Today EOS was governed. Today the EOS blockchain stood out from mere code as 21 Block Producers and all of the standby BPs made a decision: to overrule the code and freeze five accounts. Five people could prove they were spoofed and had received incorrect private keys. Five people that would have lost all EOS on their accounts.
How was this meant to go? The ECAF rules allow for emergency arbitration. However, the arbitrator appointed handed the matter back to the community. He choose not to rule. I don’t know his reasons yet but for now that doesn’t matter.
A lengthy zoom call followed. Some BPs found they shouldn’t do anything. Especially since the BP agreement states that a BP should only freeze an acount following a valid arbitrator’s ruling. The dilemma was that the arbitrator stated that in this particular case he couldn’t rule (which is not extraordinary, that can happen) and referred the matter back to the BPs. So it was up to the BPs. They found themselves in an awkward spot. They were set up to provide the technically impartial execution of EOS and the arbitration system, but now they were asked to step away from that core position and to make a decision themselves.
Some BPs were hesitant to freeze the accounts.
Understandably. Freezing without an arbitrator’s verdict, means entering into a conflict with the BP agreement. And would mean, further, a precedent. Because if in this case the BPs would act, they might become prone to more external pressure in other cases as well and that might impair the system. And, even more important, since there was no legal basis for freezing, some of the BPs argued, this may lead to claims because the claimant could argue that the BPs overstepped their authority. Especially when mistakes were made in the process and no crime was committed. The other BPs argued that if the house is on fire, you put out the fire first and ask questions later.
EOS Amsterdam wanted to freeze the accounts. We believe that in situations like these one needs to take responsibility.
A technical explanation from EOS 911 convinced the BPs to freeze the accounts temporarily so more time was available. A new smart contract on Etherium could proof the truthfulness of the owners of the scammed accounts. The community decided unanimously to indeed freeze the accounts. Each of the BPs and standby BPs wished to check the evidence first. At the end they all agreed: not freezing the account would mean genuine owners would lose their EOS.
What lessons are to be learned here from a legal and governance perspective?
First of all: the system worked. The community defined an action that was good. Spoofing didn’t get rewarded. Legitimate owners can probably hold on to their EOS. The community filled a gap in the rules. The following questions got satisfying answers: what to do if for some reason arbitration doesn’t work? Should we do nothing or act? Should we follow the letter of our BP agreement or find a way out? To me it is clear that n this particular case the decision made was right. Another decision would have meant an unfair result and might have had negative impact on EOS.
Secondly: the legal takeaway is that the idea of EOS Constitution and the BP agreement are as they are now difficult to manage. Because it is not clear what happens when a gap occurs. There is no last resort clause or entity that has authority to act in the situation where, contractually, no one else has authority. From a contractual point of view, this might lead to liability in case of a wrong decision. If, e.g., the spoofed accounts weren’t spoofed.
Minding the gap
We could solve this issue now. It is the process of minding the gaps. One learns when one goes along and adapts the docs to new insights. In this case we could introduce an article in the Constitution that stipulates that BPs are allowed to act once such act is based upon an unanimous decision by the BPs and standby BPS together and such act is in the interest of the community. Further such article should stipulate that the BPs wouldn’t become liable provided, however, that they acted in good faith. (Meaning: they are not liable if they could have reasonably been of the opinion that what they were doing was the right thing.)
Legally we would contractually introduce some kind of meeting that has the authority to temporarily correct and amend the Constitution and the related documents in specific cases where arbitration doesn’t work and the BP agreement leads to an clearly unfair outcome. This looks in fact a lot like the organization of many companies/association where there is always such a gathering, sit down, that can act on behalf of the organization.
It is the hybrid face of our documents: they are a contract but we organize governance in them. Governance is typically organized in bylaws or articles of association. Realizing that might help: we could look how others did this. There are tons of valuable insights out there.
We did start something incredible here. Something completely new. Something that hasn’t been done before. Yet, humanity has met a lot of our current challenges before and resolved the, Let’s use ancient knowledge to strengthen our brand new and beautiful community.
Amsterdam, 17 June 2018