Three token submissions denied Ethfinex Badges in the first month of the Kleros T2CR

In the first month since the launch of the Kleros T2CR, three token submissions were denied Ethfinex Badges by Kleros jurors.

Many questions have been asked of the possibility to provide crowdsourced fully anonymous juror arbitration to real life cases. Below, we can see the meticulously detailed evidence provided by challengers in a number of cases. Kleros jurors have been provided with a wealth of evidence on each case from both the original challenger of the badge and the projects themselves.

According to Ethfinex Badge Court Guideline, there is a number of concrete demands that need to be met by all projects that passed initial validation of their token submissions in the T2CR in order to become eligible for the Ethfinex Badge. This badge allows projects to become a part of the pool of tokens to be chosen by the Nectar Token holders for listing on Ethfinex.

VERA Token dispute (link to evidence)

Even though initially thought eligible by the original submitter, Kleros jurors have found that VERA does not comply with the Ethfinex Guideline on two points.

  1. Ethfinex Guideline point 1.1.2 states: “The token should not provide dividends or similar payments to token holders”. The challenger found that Verasity promises a 36% annual return for staking the VRA token.

In order to prove that this return is indeed a dividend, the challenger looked at page 21 of their whitepaper and found that Verasity uses a DPoS consensus mechanism. That mechanism gives only certain actors the burden of running some programs necessary for the blockchain to run.

Given that it is impossible for everybody to participate in the consensus mechanism, and that page 26 of the whitepaper states that only staking tokens in a dedicated smart contract provides the holder a 0.1% daily interest rate with no action or purpose given to the holder, the challenger found it impossible to say that the reward is linked with the proof-of-stake mechanism.

  1. Ethfinex Guideline point 1.1.5 states: “The issuer should not plan to keep effective control of the project.” The challenger found proof that the project does, in fact, intend to retain some form of control and not release it fully in their yellow paper. On page 4 of the aforementioned yellow paper, Verasity claims that “ it is desirable to put the Verasity Foundation into a position similar to that of the legislative branch of a government. […] the most suitable implementation would involve Verasity releasing source code updates and having control over several privileged accounts that can alter certain key policy parameters.”

The final decision of the jurors was to not give the Badge to the project due to these two breaches of the Guideline. Token dispute (link to evidence)

  1. Ethfinex Guideline point 5.2 states that: “At least 10% of the total supply is freely circulating in the market OR will be freely circulating after the token is released.”

The challenger found that:

  • The total supply of the CRO token was 100,000,000,000
  • The calculated circulating supply of the CRO token, according to Coinmarketcap methodology was 4 118 721 461 CRO on March 20, 2019.
  • Taking this into account, the challenger analyzed the top 5 token holder addresses and found that they share between them 95.88% of the total supply. In order to prove the who owns these tokens, the challenger found that all of these addresses held tokens that came directly out of the minting process (from the genesis address 0x0000000000000000000000000000000000000000). This was found as proof that the tokens were indeed held by the issuer and grounds for dismissal of the request for the Ethfinex badge.

The final decision of the jurors was to not give the Badge to the project due to this breach of the Guideline.

Spendcoin Token dispute

The Spendcoin Token dispute has been, as of yet, the most funded dispute with two fully funded appeals and the last, underfunded appeal, after which the final decision has been made. This has, as well, been one of the most contested cases in the T2CR up until now, with significantly high stakes.

The initial submission for the Ethfinex Badge has been disputed by the challenger (evidence here), who listed a significant amount of arguments against the Spendcoin listing, starting from the composition of the team, the structure and concept of the product (point 3.1 in the Ethfinex Guideline) to a problematic definition of decentralization as it was envisaged by the project (point 5.2). Even though the original submitter responded (evidence here) with his own proof, the vote came to a 5-0 in favour of the challenger.

The submitter managed to crowdfund the appeal and the court went to session another time, now with 11 jurors.

In the first appeal, the challenger focused on the element of decentralization as key to the reason why Spendcoin should not receive a badge, given that there were only ~3% of tokens in circulation and the top 6 addresses owned 91% of them. (evidence here)

The defense argued that 50% will be freely circulating after the tokens are earned through Proof-of-Purchase. Furthermore, it was stated that the Spend Foundation would only own 25%, the founders and advisors 12.5%, and 12.5%.

And in this iteration of the appeals process, the verdict stayed the same.

When the Spendcoin token was appealed for the second time, following a successful crowdfunding, the point about decentralization became key, as it turned out that this was the reason Spendcoin lost their case the previous time. (evidence here)

After the submitter gave his evidence, the challenger noted (evidence here)that this evidence is in fact derived from two separate versions of the Ethfinex Guideline (which was updated during the dispute), and given the original time of the submission, Spendcoin token would have to be resubmitted to be eligible to obtain a badge in accordance to the new rules.

In the end, the final decision of the jurors was to not give the Badge to the project due to breaches of the Guideline, following an unsuccessful crowdfunded appeal.

The first month of the T2CR has been one that opened a wide array of questions and an enormous amount of data to process. What is certain is that the system of incentives has proven to be a success, with very detailed evidence being presented on all sides.