A platform called LobbyFinance (LobbyFi) enabled users to acquire voting rights for ARB tokens worth up to $6.5 million at an extremely low cost—just 5 ETH (around $10,000)—and successfully influenced the outcome of a key committee member election.

As a leading Ethereum Layer 2 scaling solution, ArbitrumDAO carries high expectations—not only due to its technical capabilities, but also because of its large and active decentralized autonomous organization (DAO). Through the collective wisdom of ARB token holders, the protocol is expected to be guided toward a broader future.

However, a recent controversy surrounding the DAO member election has brought a long-lurking issue in the deep waters of DeFi governance to the forefront—vote-buying via the voting market. At the heart of the event, LobbyFinance (LobbyFi) allowed users to gain voting power for ARB tokens worth $6.5 million at a cost of only 5 ETH, successfully influencing a critical committee election.

This incident has opened a Pandora’s box, exposing the fragility of the “one token, one vote” governance model, and raising serious concerns about the legitimacy, security, and future direction of DAO governance. Is this merely an isolated “black swan” event—or a glimpse into a deeper systemic crisis in DAO governance models?

5 ETH Unlocks $6.5 Million Voting Power: The Capital “Ghost” Behind the Election Scandal

In early April 2025, ArbitrumDAO was holding an election for members of its newly established Oversight and Transparency Committee (OAT). What appeared to be a routine community governance activity was shaken by a seemingly small transaction.

According to DeFi researcher @DefiIgnas, an address named hitmonlee.eth used the LobbyFi platform to spend 5 ETH (worth approximately $10,000 at the time) to purchase voting power for as many as 19.3 million ARB tokens. At the time, the total value of these 19.3 million ARB tokens was about $6.5 million. Even more astonishing, this purchased voting power exceeded the number of votes controlled by long-established, well-known representatives in ArbitrumDAO, such as Wintermute and L2Beat, who had large community delegations.

hitmonlee.eth did not spread the votes across different candidates, but instead cast them all for one of the OAT Committee candidates, Joseph Schiarizzi, a DeFi developer and expert. The injection of such a large number of votes had a decisive impact on the election outcome, ultimately helping Schiarizzi secure a seat on the OAT Committee.

The main driver behind this event was LobbyFinance (LobbyFi). LobbyFi is positioned as a governance influence platform, or more simply, a “voting power leasing market.” Its operation model allows token holders to delegate their voting power to LobbyFi in exchange for a rental return. The sale of voting power can be conducted through auctions, with the highest bidder winning, or through a fixed price set by the platform (“instant buy”).

In the Arbitrum OAT election case, hitmonlee.eth used the 5 ETH “instant buy” option. LobbyFi claims its operations are transparent, disclosing available proposal voting rights and their prices, and allowing time for market reactions. However, the essence of this mechanism is to commodify governance power, allowing short-term capital to acquire significant governance influence at a much lower cost than directly purchasing an equivalent amount of tokens.

Economic Incentives Behind the Election Scandal

The controversy surrounding this incident stems from the imbalanced economic incentives behind it. The position of an OAT Committee member is not merely honorary, as it comes with real economic rewards. It is estimated that the position provides around 47.1 ETH in compensation over a 12-month term (about $7,500 per month), along with a potential bonus of up to 100,000 ARB tokens (approximately 18.7 ETH at the time), bringing the total potential earnings to around 66 ETH.

This means that hitmonlee.eth, by spending only 5 ETH, may have helped their supported candidate secure a position with a potential value of up to 66 ETH. The huge disparity in potential benefits undeniably provides a strong economic incentive for vote buying behavior.

The ultimate beneficiary, @CupOJoseph, publicly admitted that the current price for vote buying is “too low and carries significant risks,” stating that “obtaining $10,000 from a DAO should not only cost $1,000.” While this statement appears to distance him from the accusation of bribery, it also indirectly highlights the flaws in the current system.

This was not the only low-cost transaction on LobbyFi. According to @DefiIgnas, there was also a purchase of 20.1 million ARB tokens’ voting rights for less than 0.07 ETH (less than $150 at the time). Such a low cost of influence makes it seem that the doors to DAO governance are wide open to capital.

Official Discussion Proposal and Community Divided Opinion, DAO Governance May Attract Regulatory Attention

The Arbitrum voting scandal sparked a huge uproar within the community, forcing both the Arbitrum Foundation and DAO members to confront the challenges posed by the vote market and actively seek solutions.

After the incident, the Arbitrum Foundation quickly initiated a public discussion on the official governance forum titled “DAO Discussion: Vote Buying Services.” The Foundation acknowledged this as a “pioneering moment,” but did not immediately take unilateral, harsh measures to ban it. Instead, they chose to throw the issue to the community, hoping to find a way forward through collective discussion.

According to the new proposal, LobbyFi has been active within the Arbitrum DAO for several months, but this is the first case where someone was willing to spend money to influence an election outcome.

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

Other opinions argued that, within a token-weighted governance system, vote buying is a manifestation of market forces and cannot be entirely prohibited. Forcibly banning it would only push it into more hidden corners. They believed that platforms like LobbyFi at least provided some traceability, which could be better than untraceable private transactions. Some even argued that LobbyFi activated otherwise dormant voting rights, increasing overall participation.

Further discussions focused on how to address the issue at its core. The central idea was to reduce the attractiveness of vote buying while increasing the rewards for “honest” governance participation.

It is worth noting that the disorder and vulnerabilities in DAO governance may attract the attention of regulatory agencies. According to a report by Katten, institutions such as the US SEC and CFTC have already begun scrutinizing DeFi and DAOs. In its 2017 investigation into “TheDAO,” the SEC clearly stated that tokens issued by certain 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 be held jointly liable. The SEC’s investigation into the MangoMarkets case also marks the first time it has focused on governance tokens themselves.

If DAO governance is widely regarded as vulnerable to manipulation and lacking effective control, it will undoubtedly increase the risk of being incorporated into existing financial regulatory frameworks, potentially even impacting the legal classification of governance tokens.

Has Pandora’s Box Been Opened? DAO Governance Becomes a Capital Hunting Ground

The Arbitrum voting scandal is not an isolated incident; it reveals the deep-seated crisis facing DAO governance in the DeFi space. The rise of vote markets, like LobbyFi, has exposed the inherent contradictions in the core principle of DAO governance: “one token, one vote.”

The core idea of DAO is decentralization and community autonomy. In an ideal situation, decisions should be based on the community’s understanding of the protocol and long-term interests. However, with the emergence of vote markets, governance influence can be directly purchased with money, tipping the balance of decision-making toward capital.

An even more extreme case was the “coup” at BuildFinanceDAO: On February 9, 2022, a user gained control of the DAO by purchasing enough BUILD tokens on the open market. The user then proposed granting themselves the power to mint new tokens and control the treasury, ultimately siphoning off around $470,000 in assets and causing the original token’s value to plummet to zero.

In 2022, Beanstalk Farms encountered a flash loan attack in which the attacker borrowed a large amount of governance tokens within a single block and used an emergency proposal to steal $182 million in reserves. These cases highlight the vulnerabilities in DAO governance mechanisms, and vote markets undoubtedly provide attackers with a more convenient and cost-effective “weapon.”

The ArbitrumDAO voting scandal is like a prism, reflecting the current dilemma that DAO governance models face in balancing efficiency, fairness, and security. Behind the simplicity of “one token, one vote” lies the potential erosion of the decentralized ideal by capital. The emergence of vote markets, such as LobbyFi, is a product of the market’s spontaneous search for efficiency and profit, but it also opens the door to governance manipulation, presenting serious challenges.

At present, there is no one-size-fits-all solution. Completely banning vote markets may be difficult to enforce and could push the issue into more hidden corners, while fully letting the free market run could lead to DAOs becoming a playground for capital. This scandal serves as a warning to all DAO participants: decentralized governance is not an instant utopia. It is a complex system that requires continuous design, iteration, and negotiation. The core question for the DeFi sector in the coming period will be how to build a robust governance moat that can withstand capital erosion and malicious attacks, while maintaining the open and permissionless spirit of Web3.

Disclaimer:

1. This article is reprinted from [PANews], and the copyright belongs to the original author [Frank, PANews]. If you have any objections to the reprint, please contact the Gate Learn team, which will handle it as soon as possible according to relevant procedures.

2. Disclaimer: The views and opinions expressed in this article represent only the author’s personal views and do not constitute any investment advice.

3. Other language versions of the article are translated by the Gate Learn team. The translated article may not be copied, distributed or plagiarized without mentioning Gate.io.