User spends $10k to control $6.5M in votes on Arbitrum DAO, sparks governance concerns

A recent vote-buying incident within Arbitrum DAO has raised concerns about the viability of decentralized governance as investors exploit on-chain mechanisms to acquire influence through borrowed voting power.

According to an April 8 report by crypto analyst Ignas, a user identified as hitmonlee.eth spent 5 Ethereum (ETH), approximately $10,000, to obtain 19.3 million ARB tokens’ worth of voting power via the Lobby Finance (LobbyFi) platform. 

The voting power, equivalent to over $6.5 million in tokens, was used to support Joseph Schiarizzi’s election to Arbitrum’s oversight and transparency committee. The amount exceeded the delegated voting weight of established DAO participants such as Wintermute and L2Beat.

Lobby Finance allows token holders to delegate governance power in exchange for yield. The voting rights are then sold to interested buyers through fixed pricing or auction formats. In one documented case, 20.1 million ARB votes were acquired for just 0.0652 ETH, under $150 at current market rates.

Ignas highlighted that Lobby Finance’s economic structure significantly reduces the capital requirements for governance influence. By outsourcing voting power, token holders receive passive yield, while buyers can direct DAO decisions without long-term alignment or exposure. 

This introduces vulnerabilities similar to those exploited in past governance attacks, such as the 2021 Compound DAO incident, where a participant acquired tokens on the open market to approve a $24 million payout in COMP tokens.

In the recent Arbitrum example, Schiarizzi is projected to earn approximately 66 ETH over 12 months from his DAO committee role and potential bonuses. At ETH’s current price of $1,476.37, the amount is worth nearly $100,000, which is 10x larger than the funds spent.

That includes 47.1 ETH in base compensation and 100,000 ARB in potential bonus value. Ignas noted that the current environment enables outcomes where a $1,000 investment can yield $10,000 in DAO-controlled resources, which is economically irrational and structurally dangerous.

Schiarizzi, the beneficiary of the voting activity, publicly acknowledged the threat posed by vote buying, calling it “underpriced and risky.”

He added that he did not solicit the votes and advocated for governance structures where the cost of extracting value from a DAO exceeds the value itself to discourage opportunistic behavior.

Although LobbyFi acknowledged the report, it disagreed with the potential security risks the platform might present to governance models.

The voting protocol claims to disclose the proposals available for borrowing votes and the price for doing so while providing time for the market to react.

LobbyFi added:

“We would not refrain from NOT making a proposal available if we/the community thinks it may be a substantial danger + tweaked our auction model quite a bit to make it as secure as it may be, given the nature of things we do.”

It also claimed that the current governance mode is a “7-party plutocracy,” and LobbyFi’s goal is to put more life into on-chain governance by making it “engaging, beneficial, or even both at a time.”

The Arbitrum DAO is now evaluating potential responses to vote-buying markets. Governance forum discussions have surfaced proposals ranging from disqualifying purchased votes to imposing penalties for confirmed violations, while some participants advocate allowing free-market competition to determine outcomes.

As forum contributor OlimpioCrypto described, the situation mirrors the ongoing debate around Miner Extractable Value (MEV), where attempts to suppress manipulative practices face persistent circumvention. 

If economic incentives are misaligned, mechanisms like LobbyFi may thrive regardless of regulatory or community opposition.

Delegation to DAO-aligned representatives currently offers lower yields than platforms like LobbyFi, reducing the motivation for passive token holders to support established governance actors. 

As such, the financial design of token voting systems, particularly those using the 1:1 models to provide voting power, has come under renewed scrutiny. 

Ignas claims this model lacks structural defenses against short-term capital deployment for strategic voting and has not evolved in response to the emergence of vote leasing protocols.

Critics argue that significant changes to tokenomics may be necessary to counteract the effects of on-chain lobbying. 

Arbitrum’s ARB token, which lacks revenue sharing or staking-based rewards, currently derives most of its value from governance utility. This setup makes token holders more willing to lease voting rights in return for yield, while buyers see little downside in acquiring votes with no long-term exposure.

Without new incentives or governance mechanisms, DAOs remain susceptible to manipulation by actors who can cheaply accumulate short-term voting power. 

As platforms like LobbyFi expand, governance participants are calling for technical, structural, and economic reform with increasing urgency.

The Arbitrum DAO has not yet decided on a definitive course of action. The events are an example of the growing tension between decentralized ideals and the realities of open market conditions in on-chain governance.

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