A recent incident of purchase of votes within Arbitrum DAO has raised concerns about the viability of decentralized governance while investors exploit chain mechanisms to acquire influence by the borrowed voting power.
According to an April 8 report By Crypto Analyst Ignas, a user identified as hitmonlee.eth spent 5 Ethereum (ETH), around $ 10,000, to obtain the value of 19.3 million ARB tokens by voting via the lobby financing platform (Lobbyfi).
The voting power, equivalent to more than $ 6.5 million in tokens, was used to support the election of Joseph Schiarizzi at the Arbitrum surveillance and transparency committee. The amount exceeded the delegated voting weight of the DAO participants established such as Wintermute and L2Beat.
The financing of the lobby allows tokens to delegate governance power in exchange for return. The voting rights are then sold to interested buyers through pricing or fixed auction formats. In a documented case, 20.1 million ARB votes were acquired for only 0.0652 ETH, less than $ 150 at current market rates.
Mine the integrity of the vote
Ignas stressed that the economic structure of the Hall Finance considerably reduces the capital requirements for the influence of governance. By outsourcing voting power, tokens holders receive a passive return, while buyers can direct DAO decisions without alignment or long -term exposure.
This introduces vulnerabilities similar to those exploited in previous governance attacks, such as the DAO incident composed of 2021, where a participant has acquired chips on the free market to approve a payment of 24 million dollars in comp.
In the recent example of arbitrum, Schiarizzi should earn around 66 ETH in 12 months from its role as DAO Committee and its potential premiums. At the current ETH price of $ 1,476.37, the amount is worth almost $ 100,000, or 10 times higher than the funds spent.
This includes 47.1 ETH in basic compensation and 100,000 ARB in potential bonus value. Ignas noted that the current environment allows results where an investment of $ 1,000 can bring $ 10,000 in resources controlled by DAO, which is economically irrational and structurally dangerous.
Schiarizzi, beneficiary of the voting activity, publicly recognized the threat posed by the purchase of voting, the appellant “sub-prix and risky”.
He added that he had not requested votes and pleaded for governance structures where the cost of extraction of the value of a DAO exceeds the value itself to discourage opportunistic behavior.
Not a security risk
Although lobbyfi recognized The report, he disagreed with the potential security risks that the platform could present to governance models.
The voting protocol claims to disclose the proposals available for the loan of votes and the price to do so while offering the market to react.
Lobbyfi added:
“We do not abstain from not making an available proposal if we / the community thinks that this can be a substantial + danger has changed our model of auctions to make it as secure as possible, given the nature of the things we do.”
He also said that the current mode of governance is a “plutocracy with 7 parts” and that the objective of Lobbyfi is to put more life in chain governance by making it “engaging, beneficial, or even both at the same time”.
Dao Response Forums Debate
The DAO arbitrum now assesses the potential responses to the voting purchase markets. Discussions on the Governance Forum have surfaced proposals ranging from the disqualification of votes purchased to the taxation of sanctions for confirmed violations, while certain participants recommend allowing the competition on the free market to determine the results.
As Olimpiocrypto described, the forum contributor, the situation reflects the current debate around the extractable value of minors (MEV), where attempts to remove manipulation practices are confronted with a persistent bypass.
If economic incentives are poorly aligned, mechanisms such as lobbyfi can prosper independently of regulatory or community opposition.
The delegation to representatives aligned DAO currently offers lower yields than platforms like Lobbyfi, which reduces the motivation of passive tokens holders to support established governance actors.
As such, the financial design of tokens voting systems, in particular those that use models 1: 1 to provide voting power, has been the subject of renewed control.
Ignas says that this model lacks structural defenses against the deployment of short -term capital for strategic vote and has not evolved in response to the emergence of voting rental protocols.
A structural reform may be necessary
Critics argue that significant changes in the tokenomic may be necessary to counter the effects of lobbying on the chain.
The arbitrum arb of arbitrum, which has no awards on income sharing or awards, currently draws most of its value from the public governance service. This configuration makes chip holders more willing to rent the voting rights in exchange for return, while buyers see little drawback in the acquisition of votes without long -term exposure.
Without new incentives or new governance mechanisms, DAOs are likely to handle actors who can accumulate short -term voting power on cheap.
While platforms like Lobbyfi develop, governance participants call for technical, structural and economic reform with an increasing emergency.
The DAO arbitrum has not yet decided on a final line of conduct. Events are an example of the growing tension between decentralized ideals and the realities of the market conditions open in chain governance.
