Author: Frank, PANews

As a leader in Ethereum Layer 2 scaling solutions, ArbitrumDAO is highly anticipated, not only for its technical strength but also for its large and active decentralized autonomous organization (DAO). Through the collective wisdom of ARB token holders, it aims to guide the protocol towards a broader future. However, a recent controversy surrounding the election of DAO members has brought to light a long-hidden "ghost" in the depths of DeFi governance—vote buying (voting market).

At the heart of the matter is a platform called LobbyFinance (LobbyFi), which enabled users to acquire voting rights for ARB tokens worth up to $6.5 million at an extremely low cost (only 5 ETH, approximately $10,000) and successfully influenced the outcome of a key committee member election. This incident is akin to opening Pandora's box, exposing the vulnerabilities of the "one token, one vote" governance model and raising profound concerns about the legitimacy, security, and future direction of DAO governance. Is this merely an isolated "black swan" event, or does it signify the tip of an iceberg of systemic crisis in DAO governance models?

5 ETH Unlocks $6.5 Million Voting Rights: The Capital "Ghost" Behind the Election Controversy

In early April 2025, ArbitrumDAO was conducting member elections for its newly established Oversight and Transparency Committee (OAT). This seemingly ordinary community governance activity was stirred up by a "small" transaction.

According to DeFi researcher @DefiIgnas, an address named hitmonlee.eth used the LobbyFi platform to spend 5 ETH (then worth about $10,000) to purchase voting rights for as many as 19.3 million ARB tokens. This 19.3 million ARB tokens, calculated at the market price at the time, had a total value of approximately $6.5 million. Even more astonishingly, the number of voting rights acquired through this purchase exceeded the votes held by well-established representatives like Wintermute and L2Beat, who have long been deeply involved in ArbitrumDAO and possess a large number of community delegations.

hitmonlee.eth did not distribute these votes but cast them all for one of the OAT committee candidates, Joseph Schiarizzi, a developer and expert in the DeFi field. The injection of this massive voting power had a decisive impact on the election results, ultimately helping Schiarizzi successfully become a member of the OAT committee.

The key driver behind this incident is LobbyFinance (LobbyFi). LobbyFi is positioned as a governance influence platform, or more straightforwardly, a "voting rights rental market." Its operational model allows token holders to delegate their token voting rights to LobbyFi in exchange for a rental return. Voting rights can be sold through auctions, with the highest bidder winning, or at a fixed price set by the platform ("instant purchase").

In the Arbitrum OAT election case, hitmonlee.eth utilized the 5 ETH "instant purchase" option. LobbyFi claims that its operations are transparent, disclosing available proposal voting rights and their prices, while allowing time for market reactions. However, the essence of this mechanism is the commodification of governance power, allowing short-term capital to gain significant governance influence at a cost far lower than directly purchasing an equivalent amount of tokens.

Economic Motives Behind the Election Controversy

The controversy surrounding this incident is also rooted in the imbalanced economic incentives behind it. The position of OAT committee member is not merely nominal; it comes with actual economic returns. It is estimated that the position could yield approximately 47.1 ETH in compensation over a 12-month term (about $7,500 per month), plus a potential bonus of up to 100,000 ARB (approximately 18.7 ETH at the time), totaling a potential income of about 66 ETH.

This means that hitmonlee.eth, by spending only 5 ETH, could help the candidate they supported secure a position worth a potential value of up to 66 ETH. This significant disparity in benefits undoubtedly provides a strong economic incentive for vote buying.

The ultimate beneficiary, @CupOJoseph, publicly acknowledged that the current pricing for vote buying is "too low and very risky," stating that "getting $10,000 from a DAO shouldn't only cost $1,000." This statement seems to absolve him of any suspicion of participating in vote buying but also indirectly confirms the existing loopholes in the current system.

This is not the only low-priced transaction on LobbyFi. According to @DefiIgnas, there was previously a purchase of 20.1 million ARB votes for less than 0.07 ETH (worth less than $150 at the time). Such a low cost of influence seems to open the doors of DAO governance to capital.

Official Discussion Proposal: Mixed Opinions in the Community, DAO Governance May Have Caught Regulatory Attention

The voting controversy in Arbitrum has caused a stir within the community, forcing the Arbitrum Foundation and DAO members to confront the challenges posed by the voting market and actively seek solutions.

Following the incident, the Arbitrum Foundation quickly initiated a public discussion titled "DAO Discussion: Vote Buying Services" on its official governance forum. The foundation acknowledged this as a "pioneering moment," but did not immediately take unilateral prohibitive measures; instead, it chose to present the issue to the community, hoping to find a way forward through collective discussion.

According to the new proposal, LobbyFi has been active in ArbitrumDAO for several months, but this is the first instance where someone has been willing to spend money to influence election results.

Opinions within the community are clearly divided. A minority of hardliners advocate for a zero-tolerance approach to vote buying, proposing to directly cancel or ignore votes identified as purchased.

Others argue that under a token-weighted governance system, vote buying reflects market forces and is difficult to completely prohibit; enforcing a ban would only push it into more hidden corners. They believe that platforms like LobbyFi at least provide a certain level of traceability, which may be better than untraceable private transactions. Some even argue that LobbyFi has activated previously dormant voting rights, increasing overall participation.

More discussions focus on how to fundamentally address the issue. The core idea is to reduce the attractiveness of vote buying while enhancing the rewards for "honest" governance participation.

It is worth noting that the chaos and loopholes in DAO governance may also attract the attention of regulatory agencies. According to a report by Katten, U.S. agencies such as the SEC and CFTC have begun to scrutinize DeFi and DAOs. The SEC explicitly stated in its 2017 investigation report on "The DAO" that certain tokens issued by DAOs may be considered securities. In the CFTC's lawsuit against OokiDAO, the court ruled that DAOs could bear legal responsibility as "unincorporated associations," even suggesting that token holders who vote may need to bear joint liability. The SEC's investigation into the Mango Markets case also focused on governance tokens themselves for the first time. If DAO governance is widely perceived as susceptible to manipulation and lacking effective control, it will undoubtedly increase the risk of being incorporated into existing financial regulatory frameworks, potentially affecting the legal classification of governance tokens.

Has Pandora's Box Been Opened? DAO Governance Reduced to a Capital Hunting Ground

The voting controversy in Arbitrum is not an isolated case; it reveals a deep-seated crisis that DAO governance in the DeFi space generally faces. The rise of voting markets like LobbyFi is exposing the inherent contradictions of the foundational principle of DAO governance: "one token, one vote."

The core idea of a DAO is decentralization and community autonomy. Ideally, decisions should be based on community members' understanding of the protocol and considerations of long-term interests. However, the emergence of voting markets allows governance influence to be directly purchased with money, tilting the balance of decision-making towards capital.

An extreme case is the "coup" at BuildFinanceDAO: on February 9, 2022, a user gained control of the DAO by purchasing enough BUILD tokens on the open market, subsequently proposing to grant themselves the power to mint new tokens and control the treasury, ultimately absconding with approximately $470,000 in assets and rendering the original tokens worthless.

In 2022, Beanstalk Farms suffered a flash loan attack, where the attacker borrowed a large number of governance tokens within a single block and, through an emergency proposal, siphoned off $182 million in reserves. These cases highlight the vulnerabilities of DAO governance mechanisms, and voting markets undoubtedly provide potential attackers with more convenient and economical "weapons."

The voting controversy in ArbitrumDAO serves as a prism, reflecting the current dilemma of DAO governance models in seeking a balance between efficiency, fairness, and security. Behind the simplicity of "one token, one vote" lies the potential erosion of decentralization ideals by capital. The emergence of voting markets like LobbyFi is a product of the market's spontaneous pursuit of efficiency and returns, but it also indeed opens the door to governance manipulation, presenting severe challenges.

At present, there is no one-size-fits-all solution. Completely banning voting markets may be difficult to enforce and could push the problem into more hidden corners, while fully allowing free markets could lead to DAOs becoming a game for capital. This controversy serves as a wake-up call for all DAO participants: decentralized governance is not an instant utopia; it is a complex system that requires continuous design, iteration, and negotiation. How to build a robust governance moat that can withstand capital erosion and malicious attacks while maintaining the open and permissionless spirit of Web3 will be a core issue that the entire DeFi space must face and address in the foreseeable future.

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