A Node Operator’s Confession of EOS DPoS Corruption [3/3]
There Is Nowhere to Hide Behind the Code
About this Series
“There is Nowhere to Hide behind the Code — A Node Operator’s Confession of EOS DPoS Corruption” is an eight-part series of articles that deeply explores the corruption and governance issues within the EOS DPoS (Delegated Proof of Stake) system. It depicts how the ‘code is law’ approach can be used to betray the ‘intent’ of the token holders via centralized exchanges’ staking practice. This series, through the perspective of a whistleblower, exposes the reality of vote trading and selling in the EOS blockchain, critically addressing the corruption process in blockchain governance. The series is structured as follows:
Part 1/3 — I Believe that the Truth Heals
- Preface: Why This Series Deserves Your Attention
- Confession: I Believe that the Truth Heals
- Primer: Brief History of the Deterioration of EOS Governance Integrity
Part 2/3 — How to form a Cartel on DPoS Blockchains
- How Vote-selling Works: Introducing the Vote Broker
- How Cartel Stabilizes on DPoS: How Vote-Swapping Works
- The Role of Centralized Exchanges: Staking Is Actually Voting
Part 3/3 — Master in Master’s Place, Servant in Servant’s Place
- Where legitimacy Comes From: You Can’t Hide Behind the Code
- Conclusion: Master in Master’s Place, Servant in Servant’s Place
Where legitimacy Comes From: You Can’t Hide Behind the Code
Vitalik once wrote that the most important scarce resource is legitimacy.
Imagine the president of a country installed by a parliament that was not elected openly and transparently by the citizens. Instead, the parliament votes for itself, and keeps itself in power. No one would consider these leaders legitimate. No one would hesitate to describe the parliament and president as corrupt.
In an openly fair and transparent government, a president’s legitimacy is derived from the public. If a president interfered with the election process, it would be a critical breach of trust, undermining his legitimacy, effectively turning the republic (a country whose leader is a president who truly represents the citizens) into a private company where the executives and exclusive shareholders have all the power while the rest are just employees without ownership.
As a centralized administrative body of the community, what the ENF has always emphasized is also in the same vein: It is the community that selects the BPs, and the ENF by extension only follows the orders of the community, and the ENF should never intervene in the BP election process.
However, the email response I received from Exchange A when I raised the issue of Tony’s vote during the mint of 68 million EOS tokens forces us to question the ENF and its leadership’s neutrality:
While it is proven on-chain that it is Tony who controls the votes of Exchange A’s customers, the representative of Exchange A’s following statement addressing my question regarding Tony was alarming:
“Rather than engaging in the EOS ecosystem, we, [Exchange A], operate a staking service to maximize the stable profits of users who deposit EOS on [Exchange A]. In the same context, we maintain a cooperative relationship with ENF (EOS Network Foundation), the largest EOS BP and official Foundation. It is important to consider how high APR is when it comes to selecting a partner. However, it is also a crucial factor to consider other factors such as stable operation and ease of communication.”
While the ENF says it does not engage with the business of selecting BPs, there is no other person other than Yves who can be said to represent the ENF and the largest BP (EOS Nation) at the same time in the entire ecosystem.
It’s particularly puzzling that while individuals who stake on Exchange A remain unaware of Tony’s identity, he was one of the only three key holders of the beneficiary account that received 68 million EOS tokens last year. (This multisig arrangement was subsequently expanded to seven key holders from the initial three due to community concerns.) Unless Tony’s voting influence is significant, it raises questions as to why he was included in this multisig arrangement.
What is Yves’ relationship with Tony, as the CEO of an organization that is not supposed to engage in the business of selecting BPs? Why and how did it come to be that they appear together again, on the MSIG of the account holding the 68M EOS treasury? How would you interpret all of this?
It might be also worth mentioning what transpired during the UDC (Upbit Developer Conference) held in Busan, South Korea, last year. I saw Yves and Tony together at the event. However, Tony, who single-handedly wielded 44m exchange-custodied tokens worth of voting power belonging to Korean token holders behind the curtain at that time, opted not to attend Yves’ lunch with the Korean community. It was a rather bitter reality that I alone could witness his absence and speculate on why he might have chosen to stay out of the public eye.
Dan Larimer said this in an interview with Bywire on December 27 last year:
“Yves can use the EOS community’s money to buy votes and influence many people. It is no different from situations where politicians buy votes by promising public spending. So everyone gathers at Yves. Yves is the one who gives away the money, Yves holds the money and controls inflation.”
As one of the people who participated in the vote buying and trading process, from the perspective of knowing the ins and outs of the vote-trade cartel, this statement rings largely true to me.
According to the ENF, it is the community that selects the BP, ENF only follows the orders of the community, and ENF should never intervene in BP governance.
On the purely technical level, on ‘code is law’ perspective, BPs are elected as per votes, regardless of whether it’s bought by the vote-brokers or not. Thus ENF (self-deceivingly) says that it represents the community, willfully neglecting what’s gone wrong behind the code.
However, when the brokers behind the scenes remain anonymous to the actual token holder community, one must question who exactly comprises the “community” that Yves is referring to. It appears that this community consists of only a select few individuals, including Tony.
The fact is that the vast majority of the holders who ‘stake’ their EOS on exchanges have been largely disconnected with the decisions made by BPs which are backed by these anonymous brokers. These brokers have zero engagement with the community and just sell ‘votes’ that do not belong to them, gaming DPoS and undermining the original intent of a governed blockchain.
This is why you, as a regular community member, do not have any power over the ENF and do not have recourse if you are unhappy with the Foundation’s performance. This is why the ENF is not truly beholden to the community.
Let’s not forget, we are the masters of the chain. And ENF is our servant, not master.
Now the ENF has become the single most important entity in the entire EOS ecosystem. It has achieved so many things throughout the course of 2022–2023. The ENF did all the things that they thought needed to be done through centralized leadership: Antelope Coalition, bluepapers, Yield+, Recover+, EVM, etc.
To ensure that its significant efforts and accomplishments are not wasted, the ENF should not operate like a private company dependent upon Yves’ secret relationships. After all, the ENF is a public entity tasked with representing the public interest. It must prioritize utmost transparency to establish and uphold trust.
However, it seems like it’s a catch-22 because the ENF’s position is largely dependent upon Yves’ relationships with these anonymous vote-brokers, their BPs, and the sock-puppets they groom, which have stolen the decision making power of actual token owners.
In its current form, Yves is like the face of a shadow government that is largely hidden from the actual community, which even his employees aren’t quite aware of.
The Foundation’s governing structure laid out by Yves also seems to be very shrouded in secrecy. Numerous requests from the community to clarify executive compensation details have gone unanswered. Although Yves has stated that ENF is a legally registered non-profit non-soliciting corporation in Canada with publicly accessible bylaws, there is uncertainty surrounding the identities of its officers and their respective powers. Moreover, the presence of the ENF’s lawyer as a second executive director raises questions, considering ENF is supposed to be a public entity, not a private company.
While there may be straightforward answers to these inquiries, it is imperative that these clarifications are provided proactively, rather than waiting for the community to raise fundamental questions about the ENF’s governance and operations.
One reason why the token price has remained significantly depressed despite the many positive accomplishments of the ENF in the last year, is largely due to the underlying corruption that lies in this illegitimate power structure of EOS in my belief. The ENF’s website itself notes:
“EOS Network has implemented a state-of-the-art governance model that aims to create a robust network capable of responding to the evolving requirements of its users. This model is built upon blockchain technology, which ensures transparency and accountability, and is geared towards facilitating swift and inclusive community participation.” https://eosnetwork.com/governance/
Vote-brokering and vote-trading behind the scenes in private backroom deals, using exchange-custodied customer tokens, is not transparent, and does NOT ensure accountability.
The community can do better. The ENF can do better. And EOS can do better.
For the ENF to remain a trusted steward of the community, embodying its genuine intentions, it must implement a transparent procedure and clear bylaws governing the election and term length of its CEO. Remember, transparency is key to establishing legitimacy within a public blockchain.
Ultimately, code is designed to fulfill the intent for which it was created. One can attempt to hide behind the code but the true intentions of token holders cannot be evaded. After all, the original vision of EOS was “Intent of code is law” and that of a “governed blockchain.”
In the case of EOS, we do not have to imagine a president installed by an illegitimately seated parliament, who remains in power by manipulating votes. We do not have to imagine a citizenry, disenfranchised, unable to truly be represented, and unable to hold those in power accountable. It is already our reality, with Yves and the ENF, with the existing top BPs installed by vote-brokering and trading, with token holders clamoring for a governance system they can believe in.
Conclusion: Master in Master’s Place, Servant in Servant’s Place
Blockchain is but a legitimacy machine for the PUBLIC record and COLLECTIVE decision making. Ensuring integrity and accountability of this public resource is essential. The whole notion of decentralization was introduced to achieve this by preventing the PRIVATIZATION of what has to remain PUBLIC by a centralized power.
For EOS to overcome its current stagnation with the existing solidified cartel and achieve its original vision of being a truly governed blockchain, it should be able to incentivize detection of quid-pro-quo vote-sharing and vote-buying activity.
The community can consider shifting from the current 1T30V to something else, or it can consider rewarding whistleblowers who identify unethical vote brokering and trading. It also has to move on to provide rewards from the network for the act of voting itself regardless of whom they vote for, instead of having BPs paying their voters (stakers) directly.
However, applying these changes on-chain now in a meaningful way is nearly impossible within the current power structure, because it is directly against the very way the incumbent entities in power, the current top BPs and the ENF leadership, ended up where they are.
I know that there has been much talk recently about intentions to update the underlying consensus mechanism of EOS based upon VMware HotStuff, potentially moving away from DPoS completely.
However, the fact is no decision by the current BPs and the ENF is legitimate until the vote broker and trade issue is addressed. Aside from the many risks of considering a new theoretical consensus algorithm that itself is prompting academic papers and research, we must be confident that this dedication of resources is the actual desire of the community, rather than the private decision made between the ENF and the vote-brokered BPs.
All in all, what it eventually means is that to fix the situation, there has to be a significant change in the exchanges/vote brokers behavior or someone buys a significant chunk of tokens (about 100m EOS) to participate ethically and transparently in voting in a legitimate way, there’s no way out of this stuck place for EOS.
And if we cannot rely on external support, we should instead look to ourselves and make change happen internally, first.
The EOS community needs to begin by mending the exchange vote now in order to legitimize the top BPs, and by extension the ENF, and there are many short to medium term fixes that can be implemented as longer term solutions are researched.
The EOS community can help exchanges by providing a system or UI where EOS token holders can directly engage with their BP selection and cast votes on governance-related agenda. For example, the idea has been already introduced in the community: Open source EOS voting portal for exchanges and EOSVerse.io are the examples.
For example, exchanges can delegate their voting power to recognized and known public figure(s) who are constantly engaging with the community publicly, instead of someone who stays behind the curtain and wields the power of the public in a private way anonymously.
In this way, exchanges can mitigate the risk involved in decision-making on behalf of their customers while maintaining responsible ‘staking’ practices by assigning their voting power to a reliable proxy that ensures adequate communication.
There are many entities that can be held accountable on Genpool.io, who can provide the same or even higher APR right off the bat than Tony. (Yes, it’s still quid-pro-quo vote selling, but at least it can be a short term and medium term solution, as the owner of the proxy can be held accountable on-chain, not in an under-the-table-way like how Tony or any other exchange brokers groom their BPs.)
If it is too complicated, exchanges have to at least hold their existing vote broker accountable to their customers, so that their EOS token holders can have a say on which BPs the broker should sell their votes to.
If this, too, is not possible, it would be better off for them to just remove the EOS staking that prints meaningless 2% APR and withdraw their votes to disengage with the on-going corruption they’ve (consciously or unconsciously) been part of.
This actually would be the smallest step that can put a dent in a meaningful way on the current structure and signal a fresh narrative to potential adopters and investors, small and large, new and old, that EOS is wholly on the mend.
In the coming weeks and months I will be publishing follow-up articles with additional reflections, and calls to action for the EOS community and the crypto industry as a whole.
Thank you for following through this long series.
If you want to discuss about this article and governance in EOS, please join the conversation on the EOSproject Telegram group.
Read More…
- Part 1/3 — I Believe that the Truth Heals
- Preface: Why This Series Deserves Your Attention
- Confession: I Believe that the Truth Heals
- Primer: Brief History of the Deterioration of EOS Governance Integrity
Part 2/3 — How to form a Cartel on DPoS Blockchains
- How Vote-selling Works: Introducing the Vote Broker
- How Cartel Stabilizes on DPoS: How Vote-Swapping Works
- The Role of Centralized Exchanges: Staking Is Actually Voting
Part 3/3 — Master in Master’s Place, Servant in Servant’s Place
- Where legitimacy Comes From: You Can’t Hide Behind the Code
- Conclusion: Master in Master’s Place, Servant in Servant’s Place
