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Block.one Will Now Vote for EOS Candidates, But Wants Their Locations First

Block.one is about to begin wielding its juggernaut EOS allocation in the ecosystem’s governance, but the multi-billion-dollar developer house has some pre-requisites.

In a note last Friday, the Cayman Island-based company, which controls 100 million EOS tokens, just under 10% of the current total supply, outlined the criteria it would use to decide on which block producer (BP) candidates to support and vote for.

There are just three requirements. Numbers two and three are: the BP candidates’ node has to be running version 2 or higher EOS software and has to be independently operating as a publicly queryable node.

But it’s the first requirement that’s perhaps most interesting: “The general location of the node has been disclosed publicly through the BP JSON file.” A JSON file is like a BP’s public declaration, which includes crucial information such as names and contact information. So, in other words, Block.one wants a BP candidate to disclose where it’s based before it will lend it its hefty support.

In an email to CoinDesk, Kevin Rose, who used to be head of BP EOS New York, and now manages the relations between Block.one and the EOS community, played down the location requirement, saying it was just a factor they would take into consideration when deciding who to vote for.

CoinDesk asked Rose why Block.one wanted to have BPs’ location at all in the first place. “As with any public decentralized blockchain, understanding the general geographic distribution of block producing nodes is helpful information for self-evident reasons,” he said.

See also: On EOS Blockchain, Vote Buying Is Business as Usual

Back in June 2019, Brock Pierce, Block.one’s former chief strategy officer, notoriously claimed that changes to the EOS governance system – which effectively enabled vote-buying – meant the network had been taken over by a cabal of block producers based in China: a “Chinese oligarchy,” he called it.

But Rose denied the location disclosure had anything to do with favoring specific countries. It was “not a regulatory or other formal requirement,” rather it was merely a factor they considered when voting for a BP candidate.

“While we do not value one jurisdiction over another, this voluntary location disclosure is something that has been organically championed by the general EOS community, so we chose to embrace it as we begin voting for the first time,” he said.

Instead Block.one’s location requirement is only to ensure that, as a “globally-focused organization we embrace inclusivity and diversity among block producer node,” according to Rose. At the end of the day, a location disclosure has been proposed as voting criteria since August 2019, so Block.one, he said, is just “embracing that community desire.”.

But Alex Melikhov, CEO and founder of Equilibrium and the EOSDT stablecoin, told CoinDesk that location disclosure would do little to ensure Block.one voted for eligible BPs. Most run node infrastructure on clouds, and it takes “literally seconds to set any geographic location for nodes,” he said. “So nobody can verify geographic parameters set in BP JSON and it can’t become [a] strong criteria by far.”

“The geographical locations of nodes can be easily gamed – it doesn’t make much sense to me,” Melikhov added.

 See also: Everyone’s Worst Fears About EOS Are Proving True

Block.one’s share of the token supply has declined as new EOS enters the system. Its share was down to roughly 9.5%, by November 2019, which still makes it one of the largest token holders. The firm said in Friday’s post that it plans to vote for BP candidates “in a rotational manner with no cap on how many total candidates we vote for over time.”

Block.one stayed out of EOS governance for a long time, saying, at the time of the mainnet launch, that its sizeable token allocation gave it an outsized voice in the still-nascent community. As EOS’s creator, the firm retains an influential role in the ecosystem, thus receiving support from Block.one would be a substantial and valedictory development for any BP.

But Block.one is rigorously defending is right to change its voting criteria at will. “We maintain the ability to adjust voting criteria at any time,” Rose said. “As we engage with community members, our voting approach will evolve, and criteria will be added to ensure that the recipients of our votes adhere to the standards we wish to see network-wide.”

CoinDesk asked if the EOS community has any say over how Block.one determines who it votes for.

Rose said BP candidates can send summaries and recommendations to Block.one to “help inform our vote and future voting criteria.”

But, he added, “we maintain the ability to adjust the criteria at any time.”

See also: Block.one Failed to Decentralize EOS, Argues New Securities Fraud Lawsuit

Block.one previously said they were committed to playing a “proportional role” in the ecosystem and their post last week said they would only use 10% of its token allocation to vote in the ecosystem. But that could also change over time.

“We will initially vote with 10 million EOS tokens which may increase over time at our discretion,” the company said.

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Block.one Failed to Decentralize EOS, Argues New Securities Fraud Lawsuit

A cryptocurrency investment fund has launched a class-action lawsuit against Block.one and EOS’ high command, arguing the “fraudulent scheme” failed to deliver on its primary promise of decentralization.

The Crypto Assets Opportunity Fund (CAOF), along with individual investor Johnny Hong, has accused Block.one, its CEO Brendan Blumer, CTO Dan Larimer, former chief strategy officer Brock Pierce and former partner Ian Grigg, of trying to “capitalize on the investor fervor for cryptocurrencies” in 2017 to host an illegal securities sale.

In a strongly-worded filing with the Southern District of New York, plaintiffs argue defendants purposefully misled investors and artificially inflated the EOS token price during the yearlong ICO, which raised a total of $4.1 billion between June 2017 and June 2018.

The filing reads: “This case arises out of a fraudulent scheme, fueled by a global frenzy over cryptocurrencies and unchecked human greed, to raise billions of dollars through sales of a cryptocurrency called EOS – an unregistered security – to investors in violation of the United States federal securities laws.”

Both COAF and Hong are seeking damages, to be agreed on by the court, from the defendants.

See also: On EOS Blockchain, Vote Buying Is Business as Usual

The suit, which was filed on Monday, is comprised of six counts. These include well-worn accusations, such as Block.one aggressively marketed its token sale in the U.S. without first registering it with the Securities and Exchange Commission (SEC).

But the case’s linchpin is the accusation Block.one and its representatives made “dozens of materially false and misleading statements” about EOS, especially in attempts to promote it as a superior new type of decentralized protocol.

In the filing, plaintiffs say EOS was always publicly described as decentralized and that this formed a crucial part of the whitepaper and broader ICO pitch.

But, they claim, this turned out to be false as soon as the protocol launched. It was the 21 block producers (BPs) who really controlled the ecosystem, rather than the community itself, the filing reads. Key parts of the governance system, like the arbitrator, who could reverse and freeze transactions at will, were never disclosed at the time of the sale, the plaintiffs claim.

As proof that EOS was not the decentralized protocol investors had been led to believe, the filing cites a statement Pierce made in 2019 – after he had left Block.one – when he claimed EOS was effectively controlled by a “Chinese oligarchy.”

“Block.one did not have the ability to create a decentralized EOS blockchain,” the suit concludes. The plaintiffs say the failure to deliver on one of the sale’s key promise – as well as the costly Voice pivot – has had a negative impact on the EOS token price, which materially harmed investors like themselves.

See also: Block.one Plans to Start Voting on EOS, the Blockchain It Birthed

CAOF is an Illinois-based pooled fund, that was set up in 2017 under the umbrella of Victoria Capital – a blockchain specific investment and advisory fund. There is very little public information about individual investor Johnny Hong available, besides the fact that he resides in Solvang, California.

It isn’t clear when CAOF bought into the EOS ICO or for how much, although a Medium post by CEO Brandon Elsasser, who is also Victoria Capital’s chief investment officer (CIO), said in a July 2018 update that the fund had forsworn further ICO investing as it presented more risk than was deemed prudent.

Block.one reached a settlement with the SEC last September, agreeing to pay $24 million in damages for running an unregistered securities sale, in exchange for a waiver on the legal restrictions that would usually be applied.

At the time, SEC Division of Enforcement co-director Steven Peikin said in a statement that Block.one had failed to provide investors with the information typically included in a securities sale.

Considering the $24 million penalty represented 0.58% of the initial raise, some criticized the settlement as little more than a slap on the wrist. Earlier this year, investors filed another complaint requesting damages against Block.one after participating in the token sale.

Disclosure Read More

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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