In brief
- Large exchanges appear to have given Justin Sun control over the Steem blockchain.
- Justin Sun, CEO of TRON, recently bought the decentralized exchange Steemit.com, and Steem users voted to block him from accessing some money held on the network.
- Binance's CEO confirmed his involvement.
Have centralized exchanges used customer funds to help Tron CEO Justin Sun regain control over the Steem blockchain network?
That appears to be the case, according to crypto industry observers, Vitalik Buterin, the founder of Ethereum, and the CEO of one of biggest exchanges on the planet, Binance—who confirmed his exchange’s involvement in a tweet.
The Steem blockchain runs on a delegated proof-of-stake system, where the people who secure the network, called “witnesses,” are collectively approved by Steem stakeholders. The strength of someone's vote is determined by how many tokens they hold—meaning that high-rollers can vote in whomever they like.
Since customers store large amounts of Steem—the blockchain's native token—in cryptocurrency exchanges, these businesses are some of the network's largest token holders. That means that Steem accounts owned by exchanges have immense voting power.
Today, accounts allegedly run by Huobi, Binance, and Poloniex used their voting power to give Justin Sun control over the entire Steem blockchain. Specifically, they voted to delegate their power to one user, @dev365, allegedly owned by Justin Sun, CEO of Tron.
Sun recently bought Steemit.com, essentially a decentralized Reddit that runs on the Steem blockchain. With the purchase, he also got access to a large amount of pre-mined Steem. But eight days ago, the community voted in favor of a soft-fork that would prevent Sun from accessing these tokens until he provided more detail about his plans for Steemit.
“So Justin reacts by getting more Steem from his friends to regain control over the platform he just purchased,” a developer who’s worked on apps on Steemit, Jason Stallings of BlockArcade, told Decrypt. “We're at the start of the Steem/Tron war of 2020,” he said.
“They tried to wrestle control from Justin and he outplayed them by utilizing his influence just the same as he will for the platform going forward,” Alexander Klein, a blockchain developer and Steemit contributor, told Decrypt.
Binance’s CEO, Changpeng Zhao, has confirmed his part in the process:
Re: Steem, read my “tweets and comments” about our position and thoughts on the issue. We will likely remove the vote, based on your feedback. The op requires people in several different geographic locations to coordinate, may take a little time.
— CZ Binance 🔶🔶🔶 (@cz_binance) March 2, 2020
Zhao added that he “thought it was a regular upgrade/hard fork.” However, Binance’s CEO then indicated that the exchange will likely remove its vote based on feedback he’s received. “[This] requires people in several different geographic locations to coordinate, [so] may take a little time,” he tweeted.
Binance told Decrypt it has no further comments on the matter. Decrypt has reached out to Huobi and TRON, and will update this story accordingly.
For the moment, however, it appears that Sun has made manifest the fears of centralized exchanges’ unparalleled power in decentralized networks.
Erik Voorhees, founder of non-custodial crypto exchange ShapeShift, says he isn’t surprised. He told Decrypt, “If people leave their money at custodial exchanges, then they shouldn't be shocked when things like this happen.”
Editor's note: This article was updated after publication to clarify how exchanges used customer funds to exert influence over the network.