The passing of proposal #1623 on Luna V2 was illegal and against the very premise of a Proof-of-Stake (PoS) consensus mechanism.
Though it is impossible to revert this mistake. It is still extremely important for the community to discuss, study, and remember how this entire event went down.
Perhaps one day there will be proper compensation for the victims of prop. #1623. The least we can do is not forget, and be aware of the ramification this has on our community, not just Terra but the entire crypto world as a whole.
Here is my detailed reflection.
Recently because of the latest re-enable staking proposal #4095. I thought a lot about how a PoS chain works and then I came to the realization that DK’s proposal for Luna V2 creation was completely illegal. It should have never been allowed. The Terra community didn’t just lost their life savings in $USTC and $LUNC, right after that the V2 proposal took further advantage of uninformed investors when they were most vulnerable.
The vote for V2 took place while ONLY less than 0.005% of the total LUNC tokens were allowed to participate because staking was disabled as an “emergency measure” due to the crash. Time and time again you will hear supporters of this event say that the disabling of staking was meant to prevent governance attack due to the amount of “cheap” coins out there. That’s a well decorated argument but extremely flawed to its core, and here is why.
a) LUNC as a governance token of Terra, was both created and advertised base on its PoS & governance characteristics, taking that away regardless of the excuses, was a clear breach of contract. The legal aspect of this may vary by region but at least in the US, a court ruling would have been made in favor of the masses (small investors).
b) The whole “governance attack” argument was never applicable to LUNC because, by the design of a PoS system, the right to staking (and any benefits & rewards that it came with) was per contract the direct compensation for taking a long-term INVESTMENT in the network! Now there is usually a wide range of definitions for long-term vs short-term, investment vs speculation. However, in the case of a PoS network, it is relatively easy to differentiate between the two. The key is liquidity. You are an investor when you stake your tokens with the network, as this very action of yours voluntarily reduces the liquidity of your assets. In contrast, a speculator would have kept his assets on an exchange & un-staked, as it provides the most liquidity, the speculator can sell his tokens on the open market any time and front run other LUNC owners. This is especially true during a market crash. At any time regardless of the circumstances, purchasers of LUNC should have been awarded the right to staking, and the potential to take meaningful control of a PoS network. By design this should have been one of the added incentives, and arguably the most important one a PoS network can offer to its investors during a market crash. Regardless of one’s initial intention, buyers were supposed to be rewarded immensely, for quite literally catching a falling knife when the network was in extreme distress. But then as we all know, the right to staking was forcibly taken away, which effectively destroyed the incentive to invest and trade LUNC for the long-term. This is not intended as an accusation, but the fact of the matter is, everyone was made to become a speculator driven by nothing but greed, and the network suffered terrible consequences because of that. To put it in layman’s term, LUNC’s parents opened fire on the paramedics when the child LUNC was d.ying and in desperate need of emergency medical assistance. But the shots were fired anyway because the parents were afraid of losing custody of the child. Even though the child was fatally injured due the negligence of the parents.
c) Let’s step back and suppose that the entire argument in b) is invalid. As if, it was ok in a modern society under the rule of law, to judge people base on their possible ill intend (unproven) rather than their action; since the so-called governance attack never took place, but investors (especially those who bought the dip) were penalized for a crime they didn’t commit.
Ok so in that case, here is the question we need to answer. What about the millions and millions of LUNC tokens purchased before the de-peg? Justifying the sudden disabling of staking is one thing, but there should be no question that at the very least, all of the pre-crash LUNC holders should have a say in governance when they wanted to, especially on a life and death decision making proposal of the network like V2. Lots of those tokens didn’t get the chance to VETO the V2 proposal even if they wanted to. Because once again, the right to staking was forcibly taken away. And perhaps we should also include those who invested in Terra when USTC weren’t that far off from a potential re-pegging (for example in the 0.99 to 0.80 range)? The real question is, at what point exactly, do you declare somebody’s ownership of his or her private property lesser than the rest of the community?