Terra may be in danger again – but this time it’s different

the $60 billion implosion In the Terra ecosystem last May, cracks were exposed in the foundations of the cryptocurrency industry and started a year of successive financial crises that have yet to stop.

Now, in the ashes where Terra once stood, another controversy is raging — and it offers potential warning signs for the broader crypto landscape.

The case concerns Terra Classic (LUNC) – the universe-based network that grew out of the collapsed Terra ecosystem – and Allnodes, a key storage platform currently integrated into Terra Classic’s operations.

Terra Classic is often referred to as a “meme series” – meaning it is not taken seriously by the broader crypto community. The grid was brought to life by members of the Terra community more motivated by the spirit of experimentation than by a sincere ambition to restore the failed behemoth built by the current international refugee. Do Kwon.

Despite its humble ethics, Terra Classic is, financially speaking, no laughing matter: LUNC’s market capitalization is currently around $1 billion, and the cryptocurrency routinely churning out $100 million in daily trading volume, according to Queen Gekko.

Terra Classic, like a growing number of blockchains, is a stretch Evidence of effort network. Users can deposit a LUNC to validate transactions on Terra Classic; In return, users collect rewards in the form of newly created LUNC. And as with any PoS network, those unwilling or unable to set up a Terra Classic validation node can pay themselves a third party service to handle the cumbersome technical process.

Although many of these third parties serviced the vibrant Terra staking system before its collapse last May, most of the major staking services were working for exits once the Terra brand became toxic. Save one.

Allnodes, a Los Angeles-based node and stake service, continued to serve Terra Classic users during and after the network collapse. And while Terra is slowly making its way out of oblivion, Allnodes has risen with it: The company now manages stakes for about a third of the validators on the entire Terra Classic network.

This number alone may not catch the eye increasingly centralized A world of third party response services. But together with recent revelations about Allnode’s handling of sensitive customer information, it has raised burning questions about the ease with which a hacking firm can hijack billions of dollars’ worth of blockchain networks — and the lack of safeguards to prevent such breaches.

Allnodes markets itself as a non-intrusive service; Usually, in crypto, this means that the company does not manage the client’s private keys or therefore has direct access to the client’s funds.

Allnodes, however, maintain all softkeys and validation keys of clients. In the Cosmos ecosystem, knowing both keys allows anyone to access not only the funds harvested by the validator during storage, but also the validator’s voting rights in the network management protocol.

Marko Baricevic, Cosmo’s lead core developer, says it’s extremely unusual for a third party — particularly one that claims not to be a custodian — to exercise such control over customer information.

“In almost all scenarios, the customer always has at least the operator’s key that controls the funds,” Baricevic said. Decode. “In this scenario, both keys are owned by Allnodes. So it is a denial of liberty.”

What does this difference mean? Most importantly, it means that Allnodes can, without the knowledge or consent of their clients, control the voting power of the client nodes they manage to achieve anything. On networks like Terra Classic, it only takes 33.34% of validators to stop all on-chain activity, or possibly approve any number of governance proposals. If Allnodes controlled at least that percentage of the network activity, the company could theoretically destroy the network, or send itself a sum of money via a funding proposal.

So, is it possible? Allnodes claims, via Self-reported data The company just announced this week that it controls between 30% and 31% of the vote in Terra Classic, just shy of the critical margin that would actually give it control of the network (as of Friday, Allnodes claims the number has dropped to 29). percent, however, the actual percentage can only be verified if each of the company’s customers comes forward, and Allnodes has said it will not disclose customers’ identities.

Prior to this week, Allnodes had made no attempt to report such data. This change in policy was most likely due to the Terra Classic community’s outrage last month over the company’s growing influence.

Jacob Jadikian, a member of the Terra Classic community and founder of Notional Labs, a Cosmos-based validation software and service company, is waging a relentless — some of his critics say “very aggressive” — campaign to convert Terra Classic validators. from allnodes. His goal is to weaken the company’s power over the network.

Jadikian was, until last month, a member of Terra Classic’s L1 Task Force, the fractious group of volunteers that came to oversee the regrowth of the network. After tensions boiled over from the Allnodes disputes, Jadikian resigned from the task force.

The developer says Gadikian’s vigorous and persistent attack against Allnodes stems from his concern that the company’s practices are a deliberate strategy rather than an oversight.

“I don’t think you can scale a company of that size and I reasonably think that’s an acceptable practice,” he said. Decode.

Allnodes, for its part, insists it will never vote on behalf of customers.

“If we vote, and it becomes public, our business is done. Therefore, it makes no sense for us to vote for our clients,” says Allnode founder and CEO Konstantin Boyko-Romanovsky. Decode.

But on this score, Allnodes is keeping its hands behind its back: other than fearing a public backlash, there is little in the way for the company to manipulate its control of customer nodes.

Boyko-Romanovsky insists that Allnodes have the keys to validating clients And The operator switches to making their white label services as easy as possible for customers who don’t want to deal with technical headaches. But a number of Allnode customers say they were never aware that they were giving up rights to sensitive information in the first place.

“I honestly didn’t know there were switches with validators,” said David Goebelt, a Terra Classic validator and former Allnodes customer. Decode. “When I started my validator with them, they asked for all of my biographical information and then started the validator.”

Eventually, Goblet learned that the company had made and kept his keys. After several weeks of repeated requests, Allnodes sent these keys to Goebelt.

Despite increasing scrutiny of its conservation practices, Allnodes continues to insist, in communications and marketing, that it is a non-custodial service.

“Storage means tokens, it means assets. It doesn’t mean keys,” says Robert Ellison, Head of Growth at Allnode Decode. Ellison believes that since the company does not have access to users’ bank accounts or other wallets, it cannot be considered a trustee.

But the company also controls the process by which stock bonuses are distributed to customers. Although there have been no allegations of Allnodes taking any part of these rewards, the company remains a key middleman in the process of paying clients.

“Actually, if it’s not your keys, it’s not your crypto. That’s the original motto,” says Cosmos lead developer Baricevic. “If we take Celsius or FTX, people who use the platform think they own the money. It’s exactly the same thing happening here.”

While Allnodes maintains that there are no problems with the company’s internal custody practices, it acknowledges that concerns about its growing power over the Terra Classic ecosystem are valid. But, she says, she can’t help but be famous.

“We don’t want a lot of voting power,” said Ellison of Allnod’s. “But in the end we can’t control who delegates us.”

However, the company is increasing commissions for its stake in Terra Classic, a move it says will “discourage” customers from using its services, loosening Allnode’s grip on the network.

Some question the seriousness of this initiative.

“If you want to stop providing a service, just do it,” said Juri Maibaum, co-founder of Frens, another Kosmos-based verification service. Decode. (Fren’s does not serve the Terra Classic.) “If McDonald’s didn’t want to sell hamburgers anymore, they wouldn’t say ‘we’ll double our prices.’ They would just stop serving hamburgers.”

The unspoken fact is that Allnodes has a clear financial incentive to continue offering its services on Terra Classic; This chain is by far the one on which Allnodes exerts the most influence. Allnodes offers staking services on 68 networks including Ethereum, Cardano, Polygon, and Solana, but has, by self-report, less than 10% of the vote on any of these networks.

A few of Terra Classic’s Allnodes customers have terminated their services on tentative grounds, following Gadikian’s outreach campaign, but some may not care about decentralization, and many may still be unaware of the issues.

And there is little, if anything, the network itself can do to put such a thing to bed. Baricevic, who builds the Cosmos blockchain, built on top of 266 networks and apps, including Terra Classic, says he’s been looking for a top-down solution to this kind of problem for months, but hasn’t found one. .

The best option he can think of is to send a proposal to governance to force all validators on the network to disclose if they are using a third party service such as Allnodes. Then the network can more easily assess whether it is threatened by an external source.

“But to say that, you’re on a witch-hunt to see if people do it or not,” Barysevich said. He does not believe that the policy can be reasonably implemented in practice. Even if that were the case, such a system would only increase awareness, not stop or slow down the risks of a hostile network takeover.

While Allnode’s handling of Terra Classic may currently seem like an outsider in the broader crypto landscape, the episode highlights unresolved issues that could soon grow bigger than Terra Classic, and even Cosmos.

Many blockchains have moved to greener Proof of Stake models over the past year, and in these new systems, third-party companies such as Allnodes (or Coinbase, Binance, and Kraken) gained unprecedented influence over supposedly decentralized power tools.

“I think proof of stake as we know it today needs to be fundamentally changed,” Baricevic said.

Until then, the security and reliability of many blockchains will continue to depend on the goodwill and restraint of private companies, and the strength of grassroots campaigns to exclude them.

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