How Kleros prevented more than $100,000 from being stolen from Proof of Humanity DAO: A Detailed Analysis

It was late 2023, holiday season. People were busy with Christmas shopping, and in the digital world, a sneaky attack was taking place. Someone was trying to steal more than 46 ETH from the Kleros Governor contract of PoH DAO, which was almost all the money in the treasury.

Fortunately, the Kleros community was alert and quick to act and spotted and stopped this threat. Here is a showcase of the robustness and efficacy of Kleros decentralized governance systems.

The Kleros Governor

Imagine a country where citizens directly vote on decisions, much like a direct democracy. This is akin to a DAO where each member's vote counts. The Kleros Governor is built as a system to ensure these votes lead to real actions. 

People vote using Snapshot, a digital tool that's efficient and cost-effective. After voting, any DAO member can execute these decisions by submitting a list of transactions reflecting the Snapshot vote.

Basically any citizen can act as an official that enacts laws in a country. So, the Kleros Governor acts as a bridge, turning the community's democratic decisions into concrete actions in the realm of smart contracts.

The way in which the process is structured is known as “Optimistic Governance”. This set-up assumes that the list of transactions submitted reflects the proposals passed in Snapshot. However, at any time the list of transactions can be challenged. 

It is important to note that a deposit is required to propose a list, in this case 4.495 ETH. This deposit acts as a safeguard, as it can be seized if the list of transactions is an exploit attempt or deemed as inappropriate.

You can find more information about how the Governor works in this article. This process allows one to have a DAO that is really decentralised and doesn’t rely on multi-sigs like it is often the case. 

Detecting and Responding to the Attack 

The attack was first noticed when an unusual list of transactions was submitted to the Proof of Humanity governor.

A key component of this set-up is the notification system. As soon as a new list of transactions is created some notifications are sent by emails, Discord and Telegram to DAO members.

That’s how the proposal's malicious intent was initially identified. Interestingly, the attacker’s address had already been flagged by BlockSec as an “exploiter”. 

A counter-proposal with a correct list of transactions was swiftly created by a community member, aimed to nullify the attacker's actions. This list of transactions was “correct” as it was taking all the previous HIP (Human Improvement Proposal) from the Snapshot Governance into account and was excluding the attack transaction. 

This is the “challenge” part of the optimistic governance process mentioned earlier. It creates a dispute on Kleros and you can see the details and the evidence in the case 1621. 

In this case the list number 7, created by the attacker was obviously an attack, so the attacker lost his deposit of 4.495 ETH and the list number 8 was implemented by the smart contract. 

Lessons Learned and Future Implications

This incident serves as a powerful reminder of the importance of vigilance in the Optimistic Governance model. The event highlights the potential for decentralized systems like Kleros to provide robust security measures against attacks on DAOs.

That’s why some of our partners (have a look at kleros.world) are trusting Kleros to decentralise and secure their multi-sigs with our Snapshot module. This product is very similar to the “Governor contract” system.

However, the main difference is its ease of use, as it can be easily set up on top of your Gnosis Safe multisig and connected to your Snapshot Space with a dedicated plug-in. 

One of our key partners, 1Inch DAO is securing more than $17M of assets with this module as of the 15th of January 2024. They even tested the resilience of the set-up by calling for arbitration on a transaction that wasn’t voted by the governance. 

Similar to the PoH Governor case described previously, Kleros behaved exactly as intended by not allowing this malicious transaction to be executed, for more details, have a look at case 1595.    

Conclusion: Optimistic Governance with Kleros a secure and efficient model

The successful defence against the attack on the Proof of Humanity DAO underscores the efficacy of Kleros's Optimistic Governance model. This event not only highlights Kleros’s robust security mechanisms, but also reinforces the trust of our partners like 1inchDAO, Rhino.fi and others. 

Optimistic Governance shows how efficient decision making in DAOs can be. Our experience has demonstrated how this model enhances engagement and maintains vigilance within the community, making it an excellent choice for DAOs seeking to balance efficiency with participative governance.

If you are interested in setting something similar for your DAO you can contact us in our community chat.