Opinion

Opinion

Justin Sun and Steem – The dizzying tale of how one crypto billionaire exerted control over a community blockchain

by Nicholas Krapels

1 month ago

The story of Justin Sun and Steem hit a high point on March 4, when marketing whizkid Sun pulled an end-around on the Steem blockchain community to reclaim STEEM tokens.

The recapture of the STEEM tokens, which had been questionably “quarantined” from Sun’s Tron Foundation, is the latest development between Justin Sun and Steem. A couple weeks ago, Tron announced the acquisition of Steemit Inc., the company responsible for the majority of the development work on the Steem blockchain and creator of its first and most popular dapp, a blogging tool called Steemit. However, in his announcement of the purchase from sole remaining Steemit founder Ned Scott, Sun indicated that perhaps he did not fully understand the assets he had just purchased. Those assets included the company Steemit Inc., the contracts of all of its employees, the keys to the Github that housed the open-source Steem protocol, and approximately US$ 10m worth of STEEM tokens that had been mined by the company before its protocol had even been opened to the public.

In an initial Medium post – now deleted – announcing the partnership between TRON and Steemit, Sun wrote “TRON and Steemit’s development teams will immediately begin working together to bring Steemit and other Steem blockchain based DApps to TRON blockchain.”

That simple sentence ignited a maelstrom of reaction in the Steem community, primarily from the top-20 Witnesses, the equivalent of a block producer on the Steem blockchain. They feared that Sun would use his newly acquired massive stack of STEEM tokens to insert his own Witnesses, who would be more favorable to his development decisions.

After the uproar, under a newly created Steem account called @justinsunsteemit, Sun posted a brief message titled “Excited about TRON&Steem/Steemit collaboration” wherein he wrote, “By committing a meaningful percentage of the STEEM token, TRON now aligns the same interests with the Steem community, to bring the value to STEEM token, to keep the core value of decentralization, to grow a one-of-a-kind decentralized social media platform.”

There was only one problem with that notion. The previous leadership of the Steem blockchain had promised that the “ninja-mined” STEEM tokens owned by Steemit would forever remain agnostic to the governance of the DPOS chain. Although I have not seen evidence of that promise, the entire Steem community remembered it quite clearly. They howled in disapproval at Sun’s actions.

A few days later, in a move almost certainly calculated to instill fear in the Steem Witnesses, the Tron Foundation used its own TRX coins created in the genesis block to vote in a Super Representative (SR) election on the TRON blockchain. SRs are TRON’s equivalent to Steem’s Witnesses. Similar to Steemit’s STEEM stake, these genesis coins were supposed to be unable to interfere with chain governance. And yet, the large TRX stakes were used to vote in two pro-Sun dapps and oust less friendly inactive SRs.

The Steem Witnesses saw the writing on the wall and quickly thereafter moved, with the approval of 18 of the 20 block-producing Witnesses, to render inert the Steemit stake via a soft fork of the chain, Soft Fork 22.2. Some Steemians, as participants in the Steem ecosystem are called, disagreed with what effectively amounted to the theft of the Steemit stake. The Witnesses claimed that the action was reversible and necessary to prevent Sun’s takeover of the chain using the “ninja-mined” stake. They first wanted to talk. As a result, a Town Hall was arranged for March 6 to align visions of the future of the Steem blockchain.

That window of time provided Sun with the perfect cover to strike back at the Steem Witnesses. Although he did not admit it in his public musings, he apparently saw Soft Fork 22.2 as a declaration of war. If there’s one thing I know about rich guys, it’s that you never want to get in between them and their money, especially when it is as much as US$ 10m at stake.

The OG Steem Witnesses did not stand a chance against the crypto billionaire. It turns out he did not even need the Steemit stake to assert control over the blockchain. On March 2, Sun used the STEEM coins on his own exchange, Poloniex, as well as those coins on other friendly exchanges, Binance and Huobi, to retaliate and reclaim the Steemit stake of 70 million STEEM coins that had been stolen from him.

In order to enact the coup, those three exchanges had to simultaneously stake their users’ STEEM to confer governance rights to their tokens, delegate those rights to a proxy account called @dev365, have that proxy account vote for a new slate of STEEM Witnesses using the powered-up STEEM from the coins of the exchange users, then finally pass a new Soft Fork 22.5 that reinstated Steemit control over the stake that was “frozen” in Soft Fork 22.2. Probably the most egregious wrong committed by Tron in this series of maneuvers is that it then used more than US$ 500,000 worth of the newly “unfrozen” STEEM, that you’ll remember was supposed to stay locked up and agnostic forever according to the original Witnesses, to compensate the exchanges for their complicity.

Justin Sun then took to Twitter today to begin pushing his own narrative of the event, calling the original Steem Witnesses “hackers” and claiming that his actions were “to protect the safety of the overall network.”

The truth, as usual, lies somewhere in between. Both entities have acted in poor faith. The result is, however, that most of the Steemit staff has resigned, Justin Sun has his STEEM tokens back and there will surely be more fireworks on this blockchain before it is all said and done.

You know what they say: “History is written by the victors.”

About the author

Nicholas Krapels (Prof. K) is a China-based American writer, educator, and entrepreneur. He works in global financial services as a Strategy Advisor for the DeFi project FinNexus. He teaches graduate courses in business, strategy, & entrepreneurship at Tongji University and SKEMA Business School. His research focuses on the history of innovation in monetary policy and blockchain technology.

This piece reflects the authors’ personal opinions and does not necessarily represent the views of Blocks99 as an independent media portal.

 

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