The Hidden Cost of Governance Attack Vectors on Stable Assets

Attackers don't need to hack a vault; they can buy votes to drain it. A malicious proposal can mint unlimited stablecoins or divert collateral, turning on-chain voting into a single point of failure.\n- Targets: MakerDAO's MKR, Curve's CRV, Aave's AAVE.\n- Mechanism: Acquire >50% voting power via flash loans or accumulated tokens.\n- Impact: Direct theft of $100M+ in collateral with no code exploit.

A governance delay is not a feature—it's a mandatory circuit breaker. Protocols like Compound and Uniswap use a timelock contract to queue executable code, creating a mandatory review period.\n- Critical Parameter: 48-72 hour delay for high-impact changes.\n- Defense in Depth: Combines with a Security Council or multi-sig emergency override.\n- Limitation: Creates rigidity; slows legitimate crisis response.

Stable assets are only as secure as their price feed. If an attacker manipulates governance to control the oracle (e.g., Chainlink's data providers or a MakerDAO Oracle Security Module), they can liquidate any position at will.\n- Vector: Corrupt the data source for DAI or FRAX collateral.\n- Amplification: Enables instant, risk-free liquidation cascades.\n- Historical Precedent: Seen in smaller protocols like Beanstalk ($182M loss).

The safest governance is none at all. Protocols like Liquity and RAI minimize governance surface area by making core parameters immutable or algorithmically controlled.\n- Strategy: No admin keys for critical functions like collateral ratio or oracle.\n- Trade-off: Sacrifices agility for unbreakable security guarantees.\n- Result: Attack vector shifts from governance to economic design and oracle robustness.

Protocol treasuries holding stablecoin reserves (e.g., Aave's Safety Module, Compound's Reserves) are prime targets. A governance attack can vote to transfer the entire treasury to an attacker-controlled address.\n- Scale: Targets $1B+ pools of stable assets.\n- Stealth: Can be disguised as a 'grant' or 'investment' proposal.\n- Real Risk: Undermines the final backstop for user funds.

Align voter incentives with protocol health. Futarchy (governance by prediction markets) and vote-escrowed models (like Curve's veCRV) force capital commitment.\n- Mechanism: Votes are weighted by locked value and duration.\n- Outcome: Makes attacks prohibitively expensive; attackers must acquire and lock vast capital.\n- Adoption: Curve, Balancer, and Frax Finance use variants.

Maker's stability relies on MKR governance, but voter apathy and whale concentration create a single point of failure. A governance attack could alter critical risk parameters, liquidating vaults or minting unlimited DAI.

• Key Risk: ~$8B DAI supply secured by governance with <10% voter turnout.
• The Solution: Progressive decentralization via Constitutional Delegates (MCDs) and Emergency Shutdown as a final circuit breaker.

Frax's algorithmic-peg stability is managed by a multi-sig and veFXS governance. While innovative, this creates a trusted core that must act correctly during a crisis like the USDC depeg.

• Key Risk: Protocol upgrades and AMO (Algorithmic Market Operations) controllers are permissioned.
• The Solution: Gradual trust minimization through on-chain keepers and expanding the Frax Guardian multi-sig signer set.

The battle for CRV vote-locking (veCRV) to direct emissions created a perverse incentive: protocols like Convex amassed ~50% of voting power to secure stablecoin pool liquidity, centralizing control of a critical DeFi primitive.

• Key Risk: A governance attack on Curve could destabilize $2B+ in stablecoin pools, causing widespread contagion.
• The Solution: Vote-escrow models must evolve to resist pooling centralization, exploring ideas like non-transferable stakes or time-decaying voting power.

Liquity's $LQTY token has no governance over the core stablecoin protocol, making it immune to parameter manipulation attacks. Stability is enforced by immutable code and economic incentives alone.

• Key Risk: Immutability means bugs are permanent and the system cannot adapt to novel threats like censorship-resistant oracles.
• The Solution: A two-tiered approach: immutable core for monetary policy, with a separate, upgradeable layer for peripheral utilities and frontends.

Maker's Endgame Plan centralizes power into MetaDAOs and Aligned Delegates, creating new political attack vectors. A governance exploit could:

• Freeze or seize $7B+ in DAI collateral via malicious executive votes.
• Censor specific wallet addresses by modifying oracle whitelists.
• Dilute MKR holders through unlimited token minting to an attacker-controlled module.

Stablecoin stability is a function of its oracle security. A compromised governance can directly attack the price feed, enabling:

• Controlled depeg: Force liquidations at artificial prices to steal collateral.
• Protocol insolvency: Invalidate the risk parameters for major vaults (e.g., ETH-A, WBTC).
• Cross-protocol contagion: Trigger cascading failures in integrated DeFi apps like Aave and Compound that rely on DAI/USDC as primary money markets.

Off-chain governance is faster and more absolute. Circle and Tether maintain unilateral, non-cryptoeconomic power to:

• Blacklist any address, freezing funds without recourse (see Tornado Cash sanctions).
• Redeem/ mint privileges determine the stablecoin's base-layer liquidity, creating a central bank risk.
• This creates a moral hazard: protocols like Aave vote to adopt these assets for yield, socializing the regulatory tail risk across their entire user base.

The antidote is protocols that architect for governance minimalism and verifiable security. This means:

• Immutable core contracts (e.g., Liquity's LUSD) that remove upgrade keys entirely.
• Time-locked, multi-sig executions with strong social consensus checks (see Frax Finance).
• Fully on-chain, credibly neutral systems that treat governance attacks as a first-order design constraint, not an afterthought.