Coin-Voting Bribery in DAO Governance
#6 Governance Series
A voting system built on money is vulnerable to plutocracy but even more so on the blockchain, where unlimited possibilities lie due to the capabilities of smart contracts. What was once a common practice amongst corrupted individuals behind the scenes can be publicly utilized by individuals with large token holdings with no allegiance but to their wallets.
Tokens enact change within a coin-voting system enabling individuals with large token holdings to pass changes that suit their needs rather than the needs of the majority. We will explore this problem further and highlight the dangers of coin-voting.
One-token-one-vote means that each token has the power to vote, and with increased tokens, one gets increased voting power. This type of voting only favors one party, whales.
As a result of coin-voting, individuals or groups with significant holdings have tremendous influence even if they aren’t the most informed. Compare that with the typical frontline contributor. He is in the DAO trenches day in and day out. He reads the documentation and connects the dots. He digs through the ditches of Discord and engages the communities with wailing cries for ‘wen airdrop’ or ‘pump token plx’. He tries his best to push through proposals based on research and informed opinions. After days of work, it all comes crumbling down when he discovers the vote was turned against him and the community by a handful of wealthy token holders. The feeling of hopelessness, despair, and quit is a natural reaction to what is simply not a fair system that cannot survive long-term.
Of course, working on the frontlines of a DAO doesn’t mean one would necessarily have a better understanding of what is best for the project. Still, one with less information will be in a worse situation.
When whales use their voting power to serve personal interests rather than the DAO, the outcome is significant turmoil, as seen in the war between Steem vs Tron. Coin-voting mechanisms have caused so many problems that we could sit around a campfire and share our haunting stories where the one-vote-one-token system plays the role of a supporting villain.
A more recent example occurred in Solend, where a single wallet constituted around 90.9% of the votes for proposal SLND1, which aimed to take control of a whale’s account so they could execute an OTC liquidation to prevent damage to the protocol. Upon reflection, the Solend team realized their mistake and put forth another proposal to invalidate SLND1 without the need to take control of the whale’s account. However, this situation demonstrated the drawback behind coin-voting, as a single wallet can determine a proposal’s outcome.
Even in coin-voting, with a strong focus on governance framework and processes, it is possible to limit situations like these from occurring. At StableLab, we support DAOs in building their governance framework and processes to avoid the above-mentioned situations and more.
But I thought blockchain meant that everyone had a voice? Like a casino, you need a buy-in to enter the table; otherwise, you are but a single drop in an ocean. You can have an influence through hard work, grit, and determination, but it takes time and experience to build that reputation where your opinion is valued more than your token.
These are but a few of the many limitations of this voting mechanism which are further explored in Vitalik’s piece “Moving beyond coin voting governance.” Yet, we continue to utilize this voting mechanism across most DAOs.
One “band-aid” solution to coin-voting is delegation but like all band-aids, it’s only a temporary solution, not solving the actual problem. Analogous to medicine, would you rather treat the symptom or the disease? Don’t get us wrong, we expect to live in a world where delegation plays a key role in decentralized governance, and we look forward to acting as a delegate across various protocols. Still, we also recognize the dangers of the current voting mechanism.
Let’s explore further.
Introduction to Voting Bribery
Voting bribery stems from the unfortunate design mechanism of coin-voting, where we explored earlier that one token equals one vote. Each token has a price, and so does each token holder.
Money Equals Power
Those with significant wealth could simply buy more tokens to influence a governance proposal, but what if you didn’t want ownership of the token. Voting bribery through protocols such as Bribe Protocol enables this behavior and allows users to borrow or loan voting power if they’re willing to pay the highest price.
Instead of owning a token, user A can borrow the voting power of user D through a smart contract, and in return, user D is compensated for lending their voting power. To add to this layered onion of bids, only the highest bidder will get access to user D’s voting power.
Voting power is directed to the highest bidder.
Wait, what is that? Are we back to square one — plutocracy?
Not only is plutocracy at play here, but user D, the lender of voting power, is entirely unaware of user A’s intentions and how they might use borrowed voting power. In the world of blockchain, where most interactions are public, Bribe Protocol enables users to close their eyelids and accept payment as they send their voting power to be used by an anon for an unknown reason. Sure we can follow the paper trail on Etherscan, but it won’t get us far. Many people will lack the knowledge, the interest, or the time to do it.
We as a community should take responsibility for recognizing who and what we support. That is why we have practices such as delegation that enable users to understand a voter’s vision. However, lending voting power through a bribe mechanism strips the lender of any responsibility, and as a passive actor, sometimes one can do more harm than good.
Not every briber acts with malicious intent but instead utilizes voting bribery to gather more support for a specific cause, emissions pool, or other activities. One of the most popular bribery mechanisms in Decentralized Finance (DeFi) revolves around Curve and its emissions pool. A well-designed bribery mechanism by Curve kickstarted the cold war for the control of Curve, becoming one of the most talked-about topics in governance forums.
Curve is a liquidity pool known for its extremely efficient stablecoin pools, but it gained notoriety for its voting emission pool. Users would use Curve or Convex; LP CRV tokens to get Curve LP tokens or stake on Convex to get cxvCRV. Using either of these tokens, a user can support a pool to direct CRV emissions.
The more votes a pool accumulates, the more CRV tokens are emitted to that pool.
Two million CRV tokens are emitted daily to the voted protocols allowing them to accumulate power within the Curve ecosystem while CRV voters would receive trading fees. It created a win-win situation for both parties, with many DAOs fighting to gain control of the CRV emissions.
Convex was designed as an improvement on top of Curve as it allowed users to maximize their profits within Curve as they aggregated veCRV deposits enabling users to gain a maximized boost on their earnings. A decreased deposit and increased profit led to Convex unsurprisingly accumulating around 48% of Curve tokens through their process.
Convex’s monopoly of Curve spawned the creation of the bribing economy across Curve and Convex, where protocols would incentivize users to vote for their pool by rewarding users with their native token. In this case, Alchemix would offer rewards in the form of ALCX that all users who voted for their AlUSD could claim. This combination of CRV emissions and protocol rewards led to the creation of the Curve Wars through this bribing mechanism as protocols raced to accumulate as much CRV as possible.
Some would argue that this may not be classified as a bribe but more as dividends, but for simplicity’s sake, I will consider it a bribe. Instead, this form of bribery is DAO2USER, allowing protocols to decide whether they want to bribe users in return for their vote on their respective pools.
As a governance mechanism, it made CRV an in-demand token with a governance utility, a feat where most protocols fail. It also encouraged open bribery between DAO2USER, a mechanism not seen before, where both parties end up in a win-win situation.
This form of bribery differs from the bribe mechanism we explored earlier, where the structure was a USER2USER relationship.
The Power of Voting Bribery
Suppose an individual or group possesses a large amount of a token and doesn’t want to over-invest. In that case, borrowing tokens becomes a viable option so that they can garner extra influence within a controversial proposal. Not only does this make financial sense, but it also reduces the obstacles to gaining voting power compared to buying and selling a token. Ownership of a token makes you vulnerable to the dangers of protocol security and governance failures, so voting bribery lends itself as a safer option for short-term voting power.
Following the dangers of ownership, users with malicious intent can use bribed voting power to damage a protocol allowing them to short the token for financial gain while avoiding ownership of the token to mitigate damage to themselves. This is quite a stretch, but it is a possibility.
Curve wars presented one of the greatest reasons for bribes as an open incentive mechanism that actively gave back to the users instead of the behind-the-scenes deals for one or two people. This public manner of bribery is a more wholesome interaction that benefits both parties; token holder and protocol.
Regardless of the potential benefits of bribery, it all leads back to the money game. Wealthy individuals control the game in a one-token-one-vote system.
We explored the lack of participation in governance in one of our recent posts, and we encourage governance participation or delegations to teams like StableLab. As delegates, we recognize the danger in coin-voting, so our in-house research team continues to examine the inner workings of DAOs so we can identify the best practices across the space and share them with you.
If you’ve toyed with coin-voting, we would love to hear about your experiences, and even more, if you have played with other voting mechanisms such as quadratic voting or conviction voting, feel free to share.
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