Juno's Proposal 16 Vote Is a Watershed for Blockchain Governance – For Better or Worse

The proposal to cut a whale's token balance, which narrowly passed, highlights the complexity and risks of on-chain governance.

AccessTimeIconMar 16, 2022 at 9:29 p.m. UTC
Updated Mar 18, 2022 at 3:33 p.m. UTC

David Z. Morris is CoinDesk's Chief Insights Columnist. He holds Bitcoin, Ethereum, and small amounts of other crypto assets.

For perhaps the first time, a blockchain community has formally voted to confiscate a user’s funds.

Proposal 16, a governance proposal on the Cosmos-based Juno blockchain, has passed via the chain’s token-voting governance system. The proposal signals community approval to cut the balance of JUNO tokens held by a “whale,” or large holder, accused of manipulating the Juno launch airdrop enacted in October. The plan is extremely notable because it appears to mark the first major instance of on-chain governance being used to change a user’s token balance.

The vote initially seemed likely to pass with a strong majority because it was widely seen as correcting something akin to a theft. But in recent days a variety of stakers and developers have publicly signaled their opposition out of concern such a move would undermine the perceived rules-based trustworthiness of the system, or its “immutability.”

The whale accused of manipulating the airdrop (a kind of crypto giveaway), meanwhile, represented itself as an investment group rather than an individual in statements defending its behavior ahead of the vote. In part, the whale argued the wallet splitting that appeared to be “gaming” the airdrop was in fact intended to serve its clients. The whale stated it considered the airdropped funds to rightfully belong to those clients. Those claims were met with significant skepticism, but may have influenced some to vote against the proposal.

The Proposal 16 vote by Juno holders was ultimately very close. The final vote tally was 40.85% Yes, 33.76% No, 3.59% No with Veto, and 21.79% Abstain. (“No With Veto” is a voting option on Cosmos systems that signals belief the proposal itself is harmful and can result in penalties for the proposer.)

The closeness of the vote is likely to heighten tension as the Juno community moves to implement the edict, much as an official elected by a slim margin lacks a “mandate to govern.” This is an issue because, first, Prop. 16 was what’s sometimes referred to as a “signaling proposal,” and a subsequent proposal will be needed to outline the specific implementation of the decision. (The Juno whale’s tokens are currently locked and should not be able to move to dodge the haircut.)

That implementation will not be frictionless. Different on-chain governance systems allow different parameters to be changed automatically via vote. Juno, and most similar systems based on Tendermint open-source software, allow automated changes of system parameters for future issuance, but not alteration of current balances.

The hard thing about hard forks

Instead, implementing Proposal 16 would require a hard fork, or backward-incompatible code change, to Juno. That would involve taking a “snapshot” of the chain’s state (how many tokens each address owned at a point of time), altering the whale’s balance and restarting the chain. This is essentially the same process that followed the huge 2016 hack of The DAO on Ethereum, though that fork was spearheaded by Ethereum’s founders, with no on-chain process.

“If someone [hypothetically] passed a signaling proposal that said all coins must move to some wallet, by coercing everyone to support it on-chain … [u]nless validators willingly coordinate on the hard fork, it still won’t happen,” according to Tor Bair, founder of the Cosmos-based privacy network Secret.

There is an added complication to doing a hard fork rather than an automated parameter change. Validators, the equivalent of Bitcoin’s miners on Cosmos and other proof-of-stake systems, could choose to continue monitoring transactions for the original chain, as with any blockchain hard fork. But there would likely be few users remaining on that chain, particularly after the fork of a relatively small project like Juno, making the choice to continue the original chain financially risky for validators.

Finally, the vote may have highlighted a possible governance-based attack vector that hadn’t been widely considered. The rules for the Juno airdrop were first published in August, but according to archived versions of the page a provision limiting the airdrop to one instance “per person or entity” was added at an unknown subsequent date.

That clause has been used to rally support for Proposal 16 because it would mean the airdrop gamer violated not just the spirit of the process, but the bright-line letter of the rules. Yet, depending on when the “person or entity” clause was added, the argument begins to seem misleading.

The complexity of all this, though, may distract from a fundamental truth of blockchain systems. On-chain voting systems may provide a layer of communication, coordination and formality, but ultimately the mechanism for making really big changes remains essentially the same. When a cadre of dissident bitcoiners cloned Bitcoin and increased the block size to create Bitcoin Cash, they were essentially voting with their feet. Few blockchain systems have effective means of preventing such forks, whether they’re used to shift an operating parameter, or to take away someone’s money.

“There is always a risk of immutability,” says Bair. “It’s a hard fork, at the end of the day.”

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David Z. Morris is CoinDesk's Chief Insights Columnist. He holds Bitcoin, Ethereum, and small amounts of other crypto assets.

CoinDesk - Unknown

David Z. Morris is CoinDesk's Chief Insights Columnist. He holds Bitcoin, Ethereum, and small amounts of other crypto assets.