The Vulnerable Nature of Decentralized Governance in DeFi

Maya Dotan, Aviv Yaish, Hsin Chu Yin, Eytan Tsytkin, Aviv Zohar

Research output: Chapter in Book/Report/Conference proceedingConference contributionpeer-review

Abstract

Decentralized Finance (DeFi) platforms are often governed by Decentralized Autonomous Organizations (DAOs) which are implemented via governance protocols. Governance tokens are distributed to users of the platform, granting them voting rights in the platform's governance protocol.Many DeFi platforms have already been subject to attacks resulting in the loss of millions of dollars in user funds. In this paper we show that governance tokens are often not used as intended and may be harmful to the security of DeFi platforms. We show that (1) users often do not use governance tokens to vote, (2) that voting rates are negatively correlated to gas prices, (3) voting is very centralized. We explore vulnerabilities in the design of DeFi platform's governance protocols and analyze different governance attacks, focusing on the transferable nature of voting rights via governance tokens. Following the movement and holdings of governance tokens, we show they are often used to perform a single action and then sold off. We present evidence of DeFi platforms using other platforms' governance protocols to promote their own agenda at the expense of the host platform.

Original languageAmerican English
Title of host publicationDeFi 2023 - Proceedings of the 2023 Workshop on Decentralized Finance and Security
PublisherAssociation for Computing Machinery, Inc
Pages25-31
Number of pages7
ISBN (Electronic)9798400702617
DOIs
StatePublished - 30 Nov 2023
Event2023 Workshop on Decentralized Finance and Security, DeFi 2023 - Copenhagen, Denmark
Duration: 30 Nov 2023 → …

Publication series

NameDeFi 2023 - Proceedings of the 2023 Workshop on Decentralized Finance and Security

Conference

Conference2023 Workshop on Decentralized Finance and Security, DeFi 2023
Country/TerritoryDenmark
CityCopenhagen
Period30/11/23 → …

Bibliographical note

Publisher Copyright:
© 2023 Owner/Author.

Keywords

  • blockchains
  • decentralized finance
  • governance

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