What Just Happened on Steemit?
Steemit, a decentralized blogging platform built on the Steem blockchain, has been seized by Tron in what appears to be a massive multi-exchange takeover. However, while the crypto industry has been ripe with rumors and speculations about what really happened, few facts are actually known about the event.
To understand the scope and implication of Tron’s takeover of Steem, it’s important to take a look at the whole picture.
Built on the Steem blockchain and powered by the STEEM token, content sharing platform Steemit has been seen as a blockchain-based alternative to popular platforms such as Facebook or Twitter. However, the platform’s initial popularity has been dwindling down the past few years, which led to its website being acquired by TRON earlier this month.
While the details of the acquisition were disclosed neither by Steem nor by Tron, the acquisition was most likely a part of Tron’s overall expansion strategy.
What made Steem stand out from most other blockchain social media apps is its governance system, in which its node operators were able to stake their STEEM tokens in order to vote on the platform’s development. The platform’s main problem was the fact that Steemit Inc., the company that made it, held over 20% of the current circulating supply of STEEM. This would enable the company to hold over 40% of the voting power on the platform—an issue that was solved by banning tokens in Steemit’s own accounts from participating in governance.
It all, however, changed after Tron’s acquisition.
Last week, the majority of Steem’s witnesses, which are entities tasked with making decisions about the blockchain’s governance, initiated a soft fork that further censored the stake held by Steemit until either Justin Sun or Tron provided more details about his plans for the platform.
But, since most users hold their STEEM tokens on cryptocurrency exchanges, it’s actually these platforms that are the biggest stakeholders on the network.
To reverse last week’s soft fork, several large crypto exchanges used their voting power to put the entire control of the Steem blockchain into the hands of one user—@dev365. It is assumed that accounts run by exchanges Binance, Huobi, and Poloniex delegated their power to the account most likely owned by Justin Sun, the founder and CEO of Tron.
Changpeng Zhao, the CEO of Binance, confirmed the exchange’s involvement in the issue on Twitter. Zhao noted that Binance’s position was a supportive one, adding that this type of voting was common among crypto projects.
The move wasn’t well-received by the crypto community. Many criticized Sun for what appeared to be nothing short of a coup, in which control over a previously decentralized network was taken from its users and put into the hands of Tron.
Binance was the first to respond to the pressure, with Changpeng Zhao issuing a statement saying that the exchange has “unvoted” the soft fork as it had no interest in participating in on-chain governance.
Sun, on the other hand, explained that the soft fork wasn’t an attempt of a hostile takeover, but rather an attempt to resolve a malicious attack threatening millions of dollars worth of STEEM. In a Twitter thread, Sun explained that attackers froze 65 million STEEM tokens, worth around $10 million, on Feb. 22. All of the tokens were owned by STEEM’s core developers and the attackers threatened to nullify all existing tokens if counter-attack measures were taken.
In order to safeguard the Steem blockchain and secure the interest of STEEM holders, Tron decided to take over the control of the network for a “short period of time.”
“To avoid hackers’ retaliation & to protect the safety of the overall network, we had no choice but to keep our actions under cover,” Sun explained.
Sun’s attempt to resolve the issue proved largely unsuccessful, though, as both the greater crypto community and STEEM holders believe that Sun was fabricating the truth. Those that believed his explanation seemed to have lost faith in Tron’s ability to keep Steem decentralized.
The turmoil surrounding the platform still hasn’t triggered a STEEM selloff but has put the issue of centralization and governance in blockchain platforms under the spotlight.