Why Ethereum L2 Arbitrum Just Saw a DAO Voting Shakeup

Lobby Finance — a decentralized organization priding itself on “binging lobbyism to DAO governance” — just became the top Arbitrum (ARB) delegate.

In what Arbitrum delegate Paulo Fonseca described on X, formerly Twitter, as “the biggest governance move to date,” Lobby Finance suddenly became the top delegate in Arbitrum’s decentralized autonomous organization (DAO). With a single on-chain transaction, Lobby Finance gained control over the voting power of 20.54 million ARB tokens.

Arbitrum’s governance data shows that this puts the decentralized lobby at the top spot among the DAO’s delegates. The organization now controls the votes of 20.65 million ARB, equivalent to 0.2 of all possible votes.

To put this into context, the last two proposals received 210.65 million and 193.44 million votes, respectively. Lobby Finance’s current voting power is equivalent to 9.8% of the last vote and 10.67% of the one before it.

Arbitrum is arguably one of Ethereum’s (ETH) top L2 protocols. The system ordinarily processes more than 1.5 million transactions per day and has a record-high of nearly 5.1 million reported at the end of 2023. Changes made to the protocol are decided by the Arbitrum DAO, a decentralized organization that lets ARB holders vote. Per the DAO, one ARB is equivalent to one vote.

Like many other DAOs, the Arbitrum DAO does not expect every token holder to keep up with the proposals being voted on or to be technical enough to understand them. For this reason, the system allows users to pledge their votes to delegates who are paid to read, understand, and make informed decisions on their behalf.

Lobby Finance was set up to act as one of those delegates. But it has since gone the extra step of creating a website that allows users to buy votes and sway the odds on proposals in favor of their preferred option. Users who delegate their tokens to the service are compensated.

Arbitrum is not the only DAO that the system was implemented on, with Lobby finance also holding over 2.3 million votes in the Blast DAO, 190,000 in the ZkSync DAO, nearly 28,000 in the Optimism DAO, over 24,300 in the Manta DAO and 890 in the Scroll DAO. The selection clearly shows a preference for layer two protocols, with the Manta DAO decentralized finance (DeFi) protocol being the only one excluded from this classification.

In its sales pitch to potential delegators, Lobby Finance wrote that it allows for generating yield without locking tokens and promises that increased governance participation will lead to higher token prices. The organization explains how buying votes works: Customers can choose to go for an instant buy, where the votes are cast immediately, or to participate in an auction.

In auctions, customers fund two pools, and after the auction concludes, votes are cast for the winning pool. Multiple users can participate in either pool.

Edited by Stacy Elliott.