Governance attacks have become an increasingly concerning issue. The recent events surrounding Compound Finance’s latest proposal have sent ripples through the crypto community, highlighting the delicate balance between decentralized decision-making and potential exploitation.
The Controversial Proposal
A recent proposal, known as Proposal 289, has stirred up quite a storm within the Compound Finance ecosystem. This proposal, which narrowly passed with a vote of 682,191 to 633,636, allocates a whopping 499,000 COMP tokens—valued at approximately $24 million—to a yield-bearing protocol designed by a group called the “Golden Boys.”
The Golden Boys and Their Strategy
The group, led by a whale investor known as Humpy, reportedly amassed a significant number of COMP tokens on the open market. This strategic move allowed them to accumulate enough voting power to push their proposal through, despite strong objections from many community members.
Community Concerns
Several prominent figures in the crypto space have raised red flags about this development:
- Michael Lewellen, an OpenZeppelin security solutions architect and advisor for Compound Finance, expressed concerns about the connection between accounts acquiring COMP tokens and proposals aimed at diverting holdings to the goldCOMP product.
- Wintermute Governance, Columbia Blockchain, Penn Blockchain, and StableLab echoed similar worries, particularly noting the group’s persistent attempts to pass their initially failed proposal.
Defending the Proposal
Humpy, the apparent leader of the Golden Boys, has defended the proposal against accusations of a “governance attack.” He argues that the requested investment goes through a Trust Setup with constraints that prevent the stealing or diversion of funds.
However, Wintermute’s governance account has questioned the effectiveness of this Trust Setup, pointing out that any withdrawal action is solely controlled by the GoldenBoyzMultisig, potentially limiting the DAO’s ability to recall funds at their discretion.
Economic Considerations
Bryan Colligan, CEO of Compound’s official growth team, noted that even setting aside security concerns, the proposal might not be the most lucrative opportunity for Compound Finance. He suggested that there are better POL (Proof of Liquidity) opportunities available, with some offering APRs as high as 40%.
Market Impact
The passage of this controversial proposal has had a noticeable impact on Compound’s token price, which has dropped nearly 7% in the 24 hours following the vote.
On multisig from long ago, didn't know this was a vote happening and didn't vote in it, only now seeing what anyone is saying bc I'm getting dms about it.
— ogle | glue.net (@cryptogle) July 28, 2024
A Pattern of Behavior?
This isn’t the first time Humpy has been involved in contentious DAO governance situations:
- In 2022, the Balancer protocol faced a prolonged struggle with Humpy over proposals that the whale was able to pass by accumulating a large vote share.
- In March 2024, SushiSwap’s ‘Head Chef’ Jared Grey accused Humpy of attacking their governance process.
The Broader Implications
This incident raises important questions about the vulnerability of DAO governance models to potential manipulation by large token holders. It underscores the need for robust safeguards and perhaps a reevaluation of voting mechanisms in decentralized ecosystems.
As the DeFi space continues to mature, finding the right balance between decentralization and protection against governance attacks will be crucial for the long-term sustainability and credibility of these protocols.
