Blackmail thwarts $90K ‘hostile governance attack’ on DAO

An exploiter tried to drain funds from Indexed Finance DAO but was caught after refusing to share the funds with a blackmailer

article-image

Dall-e modified by Blockworks

share

Blackmail was all that stood between the remaining funds in Indexed Finance’s crypto treasury and a devastating governance token attack.

When a watcher of the neglected Indexed Finance DAO noticed a malicious proposal meant to drain the DAO’s remaining $90,000, they demanded a share of the proposer’s profits to avoid outing the exploiter.

The proposer apparently declined, leading the blackmailer to alert former Indexed contributor Laurence Day, who then told his 30,000 followers on social media platform X of the attack. 

Hours later, the governance proposal was narrowly defeated.

Indexed Finance launched in 2020 as an index fund for crypto but has seen activity mostly end in the time since a 2021 flash loan attack drained $15.8 million from the DAO’s coffers. 

Since the attack, Day and developer Dillon Kellar stopped working on the protocol, and before last week, Indexed governance hadn’t seen a vote since mid-2022 when the treasury was recouping investor losses and funding a class-action lawsuit.  

But in DeFi, protocols remain operational regardless of whether users exist. And as Indexed’s NDX governance token slid to a fraction of a cent, someone spied an opportunity.

400,000 NDX ($4,000 at the time) was needed to reach a governance quorum and pass a proposal. The exploiter made a nameless proposal with a two-day voting window containing code to drain Indexed’s depleted-but-still-existent treasury — containing some $92,000, per DeepDAO.

With the required NDX, the exploiter reached a quorum of votes in favor. 

In the proposal’s waning hours, Day, the former Indexed contributor, learned of the exploit and made a plea to his followers on X.

“In keeping with the principle of ‘no, you shouldn’t get to raid the protocols of inactively developed projects for profit by leveraging governance’, I’d appreciate it if anyone who still happens to hold NDX that is delegated to themselves or another wallet they control to vote Against,” Day wrote.

“Against” votes flowed in and the proposal was defeated by a margin of about $90 in NDX.

Day alleges the person who tipped him off to the attack had first blackmailed the exploiter asking for 40% of the funds. On-chain sleuth ZachXBT linked the wallet address of the attempted exploit to a second attack on an inactive crypto project earlier this month.

Attacks on the treasuries of decrepit DAOs are becoming more common as failed projects accumulate but immutable code keeps funds sitting on-chain. A Solana-based DAO was exploited for $230,000 last month when a malicious proposal went unnoticed.

“The unintended side effect of having code governed by token holders that executes forever is that there [are] typically no plans for end of life,” Jeremiah Smith, CEO of DeFi security service OpenCover, said in a Telegram message. “The ‘space trash’ problem of onchain applications has only begun.”


Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the Forward Guidance newsletter.

Get alpha directly in your inbox with the 0xResearch newsletter — market highlights, charts, degen trade ideas, governance updates, and more.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.

Tags

Upcoming Events

Javits Center North | 445 11th Ave

Tues - Thurs, March 18 - 20, 2025

Blockworks’ Digital Asset Summit (DAS) will feature conversations between the builders, allocators, and legislators who will shape the trajectory of the digital asset ecosystem in the US and abroad.

Brooklyn, NY

TUES - THURS, JUNE 24 - 26, 2025

Permissionless IV serves as the definitive gathering for crypto’s technical founders, developers, and builders to come together and create the future.If you’re ready to shape the future of crypto, Permissionless IV is where it happens.

recent research

Research Report Templates.png

Research

An overview of the Base Ecosystem, with a focus on market leaders.

article-image

Although bitcoin hitting $120k by year’s end is looking unlikely

article-image

About 270 million HYPE has been claimed, valued around $7.6 billion

article-image

Stanford professors David Mazières and Dan Boneh will lead the lab alongside a cohort of graduate student researchers

article-image

With more companies holding BTC, bitcoin yielding strategies could become “a new corporate finance norm,” CoinShares posed

article-image

The proposal comes after Polygon governance considered a controversial use of bridged liquidity for yield

article-image

Can the community balance its decentralized ethos with the need for inclusivity and constructive debate?