Vote-buying on Arbitrum sparks fears of DAO governance integrity

The latest instance of vote buying on Arbitrum has raised serious concerns over the integrity of the DAO governance model, potentially exposing holders to significant risks.

Decentralized autonomous organizations promised to make finances more decentralized and free. However, on Tuesday, April 8, a case of buying DAO votes revealed serious issues with the model. Namely, one individual spent 5 ETH to buy around 19.3 million in Arbitrum (ARB) voting power.

This amounted to about $10,000 spent to influence decisions involving approximately $6.5 million in governance weight, more than the voting power of major delegates like L2Beat and Wintermute. The user, known as hitmonlee.eth, utilized LobbyFi, a platform that allows token holders to monetize their governance power by renting it out.

In this instance, the votes were used to support CupOJoseph’s candidacy for a seat on Arbitrum’s Oversight and Transparency Committee. The fact that vote buying was used to influence the outcome of a transparency committee election has raised serious concerns about the legitimacy and security of DAO governance.

According to Ignas from Pink Brains, the oversight role pays around $7,500 per month for 12 months. This suggests that vote buying could be financially incentivized, not just ideologically driven. More broadly, it demonstrates that DAO governance structures using a one-token-one-vote model could be susceptible to manipulation.

DAO vote buying security risks

In July 2024, Compound DAO narrowly passed a vote that granted $24 million, or 5% of the treasury, to an outside protocol. Namely, the protocol was under the control of one of the major COMP holders who pushed the motion. The move, which came after two previous unsuccessful attempts, was characterized by other DAO members as a governance attack.

The risk of platforms like LobbyFi is that they can significantly reduce the cost of governance attacks. Nefarious actors can now influence key DAO decisions at a fraction of the money they would need otherwise. This enables them to enrich themselves, at the cost of the token holders and the DAO itself.