Now That’s a Term I’ve Not Heard in a Long Time…a Long Time.

Crypto is all about transparency and decentralization, right? One would think that bribing would have no place in such a world. However, it might just be precisely the reason why bribing has grown so much over the past years. “Bribe” has a negative connotation to it, mostly meaning that an individual dishonestly obtains a service or product through financial means. In crypto, however, most protocols and activities are centered around efficiency. Since everybody can see what everybody else is doing, where can we draw the line between what is a bribe and what is an incentive?

Bribes were first used as a term in crypto by users of Curve Finance, one of the largest Decentralized Exchanges in DeFi. They effectively represent a gamified version of incentives that help direct rewards for certain liquidity pools. In exchange for this “vote,” users are paid in the third party’s token, ETH, Stablecoins or a combination of these. The birth of this system and the so called VeTokenomics has created the so called “Curve Wars.”

Years Ago You Served My Father in the Curve Wars

The Curve Wars refer to the intense competition among DeFi protocols, particularly on Curve Finance, aiming to capture liquidity and users within the ecosystem. This is where onchain bribes were born. Initially, Curve held a unique proposition with its low slippage and efficient stablecoin trading. However, as the space expanded, rival protocols emerged, offering incentives and liquidity mining programs to attract users and funds. This led to a fierce battle for liquidity supremacy, with projects like Saddle Finance and Convex Finance entering the fray with their own unique features and incentives.

As the Curve Wars rage on, more and more protocols will be accumulating $CRV and $CVX to direct voting and encourage liquidity. Convex will keep locking $CRV up indefinitely while $CVX token emissions gradually reduce. This has the potential to lead both tokens to increase heavily in value over time. While the protocols themselves can be forked, the liquidity present on their platforms cannot simply be copy-pasted over. This barrier will only get tougher over time for any potential competitor.

Today, bribes have changed a lot. Incentives have become far more complex and widespread not just throughout DeFi, but general DAO Governance as well.

Credits Will Do Fine: Current State of Bribe Markets

StakeDAO’s whitepaper has an awesome table showing today’s bribe market and what their limitations are.

DeFi’s main point of interest could be summed up easily: capital efficiency. After all is said and done, the main mechanism around which DeFi revolves boils down to optimizing yield. Given the increasing importance of bribes in DeFi-focused DAOs, we at Decent believe that this is a first step towards a larger transformation:

A DAO landscape in which governance proposals are efficiently passed through complex incentives.

It’s less clear whether bribe markets will ever be relevant for non-DeFi DAOs. But, given the importance of delegates (both paid and unpaid), we believe incentives and votes will continue to coexist and evolve. One of the reasons we believe this to be the case is due to the increasing number of innovative ways that voting power is directed. While there are many specific voting mechanisms that exist throughout crypto, here are a couple of more solidified examples and how they work.

Votium

Votium is an incentives platform built for vlCVX and veCRV holders who can be compensated from buyers who are interested in amassing more voting power. vlCVX holders delegate their votes to Votium, which in return, chooses the optimal incentive on each proposal. veCRV holders vote through Curve’s gauge weight directly, seeing as it is currently not possible to delegate veCRV voting rights.

An interesting feature of Votium is how it rewards users that have been voting for a bribed gauge over the past two weeks. It does so by creating an off-chain merkle airdrop system thus making users not have to claim bribes every week. This does come at a cost, however, as the bribe itself is also distributed two weeks after the vote. This leads to longer exposure to the bribe token price, which could turn negative.

Yearn’s yBribe

Similar to Votium, yBribe is a platform where veCRV holders receive compensation from buyers interested in increasing CRV emissions to their respective pool gauge. Unlike Votium, however, yBribe is fully on-chain and the votes are all distributed immediately after the vote. Unclaimed votes are rolled over automatically for the next cycle.

Hidden Hand

Hidden Hand is a widely available fork of Votium built by Redacted Finance. One great feature is the possibility to claim bundles of bribes from different gauges and protocols. However, just like with yBribes, it isn't possible to blacklist addresses in order to avoid bribe overlap or self-bribing.Additionally, Hidden Hand allows its users to bribe in a certain range per vote. This brings more visibility into bribe spending, as well as allowing voters to have a better view of their potential rewards beforehand. This improves efficiency for both voters and bribers.

Never Tell Me the Odds

There is a strong incentive around making voting and bribing easier. Platforms like Votium and Wombex are just a couple of examples. While collecting individual data for each is not too obvious given how differently they operate and collect votes, we did manage to get some insight. On Curve alone, Votium had over $100M in cumulated bribes since 2021. Velodrome has seen around $33M over 98 epochs with an APR range between 10% even reaching as high as 50%. That's over three times the cumulative swap fees ($9.6M) and nearly 20% of TVL ($164M). Are voter governance incentives just another “money Lego” feature of DeFi? There are challenges.

Use the Market Force(s): Capital Efficiency Binds the Galaxy Together

There are several conclusions that can be drawn for both voters and bribers. While both parties are interested in the fee structure and whether the platform is onchain or off-chain, there appears to be a divergence in terms of how incentives are approached.

Voters want to have low to no gas fees when claiming their rewards. Equally, voters want to have exposure to the bribe token for just as long as it is necessary and no more. Bribers on the other hand, want to have visibility into what happens to their invested funds should their bribe gauge not get enough votes. Avoiding bribe overlaps is also something that bribers are interested in.

Effectively, the bribes market is just another DeFi product and source of yield. One that is not extremely widespread yet, however, as it is only currently profitable for larger protocols on large DEXs. Bribes also come with their own set of vulnerabilities. In no particular order, here are some that we think should be kept in mind as the space evolves:

1. Voter concentration - It is no secret that a good number of DAO governance votes are made by a select few insiders that hold most of the power. While it is possible to mitigate majorities in different ways, like through quadratic voting, it often times is the case that governance is decentralized in name only. Such was the case, for example, with the famous Solend liquidation debacle from 2021.

2. Flash loan - Flash loans are not just a bribe issue, but they are prevalent in all corners of DeFi. a DAO may be vulnerable if a malevolent party can vote and execute a proposal within the same block. MakerDAO fell victim to just such an attack.

3. Double voting and double execution - Some DAOs may have a vulnerability where a malevolent third party could, theoretically, vote twice for the same proposal with the same tokens. Similarly, some protocols might have a so-called reentrancy in their execution methods and thus pass a proposal twice.

In the end, it seems that decentralized democracy might well be heading in a previously unexpected path. A path in which we not only understand that each individual acts according to their own needs and interests, but where this behavior is openly incentivized.Bribing vulnerabilities

Will this lead to a more efficient governance landscape? Maybe. It will, however, definitely transform voting and make it so that protocols have to be much more careful in choosing which proposals they want to incentivize and when to cede territory to other bribers in the space. There may be always two: the votes, and the bribes. No more, no less.

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