Gnosis Chain forks to recover $9m lost in Balancer hack

Gnosis Chain has undergone a hard fork in order to recover $9 million that were lost in a November hack.

Before a Monday deadline, a majority of Gnosis validators updated their software to accommodate the hard fork, which effectively undid the hack.

Such maneuvers are among the most controversial in crypto. While they can help users who lose money due to hacks or errors, they also undermine one of the core value propositions of blockchain technology — that it is neutral infrastructure that is not subject to the whims of a capricious central authority.

Philippe Schommers, an executive at Gnosis Ltd., hinted at that concern in a December 12 post in which he urged validators to update their software in order for the fork to succeed.

“We believe that in due course, validators should not be able to censor transactions and the underlying network infrastructure should be actually blind,” he wrote in the blockchain’s governance forum.

“We commit to work towards this future, but in the meantime encourage a community discussion on how and when the community should wield this power it still has when acting in concert.”

Gnosis Ltd. is the company that built the blockchain and related products, such as Gnosis Pay.

Gnosis Chain was launched in 2015, making it one of the longest-running blockchains. Its DeFi ecosystem was 39th-largest as of Tuesday, with more than $138 million in user deposits, according to DefiLlama data.

Ethereum underwent a similar move in 2016, after a massive hack threatened the nascent network.

That year, an Ethereum-based investment fund called The DAO was hacked for 3.6 million Ether, which was worth about $50 million at the time.

A month later, a majority of Ethereum miners upgraded their software to undo the hack. It was a controversial move that split the chain in two.

The upgraded chain is still referred to as Ethereum, while miners who refused the upgrade continued running the older version of the blockchain, now known as Ethereum Classic.

Some Gnosis users raised concerns with the decision in a forum for GnosisDAO, the cooperative that governs the blockchain.

Ideally, we wouldn’t have had to take that decision in the first place,” Luca Winter, the co-founder of Serenita, a manager of Gnosis validators, said on December 12.

“In response to the current situation we would like to (help) set some ground rules based on which we can more easily, and quickly, decide what to do if a similar situation should reoccur.”

He wasn’t the only one to call for a gameplan in the event Gnosis users suffer another hack. One observer cited “unequal treatment” as past hacks hadn’t merited a hard fork.

“This hard fork procedure represents a major shift in the philosophy of immutability, and I’m concerned about the potential pitfalls,” they wrote. “Accepting the hard fork could set a dangerous precedent, opening a Pandora’s box and bringing the Gnosis Chain closer to traditional finance.”

Last week, Gnosis Vice President of Technology Sebastian Bürgel asked for input on a framework that could guide the DAO in the event of a future hack.

Bürgel said he would begin drafting the framework in late January and submit it to the DAO for approval “if appropriate.”

In November, DeFi protocol Balancer suffered a hack that totaled $150 million across the several blockchains on which it operates.

Of that figure, about $9 million had been on Gnosis.

Schommers said Gnosis contributors had been working since the hack to provide an update that could recover user funds before Christmas.

That work has delayed a Gnosis update meant to keep its code compatible with that of Ethereum, an affiliated blockchain that saw a major functional upgrade earlier this month.

The Gnosis upgrade is now expected to take place in the new year, Schommers said.

Aleks Gilbert is DL News’ New York-based DeFi correspondent. You can reach him at aleks@dlnews.com.