Arbitrum offers as much as $100k per report to snitch on wasteful DAOs

In a move aimed at fighting grant mismanagement and exposing fraud, the Arbitrum DAO has announced that it will launch a grant bounty program that will pay as much $100,000 per report to individuals who report bad actors among its grant recipients. 

Arbitrum, one of Ethereum’s leading layer 2 networks, has been actively distributing ARB tokens to support the development of its ecosystem. Its DAO has reportedly rolled out several hundred million dollars in grants, service provider funding, and incentives; however, according to Entropy Advisors, there has been little oversight on how these funds are actually spent.

Interestingly, recent investigations have uncovered at least three separate incidents of grant misappropriation. One of them was the Furucombo case. The Arbitrum foundation accused Furucombo of misusing the backfund STIP grant after it failed to file a final report on how it spent the grant.

Along with other transgressions, the Arbitrum DAO banned Furocombo from the DAO after extensive voting.

Another case is the Gaming Catalyst Program (GCP), which received 225 million ARB worth approximately $215 million in early 2024.

The GCP team is embroiled in allegations of misappropriation, underreporting and lack of transparency in its grant issuance, with a proposal launched to claw back funding.

Recognizing the potential for further undiscovered abuses, Entropy Advisors proposed a system to enable the community to report misuse with the incentive of significant monetary rewards.

The grant misuse bounty initiative proposed by Entropy Advisors has been tagged “The Watchdog.”

In its proposal, Entropy Advisors defined the misuse of funds as “Any action or inaction by a recipient of DAO-allocated funds that directly violates the stated terms, objectives, agreement, or overall spirit of the allocation under which those funds were provided.”

How the Watchdog program works

The Watchdog program, which is proposed to operate like the more common bug bounty program, encourages community members to report inappropriate use of DAO funds privately through GlobaLeaks, the open-source whistleblowing platform used by governments, NGOs, and investigative journalists.

As stated in the proposal, all submissions are private and secure, and whistleblowers can earn between $5,000 and $100,000 per confirmed report, with payouts determined by the severity of the violation and the quality of evidence provided.

The process begins with a confidential submission of findings to a review committee, composed of members from Entropy Advisors, Arbitrum Foundation, and SeedGov.

The committee of reviewers then go on to test the validity of the submission and also determine the severity of the misuse of funds.

The severity, which ranges from low to high, in turn determines the amount that will be paid out to the whistleblower. For low severity submissions, whistleblowers can get a base payout of 1,000 ARB, which is deducted from the recovered funds if applicable, with the total possible reward being capped at $10,000.

For cases with medium severity, the proposed bounty is a base payout of 10,000 ARB, and the maximum reward yield in the category is $25,000. Finally, for cases that rank high in order of severity, the bounty prize is a base payout of 30,000 ARB, while the maximum payout here is capped at $100,000.

Cases like that of Furocombo fall under the medium category due to severity, as it involved the misuse of DAO-allocated funds that impacted the DAO’s resources.

Proposed timelines for implementation

The proposed launch date for the Watchdog bounty program is the end of May, with the Entropy Advisors proposal being subject to on-chain voting from May 8 to May 22. The results of the voting will greatly impact the program‘s launch date.

Entropy Advisors also propose that an initial 400,000 ARB tokens be allocated to fund the program.

According to them, the implementation of this program will not only deter malicious actions and actors, but it will also attract sophisticated on-chain sleuths and investigators to Arbitrum.

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