Arbitrum, Ethereum's second-largest layer 2 network with $2.3 billion in investor funds, faces a critical juncture as its DAO proposes significant changes to its voting rules. This decision follows a staggering 71% reduction in Arbitrum’s token price in the last year. Since its peak in 2024, the token’s price has crashed an incredible 87%, with a parallel decline in governance engagement. Voter apathy is surging. The DAO is currently exploring options to incentivize more engagement and address worries over “LobbyFi” actors gaming the system.

Addressing Voter Apathy

The main problem that has been haunting Arbitrum’s governance is the major lack of voter participation. Participation has tanked by 50% since 2024, casting doubt on the legitimacy and effectiveness of the DAO’s decision-making processes. This apathy isn’t exclusive to Arbitrum, it’s a malaise plaguing DAOs all over the decentralized finance (DeFi) industry.

The answer is to lower the quorum needed for proposals to pass. Right now, a proposal must receive more than 5% of all Arbitrum voting tokens voting in favor before it can pass. To combat voter apathy and governance inertia, the DAO is currently proposing to lower this threshold to 4.5%.

This proposed change would allow more proposals to pass the very high threshold of proposals that must succeed. This incentivizes more token holders to participate and helps ensure that decisions are in line with the majority opinion. Beyond providing new strategic imperatives, it seeks to streamline and accelerate the governance process so it can better respond to the needs of the quickly evolving Arbitrum community.

Combating LobbyFi Influence

Perhaps a bigger, yet more insidious, challenge to Arbitrum is the emergence of these “LobbyFi” players. These entities accumulate enough cheap Arbitrum tokens to exert undue influence on pivotal decisions. This manipulation not only goes against the spirit of decentralized governance, but it damages trust in the DAO.

The DAO acknowledges the misguided concentration of power and is committed to addressing this issue in order to respect fair and equitable decision-making. It is currently considering mechanisms to avoid the concentration of voting power. This is the only way to protect the integrity of the governance process.

Strengthen token lockup periods to provide more stability. In addition to those examples, think about implementing quadratic voting mechanisms or adopting governance models that better balance power among participants. The aim is to achieve a broader, more inclusive, and more robust governance system that is harder to hijack.

The Existential Dilemma

Arbitrum's challenges extend beyond mere governance mechanics. The platform faces an existential dilemma: how to incentivize enough participants to care about the DAO. Without an informed and active community, Arbitrum is destined to be overtaken and miss out on its true potential.

"The real problem is that tokenholders need actual reasons to stay in the Arbitrum ecosystem." - Zeptimus

As a result, the DeFi sector this year has experienced a 34% decrease in total investor funds. This trend only amplifies the need for infrastructure projects to provide strong, multimodal value propositions that will actually entice and keep users. With DAOs holding nearly $16 billion in their treasuries, voter apathy is not just a nuisance — it’s a financial threat.

In order for Arbitrum to succeed, it needs to show its token holders clear and compelling incentives to engage with the ecosystem in a meaningful way. You could provide early access to new features. You could incentivize more active voters by giving them bonus tokens and create new token-based applications that tap the potential of decentralized governance.