The copy-paste blunder that sent $36M in seized JUNO tokens to an unlinkable address has thrown the Ethereum community into a tizzy. Developers, validators, and token holders are all struggling to figure out who is to blame for the mistake.
The Juno blockchain, which is based on the Cosmos network, continues to serve as a cautionary tale for on-chain governance. Last week’s unanimous community vote was meant to plunder millions of dollars’ worth of JUNO tokens from a whale (large investor) accused of gaming a community airdrop. Instead of sending the money to an address that could be linked to the JUNO team, the vote sent it to an unspendable address on the Ethereum network.
This “accidental” distribution of JUNO tokens has caused a lot of hand-wringing within the Ethereum community. Some claim that this is proof that on-chain governance is a recipe for disaster.
The promise of blockchain-based governance is that the will of a community is directly codified on the blockchain. In a world where “code is law,” moving assets from one specific address to another should have been as simple as casting a community vote. And yet, this week’s failures of numerous human-controlled safeguards show how code-centric governance has its own share of issues. The JUNO incident is a reminder that, as with any other system, blockchain-based governance is only as good as the people who design, build, and operate it.
The community voted to remove tokens from Takumi Asano, a Japanese investor accused of gaming the Juno airdrop by over $120 million in February, in Juno Proposal 20, which was passed on Thursday. It was the first major example yet of a blockchain network voting to change the token balance of a single user who has been accused of malicious activity. The proposal, made by JUNO’s community governance group called the Genesis DAO, passed with over 90% of the vote.
Asano had been accused by the JUNO community of participating in what’s known as an “airdrop farming” scheme. The process involves setting up multiple wallets with different addresses and using them to claim airdrops—free token giveaways that often happen when a new project launches on the Ethereum blockchain. The JUNO team had initially proposed to blacklist Asano’s addresses, which would have rendered his tokens unusable.
According to the community vote, Asano ran an exchange service that should have rendered his wallets ineligible for the so-called Juno “stakedrop,” which gave JUNO tokens to stakers on the Cosmos Hub blockchain. After a delay of a few days, last week’s vote was supposed to automatically run code moving the “gamed” funds – now worth around $36 million – from Asano’s wallet into a “Unity” address controlled by the Juno community.
Things didn’t turn out as expected. When the code was run on Wednesday, a programming mistake resulted in 3 million revoked JUNO tokens being sent to an incorrect address on the blockchain, where no one – neither Asano nor the Juno community – had access. According to Andrea Di Michele, a member of Juno’s “Core-1” founding developer team who goes by “Dimi,” the fudged transfer resulted from a copy-paste mistake. “When I provided the [Proposal 20] developers with the smart contract address, I pasted the address of the smart contract and simply wrote ‘Etherscan’ next to it without noticing,” says Di Michele.
The JUNO team is currently working on a fix that would enable them to retrieve the tokens and send them to the correct address. In the meantime, they have asked exchanges to halt trading of JUNO tokens. Developers, according to Dimi, copied the transaction hash instead of the address; as a result, the seized funds landed in a crack in the Juno blockchain where no one has access.It is theoretically up to Validators who run proof-of-stake blockchains like Juno to conduct thorough research on on-chain upgrades, such as the one that came with Proposal 20. It’s not any one developer – it’s the entire disintermediated community of validators – that is in charge of generating blocks, securing the network and ultimately deciding which transactions get included.
As such, one would hope that the JUNO community would have thoroughly vetted the code before it was put to a vote. That does not appear to be the case.It is unclear how long JUNO will be offline while the team works on a fix. Not one of Juno’s more than 120 validators appears to have noticed that the Unity address was copied incorrectly. “We made a huge mistake,” said Daniel Hwang, head of protocols at stakefish, one of Juno’s validators. “The fault is much more on the validators who actually carried out the code.
“Developers may make mistakes… but at the end of the day, there should be trust assumptions that can’t be trusted,” Hwang added. “Validationists should have due diligence in verifying the code we’re executing and running ourselves.” The core developer team and the network’s community are still determined on moving Asano’s cash to the community-controlled Unity contract rather than “burning” them inadvertently, as he warns may happen. (Asano has threatened to sue Juno’s validators if his funds are tossed away instead of going to his supposed “investors.”) The goal is to have a nice public relations event where JUNO’s token holders who were burned in the great JUNO $36 million blunder can see their money flow back into the community-controlled fund. Proposal 21, which is vague in terms of governance and aims to green-light the upgrade, contains lines that say the upgrade “[f]inalizes the Unity proposal fund transfer” and “[r]elocates the funds from a placeholder address to the Unity smart contract.” It appears that Proposal 21 will send the 3 million JUNO tokens to the correct address this time.
The JUNO team is also working on a long-term solution that would make it impossible for future Asanos to game the system. They are planning to upgrade JUNO’s staking mechanism so that a minimum amount of JUNO tokens – 1% of the total JUNO supply, or about 1.2 million JUNO tokens – is required to activate a validator node. This would make it impossible for any one person to control a majority of the network’s staking power.
Coinbase Making Headlines For All The Wrong Reasons
Two weeks after cutting 18% of its workforce, Coinbase (NASDAQ:COIN) is back in the news. Twelve days earlier, they’d emailed new hires one of the cruelest HR mass emails I’d ever seen: “Just kidding! Our hiring freeze affects your offer!” (The “Chief People Officer” promised severance.)
Again, Coinbase is in the wrong limelight.
Even after the job layoffs, “we believe Coinbase will need to make substantial reductions in its cost base in order to stem the resulting cash burn as retail trading activity dries up,” said Will Nance, VP and head analyst for Payments and Digital Assets at Goldman Sachs. It’s a bit rich to switch from “Neutral” to “Sell” when the stock plunged -75% in three months. If you weren’t committed to COIN long-term, the Super Bowl was a good moment to sell.
The financial outlook for Coinbase
Q1 was rough for crypto-trading platforms like Coinbase. Assets on Platform rose 15% year-over-year, while Verified Users rose 81%. These customers provided half the average transaction revenue they had in 2021. Coinbase’s revenues plummeted -27% and EBITDA fell -98% year-over-year. Comparing 2022 numbers is even harder. Coinbase grew from $1.1 billion in 2020 to $7.3 billion in 2021. Goldman expects $2.9 billion in 2022, a 60% reduction.
Moody’s also weighed in. Moody’s lowered Coinbase’s debt rating from “Ba2” to “Ba3” for similar reasons as Goldman. Both are “junk bonds” or “non-investment-grade”. Interactive Brokers (NASDAQ:IBKR) is rated A- by S&P Global as of June 16. Interactive Brokers’ Q1 revenue fell 27%. Its EBITDA fell -37% year-over-year, less than Coinbase. Interactive Brokers “has navigated the ‘zero commission’ trend,” S&P comments:
“Unlike its competitors, IBG offers customers both its traditional low-commission pricing option and a zero-commission option that includes revenue-increasing measures (such as higher rates on margin loans) to offset the reduction in commissions.”
Coinbase charges 4%. IBKR, a “blue-chip, diversified, long-standing broker with high-quality clientele,” trades at a greater valuation even in current down market, Seeking Alpha says. Interactive Brokers’ revenue is expected to climb 12% this year, not decline 60%.
Coinbase is experimenting
If users aren’t interested in typical trades… Derivatives? They’re popular:
Carnegie Mellon University found in 2021 that crypto derivatives have five times the “spot” market’s volume. Over $100 billion in derivatives are exchanged daily, rivaling the New York Stock Exchange. This month, Coinbase releases “Nano Bitcoin Futures.” Since January, Coinbase has worked on derivatives. At 1/100th of a Bitcoin, Coinbase’s Nano Bitcoin Futures contract “needs less initial money than standard futures products”
Bitcoin “perpetual futures” at FTX (FTT-USD) cost $20,000 Coinbase’s trading volume has been stable in the bear market compared to the 2021 bull. Coinbase will close Coinbase Pro to reduce fees. If you switched between Pro and normal, you paid less. (How clever!) Advance Trade will replace Pro in the main Coinbase app, CoinMarketCap says, with the same volume-based fees.
The Goldman analyst who just downgraded COIN doesn’t like the “fee reduction” this could produce. Coinbase already struggles to maintain positive EBITDA, even with 81% more users in Q1 year-over-year.
Coinbase has a greater issue
Inflation is one opponent trading platforms can’t do much to battle. Retailers may need to lower prices to attract customers. Home prices remain high. And rental prices soar! A published report on Monday stated that 58% of Americans live paycheck to paycheck as inflation spiked, including 30% of those earning $250,000 or more. How many Americans will trade their wages on a crypto app?
Coinbase is considered more institutional than Binance (BNB-USD). Most Platform Assets and Trading Volume are institutional. In Q1, 95% of Coinbase’s Transaction Revenue came from the Retail division. 87 percent of its revenue came from transactions. (Coinbase’s Advance Trade feature could mean retail traders pay less than big traders.) (Hope they like Nano Bitcoin Futures.)
Inflation will be reduced soon. Some analyst don’t foresee red-hot inflation or stagflation. They predict BTC will settle around $20,000 in six months. Coinbase and investors must wait for relief.
Three Arrows Capital Defaulted on a $670M Debt
One of the most well-known crypto hedge funds, Three Arrows Capital, has defaulted on a $670 million debt. Voyager Digital, a digital asset brokerage, announced on Monday that the fund had defaulted on a $350 million USDC and 15,250 bitcoin loan, valued around $323 million at today’s rates.
In the wake of weeks of turbulence in the cryptocurrency market, 3AC is facing a financial constraint that could lead to bankruptcy. In the previous 24 hours, both bitcoin and ether have fallen marginally, although both are still considerably below their all-time highs. In the meantime, the total crypto market cap is roughly $950 billion, down from around $3 trillion in November 2021 at its high.
In a statement, Voyager stated that it wants to pursue 3AC recovery (Three Arrows Capital). Customers’ orders and withdrawals are still being processed, despite the broker’s statement that the platform has been shut down. It’s possible that the assurance is an attempt to tamp down fears of a wider crypto environment spreading the disease.
Voyager CEO Stephen Ehrlich said, “We are working diligently and expeditiously to strengthen our balance sheet and pursuing options so we can continue to meet customer liquidity demands.” According to Voyager, it has $137 million in US currency and crypto assets as of Friday. In addition, Alameda Ventures has provided the company with a $318 million (or 15,000 bitcoins) revolver, worth $200 million in cash and USDC.
Sam Bankman-Fried, the creator of FXTrade, has invested $500 million in the crypto brokerage Voyager Digital. 75 million dollars of its credit line have already been drained by Voyager. 3AC’s default “does not cause a default in the agreement with Alameda,” according to the statement. 3AC did not respond to a request for comment from CNBC right away.
What brought 3AC to this point?
Zhu Su and Kyle Davies started Three Arrows Capital in 2012. One of Zhu’s most well-known traits is his belief that bitcoin will continue to rise in value. Last year, he predicted that the world’s most valuable cryptocurrency might be worth $2.5 million per coin, according to his calculations at the time. Zhu’s “supercycle price thesis” was, however, proven to be incorrect in May of this year, when the crypto market began its downward spiral.
The so-called “crypto winter” has taken a toll on digital currency initiatives and businesses of all kinds. This month, Zhu tweeted that the company was in the midst of “communicating with relevant parties” and “totally committed to sorting this out,” which sparked the company’s troubles. There was no further investigation into the nature of the problems.
After the tweet, the Financial Times reported, citing persons familiar with the subject, that US-based crypto lenders BlockFi and Genesis had liquidated some of 3AC’s positions. While 3AC had borrowed money from BlockFi in order to pay the margin call, they were unable to do so.
To avoid a loss on a trade done with borrowed money, an investor must put more money into the account. There were two tokens that had been touted as “algorithmic stablecoins”: TerraUSD and Luna. 3AC’s exposure to Luna resulted in financial losses. Founder of 3AC, Davies, told the Wall Street Journal, “The Terra-Luna scenario caught us very much off a surprise.
Because of the ongoing downward pressure on bitcoin prices, Three Arrows Capital is still in a credit crunch. On Monday, Bitcoin was trading about $21,000, a loss of about 53% from its year-to-date high. As a result of rising inflationary pressures, the Federal Reserve in the United States has suggested that it will raise interest rates in the near future.
According to Forbes, 3AC, one of the world’s leading digital asset hedge funds, borrowed enormous amounts of money and invested in numerous digital asset ventures. Fears of a further industry-wide outbreak have been prompted by this.
As a result of the market fall, a number of crypto businesses have already experienced liquidity issues. As a result of “extreme market conditions,” Celsius, a loan service that promised customers significant returns for depositing their digital currency, has put an end to customer withdrawals. Babel Finance, another crypto lender, announced this month that it has blocked withdrawals due to “unusual liquidity pressures.”
Is 400 Trillion SHIB Tokens Burned Enough For a Bull Run?
On April 23rd, the Shiba Inu Ecosystem announced the establishment of a “burning gateway,” through which it will begin the process of burning SHIB tokens. According to a blog post that was written by the people in charge of developing the Shiba Inu project, the purpose of burning SHIB is to lower the number of tokens that are currently in circulation. As a result, the developers hope to create a scarcity that would cause the price to increase.
The developers mentioned that in order to incentivize the participants of its ecosystem,
“This portal has been built to reward $SHIB burners, with a passive income acknowledgment, in the form of $RYOSHI Rewards. Meaning that 0.49% of all RYOSHI transactions will be distributed to owners of $burntSHIB.”
However, 65 days after the beginning of the burning process and after 410,370,460,561,720 SHIB tokens have been removed from circulation, the memecoin creators have found that things have not gone according to their plans. The price of SHIB has significantly decreased as a direct result of the general bear market that has been going on in the cryptocurrency market. Here is what we know about the alternative’s performance since the debut of the burn portal, which comes at a time when the team is getting set to start compensating customers who burned their SHIB tokens.
Over the course of the past 65 days, there has been a consistent drop in the price of SHIB. When it started on the 23rd of April, the burning process, the price of a single SHIB token was $0.000024. At the time of this writing, the cryptocurrency was trading at $0.00001148, representing a drop of 109 percent from its previous value.
In addition to that, the market capitalization was estimated to be $13.36 billion sixty-five days ago. This figure was down to $6.28 billion at the time the article was published.
Since the beginning of the fire, SHIB has had a difficult time keeping the bears off of its back. The relative strength index (RSI) for the token has spent the previous 65 trading days below the 50-point level that represents neutrality. On the other hand, the cryptocurrency had some reprieve on June 21 and sought to pass over.
This provoked a response from the bear, one that drove it further to the south. Despite this, the bulls were able to force one more correction, which resulted in the RSI moving in the opposite way. The RSI showed a reading of 56.16 at the time of publication.
In spite of the coin burning taking place for 65 days, on-chain data demonstrated that the performance of SHIB was not significantly affected in any way.
Since May 12th, for instance, the number of different addresses used in SHIB transactions on a daily basis has been steadily decreasing. By the time this article was published, the number of daily active users on the network had dropped by 90 percent.
In addition, during the time period under consideration, the Shiba Inu network did not experience a significant amount of expansion. Since the 12th of May, the amount of newly established addresses on the network each day has decreased by more than 200 percent, according to the data provided by Santiment.
On the social front, the volume of social activity experienced a decrease of 87 percent during the same time period. Despite this, there was a consistent increase in social dominance, leading to a 10% increase in total, despite the fact that there were some dips along the way.
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