sense to lay out our reasoning.

Testing the Limits of Governance

In a lot of ways, this prop is very exciting. It’s a big challenge for on-chain governance that will have big implications not just for Juno and the Cosmos, but for the wider ecosystem as a whole. The limits of on-chain governance in PoS systems is one for a different blog post (and yes, we will be writing about this soon), but it’s interesting to be the test case for a genuine yes/no controversial proposal with huge implications in a dPoS setting.

In some ways, Prop 4 and Prop 16 can’t be compared, because for Prop 4 Juno was days old, and now it’s a top 100 chain, nearly a top 50 chain. However this goes down, it’s likely to be written off in hindsight as simply ‘growing pains’.

So - what’s the reason for acting then?

A lot of the concerns about the whale wallet are hearsay and conjecture. In the UK, we have libel laws, and so far none of the evidence presented would likely be enough to avoid a charge of libel.

It is alleged the wallet may have something to do with an MLM scheme, and other concerns, but the catalyst for action is the wallet dumping funds. It’s easy to see why this is a problem - when a single wallet can dump enough to affect liquidity or alter token price, it is a threat to the network, and should be taken seriously.

This issue is compounded if you do not trust the intentions of the entity holding this wallet. This was true before Prop 4, but since, we’ve effectively been in a prisoner’s dilemma situation, if not a straight-up Mexican standoff with revolvers drawn.

Moreover, and relevant to this discussion, the whale has a large percentage of a hypothetical quorum. However, turnout on this proposal has so far been high and shows no signs of slowing down. This negates the effect of their block of votes, even if they used them.

There is another sense in which, even if no malicious behaviour has taken place, that the community could be engaging in antitrust-style regulation. This is common in normal politically-backed financial systems, so it doesn’t seem unreasonable that on-chain governance should be able to do a similar thing.

However, this ‘whale’ account isn’t the only account that consolidated funds in the immediate aftermath of genesis, which brings us neatly to…

Danger of Witch Hunts and the next whale

Antitrust is one thing, and witch hunts are another.

This means we have limited faith that this will end with a single account. In general, history will bear out our suspicion that once the pitchforks are out, it’s hard to de-escalate. That feels like where we are right now, but it’s in our hands how this will pan out.

It seems clear from the emotive language on both sides that this is a fraught issue, and both the ‘whale bad’ and ‘changing wallet bad’ arguments are in danger of being reductive. Though, it should be said, it takes a lot in our current systems to have your government swoop in and change the balance in your bank account.

Then again, this could be a good thing - maybe the body politic needs more delegated authority to make those sorts of changes (effectively, antitrust legislation) at their own discretion. Certainly it’s an interesting test case for crypto if so, and one that flies in the face of the general discourse of crypto being a libertarian wild west.

Back to the witch hunt though.

It is a certainty that other accounts will have done the same thing - operated split wallets, and consolidated later. At the very least, have been in the situation where one entity collected more than the 50k cap at genesis.

Most will probably be smallish, but it’s statistically likely there’s at least one or two more big whale entities out there. So, all our points about the potential problems with the original whale account stand for these other accounts.

The question is, what to do about these?

Taking aside the alleged MLM operation or alleged criminality - which of course, we find distasteful - what is the difference?

It seems to hinge on what the problem is with the original ‘whale’.

They have been dumping rewards, thus affecting the chain as a whole. We fear they are erratic and might unbond and dump (which would be catastrophic)
They have a large proportion of network power, and we need to stop a single entity from concentrating that much power
We feel stupid that this entity gamed the stakedrop and made so much money, and maybe are a little jealous besides. We want, in a word, revenge[1]
They are criminals, or linked to criminal activity (this has been insinuated in many ways, but not proved)

So, which is it?

Note, that 3 will destroy confidence in the network, and ultimately poses as much of an existential threat to the network as any whale, or collection of whales.

If 4, then that’s understandable, if proven, but more from the point of view of not trusting the entity. Who is responsible in these systems for criminal justice is… a whole other story.

Either 1 or 2 at least has its basis in a rationally arguable position.

Our vote

So, in conclusion, our vote will be an abstain, and we will trust that the decision Juno voters make will pan out in the long run.

We voted ‘no’ on Proposal 4. We don’t feel comfortable changing our vote to ‘yes’ when no materially different public evidence has been brought to light.

We think that the danger of an unstake and dump is enough of an existential threat to the network that rather than a ‘no’, we will allow for an ‘abstain’. As we say, let the community decide their appetite for risk.

It is up to voters to decide. We’re in uncharted territory here.

We think this is a healthy conversation to be having - provided we can do it in a rational way, and not get wrapped up in a diminishing-returns witch-hunt.

The real question is not how we deal with this crisis, but how we navigate the next one, the next five, the next ten, with dignity intact and pitchforks stowed.

[0] the lack of private ballots is, in our opinion, dangerous. We think validators’ votes should be public, but non-validator wallet votes should probably be private. That’s another story for another day, however.

[1] heck, we will admit to a little of this, it’s money for nothing, after all.

(2022-03-12 01:00) Edit:

Since writing our post, we’ve been made aware of other blogs by validators and teams that make for a decent ‘further reading’ section for the interested. The inclusion of these articles here does not indicate we endorse their views, merely that it is worth reading what others have to say.

Lavender Five have broken down the reasons for action pretty well, but from a different perspective. They conclude on voting abstain. here.
Joe Abbey has written about how the original Atom wallets were provisioned, and when, in a handy bit of amateur sleuthing.
Polkachu has an excellent post about their reasoning for voting yes. We agree with the majority of their points and think it is an excellent read.

(2022-03-12 10:30) Edit:

The whale has responded. Some of the points they make are a little spurious (e.g. about other airdrop accounts with substantially smaller holdings), but the bulk of their rebuttal makes sense.

They also propose a solution to the community’s unease:

Our proposal to the community is ‘Stake all Juno we own forever. Sell the reward and if we change it to another tokens, we have to provide liquidity to Junowap with that token pair. Also, we can’t unbond the liquidity for 2 years from now.’ [sic]

This seems… pretty reasonable. Certainly not like a bad actor, which is impressive given the amount of mud that has been slung in their direction.

As soon as Prop 16 was tabled, game theory pushed us in the direction of a ‘yes by default’. That is to say, that the knowledge of the risk of losing funds incentivizes the whale to dump their position. The acknowledgment of the risk publicly makes the risk real, in other words.

However, something interesting has happened here - the whale has instead come back to the table and proposed a solution. This offers a way of coming to a compromise that is in the spirit of the Juno chain, while still maintaining sovereignty of funds for wallets.