Last week, after near-universal condemnation, leaders of the Harmony blockchain scrapped their proposal to reimburse community members who lost money in a $100M hack in June.
The Layer 1 network, which sports a $346M market cap and competes with other high-speed blockchains such as Solana, has been struggling to stabilize its situation ever since.
Now co-founder Stepehen Tse is offering a pair of new proposals. One would use the Harmony Foundation’s treasury to partially reimburse tokenholders over a period of months, and replenish its coffers by minting new ONE coins over several years. The other proposal would increase fees from transactions and fund reimbursement and “ecosystem growth.”
Options and Tradeoffs
“The last few days we held many calls to discuss options and tradeoffs, engaging over 20 validators, 20 community members, and 15 bridge and DeFi partners,” Tse wrote in a governance forum debating the original proposal. “We sincerely value engaging and gathering support from our community, partners, validators, and their delegators.”
For some in the community, it was a long time coming. While debate over the new proposals has been limited, several who responded to Tse expressed gratitude at hearing something, anything, from leadership.
The hack has simply highlighted many longstanding issues confronting the blockchain, say members.
Interviews with Harmony validators — the people who operate the distributed technology required to secure the network and verify transactions — paint a picture of a community that was dysfunctional well before hackers made off with the $100M and leaders reacted with a “slap in the face” solution.
The validators say Harmony – led by Tse, Rongjian Lan, Leo Chen, Li Jiang and Ganesha Upadhyaya – has been slow to communicate, if at all; reluctant to address consolidation among validators; broken promises regarding funding of partner organizations; and shown little interest in fixing a broken governance system that has made it impossible to gauge community support for proposals to address important issues within the network.
Harmony leadership did not respond to a request for comment for this story.
While Harmony leaders believe they have found a way to move on from the hack, validators say another problem plagues the platform.
Validators operate nodes, the technology required to process and verify transactions on the Harmony blockchain. To do so, they must “stake” Harmony’s native token, ONE, and bid for one of 900 available validator slots.
Harmony produces faster transaction speeds through a mechanism called “sharding,” according to a Harmony-commissioned report published by crypto research firm Messari last fall.
“A sharded blockchain requires a large number of validators,” wrote the report’s author, Rasheed Saleuddin, the head of research at Blockworks. He said Harmony had developed a “novel” solution that “discourages an over-concentration of tokens with any one node or group of nodes, increasing decentralization and preventing single-shard attack.”
Some big validators have tried to elbow aside smaller players, and the Harmony team has shown little interest in addressing the issue.
“[Larger validators] pushed out people that could be getting a new elected validator,” Stakeridoo, a pseudonymous validator, told The Defiant. “Nobody from the team was even caring about it and saying, ‘Okay, we need to maybe look into this issue. What is around and how can we help smaller validators to get elected?’”
Stakeridoo said many of his peers became disillusioned and left the community.
“You need to help the small validators, because sooner or later, they give up,” he said. “Because you don’t run a server for hours and hours and hours and pay for them and wait to get elected and you’re coming near, near, near but you’re never getting elected.”
Validators who spoke to The Defiant said Harmony’s promise to fund thousands of decentralized autonomous organizations, or DAOs, is emblematic of the organization’s mismanagement.
Back in March, Harmony’s website touted its commitment to DAOs, the leaderless collectives that use blockchain technology to organize and reward their members, according to a snapshot.
Dreams & Expertise
“Harmony is granting $300 Million to our open DAO Community,” the website read. “Bring your passion, your dreams & your expertise. Form a DAO.”
References to DAOs on Harmony’s front-page are now scarce. A validator going by the pseudonym PiStake said it might not be a coincidence.
Harmony DAOs like the Community DAO and the Validator DAO put in work and made their monthly reports but have yet to receive any funding, he said. At the same time, “payments to other DAOs didn’t seem very fair,” PiStake said.
In July, a Harmony validator going by the pseudonym Pioneer published a lengthy article on Medium listing DAOs that received tens of thousands of dollars the author said did little or no work.
LightItUp DAO, the article said, was a “Web3 aspiring (NFT) production company that specializes in outdoor light projection art.” It requested and was given $75,000, the author said.
“Their community engagement appears to have dwindled after attending a few Friday night meetups in the Denver area and taking a ‘roadtrip’ to the InfoComm2022 Expo in Las Vegas,” Pioneer wrote. “Their deliverables were largely superficial and this project appears to have failed to achieve a self-sustainable model.”
Aura Dogs DAO, wanting to make “a positive impact for the field of animal care outside of the blockchain space” – emphasis Pioneer’s – received $60,000. Naija DAO, with the mission of onboarding Nigerian users, was given $30,000 and hosted a hackathon, “but they have been unable to pay the winners due to.. lack of funding?”
Slap in the Face
Meta Gamma Delta DAO, “seeking to inspire women to enter Web3 via scholarships, partner programs, and mentorship,” received at least $125,000, “never looked back and have offered zero deliverables.”
“Some other DAOs that came out with no multi sig wallet, no members, no anything and got funding, which is very odd,” PiStake said. “That’s kind of where I started taking a step back. … I worked two and a half months for all this, and then some, and they don’t wanna pay their DAOs at all … That just didn’t ring well with me.”
When Harmony introduced a proposal on July 26 to reimburse those who lost money in the $100M hack by minting billions of new ONE tokens, many called it a slap in the face.
A community member going by the pseudonym TrickLuhDaKidz, on the other hand, wondered whether it was a “disingenuous spectacle.”
Governance on Harmony has stalled since February, according to validators who spoke to The Defiant. Only six proposals have been put forward for a vote, four of them funding requests for Harmony ecosystem projects.
There are two primary reasons, they said: the “Binance Problem” and security concerns that emerged after the team’s move to the popular voting platform Snapshot. Binance, a centralized crypto exchange, has staked a massive amount of ONE across several validator nodes, but rarely participates in governance. To reach a quorum on a given issue, 51% of nodes need to participate. Binance’s massive stake coupled with its inactivity, make reaching a quorum near impossible, validators told The Defiant.
Security breaches earlier this year have also complicated voting. The Harmony team’s decision to move voting to Snapshot, a decentralized voting system used by DAOs, meant validators had to export a private key to MetaMask and then go to Snapshot.
Critics say no one wants to take their validator’s private key and copy and paste it into MetaMask.
Meanwhile, the near radio silence from Harmony leadership isn’t helping anything, say validators.
“They just kind of sent me from one person to another, it was kind of a circle of nothing,” PiStake said.
Stakeridoo said, “This is the huge problem with Harmony itself — you won’t even know who to reach out to for something,”
Ultimately, the ecosystem hack was far from Harmony’s biggest problem, PiStake said. Software exploits, while unfortunate, are just a part of being in crypto.
“I mean, it’s an issue,” he said, “but there needs to be more attention drawn to the actual core protocol.” Stakeridoo agreed. He lost $10,000 in the hack, but it didn’t ruin him. Nevertheless, frustrated with the lack of communication, the lack of support, he finally withdrew his stake in the blockchain and moved his crypto into a competing protocol.
“And it feels good,” he said with a laugh.
Updated on Aug. 12 to report validators must “stake” Harmony’s native token, ONE, and bid for one of 900 available validator slots.
Get Smarter on DeFi and Web3
Get the 5-minute newsletter keeping 80K+ crypto innovators in the loop.