What is Collusion in DAO Governance? | Chainscore Glossary

definition

BLOCKCHAIN SECURITY

What is Collusion?

Collusion in blockchain refers to a group of network participants coordinating their actions to subvert the protocol's intended rules for personal gain, undermining decentralization and security.

In a blockchain context, collusion is the secret or coordinated cooperation between a group of participants—such as validators, miners, or token holders—to manipulate the system. This behavior directly attacks the foundational assumption of decentralization, where participants are expected to act independently. Common goals of collusion include censoring transactions, double-spending, extracting Maximal Extractable Value (MEV) unfairly, or controlling governance votes to pass self-serving proposals. It represents a coordination failure where individual incentives align to break the protocol's security guarantees.

Collusion manifests differently across consensus mechanisms. In Proof of Work (PoW), a mining pool controlling over 51% of the network's hash rate could collude to execute a 51% attack, enabling chain reorganization and double-spends. In Proof of Stake (PoS), a cartel of validators controlling a supermajority of staked assets could finalize invalid blocks or censor users. Decentralized Autonomous Organization (DAO) governance is also vulnerable, where a coalition of large token holders, or whales, can collude to pass proposals that drain treasury funds or alter protocol rules to their exclusive benefit.

Preventing collusion is a core design challenge in cryptography and mechanism design. Protocols employ cryptoeconomic incentives like slashing—where malicious validators lose their staked funds—and delegation mechanisms to distribute power. Anti-collusion frameworks and trusted setup ceremonies with multi-party computation (MPC) aim to reduce coordination points. However, detection is difficult, as collusive actions can be indistinguishable from legitimate coordination, such as in liquid staking pools or delegated voting. The ongoing research into collusion-resistance is fundamental to the security and legitimacy of decentralized networks.

how-it-works

GOVERNANCE VULNERABILITY

How Does Collusion Work in a DAO?

An analysis of how collusion undermines decentralized governance by allowing coordinated actors to manipulate decision-making and extract value.

In a Decentralized Autonomous Organization (DAO), collusion is the covert coordination between token holders or delegates to manipulate governance outcomes for mutual benefit, subverting the intended one-token-one-vote or meritocratic principles. This coordination often occurs off-chain through private channels, creating a Sybil-resistant but trust-based coalition that can control proposals, sway votes on treasury allocations, or pass self-serving protocol upgrades. The core failure is that while the on-chain voting mechanism remains technically secure, the social layer of assumptions—that voters act independently in the network's best interest—is compromised.

Common collusion vectors include proposal cartels, where a group pools voting power to repeatedly pass proposals that funnel treasury funds to themselves, and vote trading, where parties agree to support each other's proposals regardless of individual merit. A more sophisticated form is governance attacks, where an entity acquires a large, often borrowed, position of governance tokens ($AAVE, $UNI) not for investment, but solely to pass a malicious proposal that financially benefits them, potentially at the network's expense. These actions exploit the transparency of on-chain voting, as colluders can precisely identify the voting power needed to reach a quorum or supermajority threshold.

Detecting collusion is inherently difficult as it leaves no on-chain fingerprint; the votes themselves are legitimate. Mitigation strategies focus on increasing the cost and difficulty of coordination. These include implementing a conviction voting model, where voting power increases with the duration tokens are locked, discouraging short-term predatory coalitions. Futarchy and other advanced mechanisms propose market-based prediction for decision-making to reduce reliance on simple vote counts. Ultimately, combating collusion requires a blend of technical safeguards, transparent reputation systems, and a strong, vigilant community culture that values the DAO's long-term health over short-term gain.

key-features

BLOCKCHAIN SECURITY

Key Characteristics of Collusion

In blockchain networks, collusion refers to a group of participants coordinating to manipulate the system for profit or control, undermining its decentralization and security guarantees.

Coordination Over Competition

Collusion fundamentally subverts the competitive, trustless model of blockchain consensus. Instead of acting independently as the protocol assumes, a colluding group coordinates its actions. This can involve validators, miners, or liquidity providers secretly agreeing to:

Censor specific transactions.
Extract maximum value (MEV) at the expense of other users.
Manipulate governance voting outcomes.
Control the order of blocks or transactions.

Threats to Decentralization

Collusion directly attacks the core value proposition of decentralization. When a few entities can coordinate effectively, they can achieve de facto control without necessarily holding a majority of staked tokens or hash power. This creates risks of:

Cartel Formation: A small group dominating a DeFi protocol's liquidity or a blockchain's validation.
Governance Capture: Coordinated voting to steer treasury funds or protocol changes for private benefit.
Reduced Censorship Resistance: The ability to filter transactions based on origin or content.

Economic Incentives & MEV

Much of modern blockchain collusion is economically motivated, particularly around Maximal Extractable Value (MEV). Validators, searchers, and builders may form exclusive relationships or proposer-builder separation (PBS) relays to:

Capture arbitrage and liquidation profits.
Execute time-bandit attacks by reorging chains.
Create dark pools of order flow, disadvantaging regular users. This turns the permissionless system into one with privileged, coordinated actors.

Detection Difficulty

Collusion is notoriously hard to detect and prove on-chain because coordinated actions can appear as rational, independent behavior. Key challenges include:

Plausible Deniability: Actions like voting the same way or including the same transactions can have legitimate justifications.
Off-Chain Coordination: Deals are made in private chats or legal agreements, invisible to the blockchain.
Sybil Resistance: It is difficult to distinguish between many independent actors and a single entity with many identities (Sybils).

Mitigation Strategies

Protocol designers employ various cryptographic and game-theoretic mechanisms to discourage collusion:

Cryptographic Sortition: Random, unpredictable selection of leaders (e.g., in DPoS).
Frequent Re-shuffling: Changing validator committees or groups to break up stable coalitions.
Collusion-Resistant Mechanisms: Designs like Futarchy or conviction voting that make coordination less profitable.
Transparency & Monitoring: Tools to analyze voting patterns and transaction inclusion for signs of cartel behavior.

Related Concepts

Understanding collusion requires familiarity with adjacent security concepts:

Sybil Attack: An entity creates many fake identities to gain influence.
51% Attack: A majority coalition overtly controls a Proof-of-Work chain.
Governance Attack: Taking over a protocol's decision-making apparatus.
P + ε Attack: A subtle bribing attack that breaks Nash equilibrium in certain consensus models. Collusion often underpins or enables these more specific attack vectors.

common-methods

MECHANISMS

Common Methods of Collusion

In blockchain consensus, collusion refers to validators or miners coordinating to manipulate the network for profit or control. These are the primary technical methods used.

Selfish Mining

A mining pool discovers a new block but withholds it from the public network, secretly mining a longer private chain. It then releases this chain to orphan the honest chain's blocks, stealing rewards and increasing its effective hash power. This attack exploits the longest chain rule and can be profitable with as little as 25% of the network's hash rate.

Transaction Censorship

Validators or miners collude to exclude specific transactions from blocks, often to:

Front-run or sandwich users by inserting their own transactions first.
Enforce regulatory blacklists (e.g., OFAC compliance on Ethereum).
Target specific protocols or users for denial-of-service. This undermines the permissionless and neutral properties of the base layer.

MEV Extraction Cartels

Validators form a cartel to centralize and monopolize Maximal Extractable Value (MEV). They coordinate to:

Share order flow and bundle transactions privately.
Exclude external searchers from the auction.
Implement proposer-builder separation (PBS) schemes that favor cartel members. This reduces competition and can lead to higher costs for end users.

Stake Pooling & Delegation Manipulation

In Proof-of-Stake networks, entities collude to centralize voting power:

Sybil attacks: Creating many validator identities controlled by one entity.
Delegation cartels: Large staking providers influence delegators to vote with them.
Cross-chain re-staking: Using the same capital to secure multiple protocols, creating systemic risk. This can lead to a super-majority capable of controlling governance or finalizing invalid blocks.

Time-Bandit Attacks

A coordinated attempt to reorganize (reorg) the blockchain's history. Attackers with significant hash/stake power secretly mine an alternative chain that rewrites past blocks, potentially:

Double-spending coins.
Erasing previously confirmed transactions.
Altering smart contract state. This directly attacks the immutability and settlement finality guarantees of the chain.

Governance Capture

Entities accumulate a majority of governance tokens (e.g., in a DAO) not to participate, but to control outcomes. They can:

Vote through proposals that drain the treasury or change fees to their benefit.
Vote against proposals that would reduce their advantage.
Create a tyranny of the majority where minority token holders are effectively disenfranchised.

GOVERNANCE MECHANICS

Collusion vs. Similar Governance Concepts

A comparison of collusion with related governance concepts, highlighting their distinct mechanisms and impacts on protocol integrity.

Feature	Collusion	Vote Buying	Sybil Attack	Plutocracy
Core Definition	Covert coordination among participants to subvert rules for mutual gain.	Open market for direct purchase of voting power or influence.	Creation of many fake identities to gain disproportionate influence.	Governance power is inherently concentrated by wealth or stake size.
Primary Mechanism	Coordination and side agreements.	Financial transaction for votes.	Identity fabrication and duplication.	Capital accumulation and staking.
Transparency
Formal Legality Within Protocol	Typically prohibited by social consensus, not code.	Often permitted if using native tokens (e.g., veTokens).	Explicitly prohibited and defended against.	A systemic outcome, not a rule violation.
Detection Difficulty	High (requires network analysis).	Low (on-chain and transparent).	Medium (requires sybil-resistance checks).	Low (visible in stake distribution).
Primary Defense	Cryptoeconomic disincentives, transparency tools.	Limiting transferability of governance rights.	Proof-of-personhood, stake-weighting, captchas.	Quadratic voting, delegation limits.
Example	Validators secretly agreeing to censor transactions.	Purchasing veCRV to direct gauge weights.	Farming airdrops with thousands of wallets.	A whale holding 40% of governance tokens.
Impact on Decentralization	Undermines by creating hidden centralization.	Can centralize power based on capital.	Undermines by gaming identity distribution.	Inherently centralizes power by design.

security-considerations

COLLUSION

Security Considerations & Risks

Collusion in blockchain refers to a coordinated, often covert, effort by a group of network participants to manipulate the system for their own benefit, undermining its security and fairness.

Definition & Core Mechanism

Collusion is a coordinated attack where multiple participants (e.g., validators, miners, or users) secretly cooperate to subvert a protocol's intended rules for profit or control. This differs from individual malicious acts by its scale and coordination. It often exploits the game-theoretic assumptions of consensus mechanisms, where honest majority participation is presumed.

Examples: Validators in a Proof-of-Stake network forming a cartel to censor transactions or extract Maximal Extractable Value (MEV).
Impact: Can lead to censorship, double-spending, or destabilization of the network's economic incentives.

Validator/ Miner Cartels

This is the most direct form of collusion in consensus. A group controlling a supermajority (e.g., >33% in Tendermint, >51% in Proof-of-Work) can halt the chain or rewrite history.

Sybil Attacks: A single entity creates many fake identities to gain disproportionate influence.
Stake Pooling: In PoS, actors combine stakes to meet minimum thresholds, centralizing power.
Real-World Risk: The threat is theoretical for large networks like Bitcoin or Ethereum but a practical concern for smaller chains with less decentralized validator sets.

MEV & Transaction Censorship

Collusion is rampant in the extraction of Maximal Extractable Value (MEV). Searchers, block builders, and validators can form exclusive relationships to front-run, back-run, or sandwich user transactions.

Private Order Flows: Searchers pay validators for priority access to block space, creating a two-tier system.
Censorship: Validators collude to exclude transactions from certain addresses (e.g., sanctioned Tornado Cash users).
Mitigation: Protocols like MEV-Boost with proposer-builder separation (PBS) aim to democratize access, though collusion risks persist in the builder market.

Governance Attacks

Collusion targets decentralized autonomous organization (DAO) treasuries and protocol parameters. Attackers accumulate governance tokens to pass malicious proposals.

Vote Buying/ Bribing: Platforms allow token holders to be bribed to vote a certain way.
Whale Cartels: A few large token holders coordinate to control all governance outcomes.
Example: The attempted takeover of the Mango Markets DAO treasury in 2022, where an attacker used borrowed governance tokens to vote on a proposal approving their own theft.

Oracle Manipulation

Decentralized applications relying on price oracles are vulnerable if oracle reporters collude to submit false data.

Mechanism: A majority of nodes in an oracle network (like a Chainlink decentralized oracle network) agree to report an inaccurate price.
Downstream Impact: This false data can trigger unfair liquidations in lending protocols or enable arbitrage attacks on decentralized exchanges.
Prevention: Uses diverse data sources, robust node operator sets, and deviation checks to make collusion economically prohibitive.

Mitigation Strategies

Protocols implement cryptographic and economic designs to deter collusion.

Cryptoeconomic Slashing: Heavily penalizing provable malicious coordination (e.g., slashing staked ETH for consensus attacks).
Decentralization: Maximizing the number of independent actors in validator sets and oracle networks.
Transparency & Monitoring: Tools like EigenPhi analyze MEV for cartel behavior. Governance safeguards like timelocks and multi-sig veto power slow down malicious proposals.
Algorithmic Solutions: Verifiable Random Functions (VRFs) for leader election and zk-SNARKs for private voting can reduce coordination surfaces.

mitigation-strategies

COLLUSION

Mitigation Strategies

Technical and economic mechanisms designed to prevent or disincentivize coordinated manipulation by validators, miners, or users to compromise network security or fairness.

Cryptoeconomic Slashing

A punitive mechanism that automatically confiscates a portion of a validator's staked capital for provable malicious actions like double-signing or censorship. This imposes a direct financial cost on collusion, making attacks economically irrational. Slashing conditions are enforced at the protocol level.

Decentralized Validator Selection

Using randomized, unpredictable algorithms (e.g., RANDAO+VDF in Ethereum) to select block proposers and committee members. This makes it difficult for a cartel to predict which members will be in control at any given time, disrupting their ability to coordinate attacks like transaction censorship or chain reorganizations.

Whistleblower Incentives

Protocols that reward users for submitting cryptographic proof of validator misconduct. This creates a game-theoretic defense where any member of a colluding group is incentivized to betray the cartel and claim the reward, effectively turning collusion into a prisoner's dilemma. The reward is often funded from the slashed stakes.

Multi-Signer Thresholds & Time Locks

Requiring transactions or protocol upgrades to be approved by a diverse, decentralized set of signers, with mandatory delays. This prevents a small, colluding group from acting unilaterally. Common in DAO treasuries and bridge security models, where a 5-of-9 multisig with a 48-hour timelock is a standard precaution.

Reputation & Bonding Systems

Systems where participants must post a bond that can be lost if they act maliciously, building a long-term reputation score. Used in oracle networks (e.g., Chainlink) and data availability layers. Collusion would require attackers to sacrifice established, valuable reputations and bonded capital, raising the attack cost significantly.

Fork Choice Rule Hardening

Designing consensus rules to be resistant to coordinated manipulation. Examples include Ethereum's proposer boost (favoring timely blocks) and attestation deadlines, which reduce the window for validators to coordinate on an alternative chain. These rules make it computationally and temporally difficult to sustain a malicious fork.

real-world-examples

COLLUSION

Hypothetical & Real-World Context

Collusion in blockchain refers to coordinated, often covert actions by validators, miners, or users to manipulate the network for profit, undermining its security and fairness. These scenarios illustrate how collusion manifests and its potential consequences.

The 51% Attack

The most direct form of collusion, where a cartel of miners or validators controlling a majority of a network's hash rate or stake coordinates to double-spend coins or censor transactions. This undermines the core Byzantine Fault Tolerance assumption of blockchains.

Hypothetical Risk: A mining pool grows to >50% hash power and secretly reorganizes the chain to reverse a large exchange withdrawal.
Real-World Example: The Ethereum Classic (ETC) network has suffered multiple 51% attacks, with attackers reorganizing thousands of blocks.

Validator Cartels in Proof-of-Stake

In Proof-of-Stake (PoS) systems, large stakers can collude to control block production and governance. This can lead to censorship, extraction of maximal extractable value (MEV), and protocol capture.

Mechanism: Cartels can self-delegate votes to always be in the active validator set and orchestrate block proposals to their advantage.
Consequence: It centralizes power, violating the Sybil resistance and decentralized ethos of the network, potentially leading to governance attacks.

MEV (Maximal Extractable Value) Exploitation

Searchers, block builders, and validators can collude to profit from the order and inclusion of transactions in a block, a practice known as MEV extraction.

Example: Sandwich Attacks: A searcher with a private mempool connection to a validator front-runs a large user swap, driving up the price, and then sells immediately after.
Centralizing Force: This creates incentives for proposer-builder separation (PBS) schemes and can lead to the formation of dominant, centralized block-building cartels.

Oracle Manipulation & Price Feeds

Collusion to manipulate decentralized oracle price feeds is a critical attack vector for DeFi protocols relying on external data.

Attack Vector: A group coordinates to flash loan assets into a low-liquidity market, creating a skewed price on a DEX that an oracle reports, triggering faulty liquidations or allowing under-collateralized loans.
Real-World Impact: The Mango Markets exploit involved manipulating the oracle price of MNGO perpetual futures to drain the treasury.

Governance Takeovers

In decentralized autonomous organizations (DAOs), a coordinated group can acquire a majority of governance tokens to pass proposals that benefit themselves at the network's expense.

Tactic: A whale or sybil group votes to drain the treasury, change protocol fees to their address, or disable security mechanisms.
Prevention: This risk is mitigated by time-locks, multisig safeguards, conviction voting, and non-transferable voting power (e.g., veTokens).

Cross-Chain Bridge Exploits

Collusion can target the validators or relayers of a cross-chain bridge, which are often a small, permissioned set.

Hypothetical Scenario: A majority of a bridge's multi-sig signers or federated validators conspire to mint fraudulent assets on the destination chain without locking collateral on the source chain.
Historical Precedent: The Ronin Bridge hack ($625M) involved compromising 5 out of 9 validator private keys, a form of key-based collusion.

COLLUSION

Frequently Asked Questions

Collusion is a critical concept in blockchain governance and security, referring to the coordination of participants to manipulate a system for mutual benefit, often at the expense of network integrity. These questions address its mechanisms, implications, and countermeasures.

Collusion in blockchain is the coordinated action by a group of network participants—such as validators, miners, or token holders—to manipulate protocol rules or market conditions for their own gain, undermining the system's intended decentralization and fairness. This can manifest as validator collusion to censor transactions, mining pool collusion to execute 51% attacks, or voting cartels in decentralized autonomous organizations (DAOs) to control treasury funds. Unlike individual malicious acts, collusion relies on secret or explicit coordination to exploit systemic weaknesses, posing a significant threat to cryptoeconomic security and trustless execution.

Collusion