Compound Finance’s $24M Proposal Raises Governance Concerns

Highlights:

• Compound Finance’s Proposal 289, led by whale Humpy, allocated 499,000 COMP tokens valued at $24 million.
• The proposal faced opposition, sparking claims of a governance attack by leveraging whale-influenced votes.
• Concerns highlight risks of centralized control within decentralized frameworks, according to security experts.

A recent proposal passed by Compound Finance’s DAO has sparked claims of a governance attack. This was after a group led by a whale known as Humpy accumulated enough tokens to pass their proposal despite objections from the community narrowly.

Potential governance attack on Compound seems to have passed.https://t.co/Uz2rteKvi6

— Michael Bentley (@euler_mab) July 28, 2024

Proposal Details and Controversy

The proposal, which allocates 499,000 COMP tokens (valued at approximately $24 million), directs funds to a yield-bearing protocol controlled by a group called ‘the Golden Boys.’ This group has allegedly engaged in similar actions in the past. The proposal passed with a narrow vote of 682,191 to 633,636 against. Consequently, this raised concerns about the decentralization of governance within Compound Finance.

Community risk assessors had warned about potential centralization efforts days before the proposal’s passage. Michael Lewellen, a security solutions architect at OpenZeppelin, pointed out several accounts accumulating COMP tokens on the open market and tying them to the proposal. He labeled these actions as a potential “governance attack.”

Community Reaction and Further Allegations

Following the proposal’s passage, several community members. This included Wintermute Governance, Columbia Blockchain, Penn Blockchain, and StableLab, which echoed concerns about the centralization of control. Wintermute Governance highlighted that the proposal grants the Golden Boys multisig exclusive control over the transferred funds, undermining the DAO’s ability to recall funds.

Humpy defended the proposal, claiming the term “steal funds” was misleading and asserting that the investment goes through a Trust Setup, which supposedly prevents fund diversion. However, Wintermute met this claim with skepticism and emphasized that any withdrawal action is controlled by GoldenBoyzMultisig, limiting the DAO’s oversight.

Omer Goldberg, CEO of Chaos Labs, criticized the proposal, calling it “poorly communicated” and suggesting it could be an attack in “plain sight.” He emphasized that if the potential payoff exceeds the cost of exploitation, someone will attempt it.

1/ Compound Governance Attack (?)

A proposal has passed to grant 500k $COMP (25m at current prices) to a goldenboys vault

Best case: a poorly communicated, aggressive proposal to gen yield from idle $COMP.

Worst case: a gov attack happening in plain sight.

Let’s dive in👇 pic.twitter.com/dX6Tkz7dSm

— omer (@omeragoldberg) July 28, 2024

Ogle, a member of the multisig, expressed surprise over a proposal he was unaware of. Despite being a part of the multisig setup, Ogle revealed that he did not know the ongoing vote. This highlighted a potential oversight in communication among the members.

Additionally, Ogle commented on the nature of the actions taken by the group last year. He described the interactions as self-serving but not malicious, suggesting the intent behind the proposal was likely financial gain for all involved. “From my interactions last year, they were self-serving but good actors,” he explained. Ogle expressed his surprise about the current proceedings, highlighting his detachment from the decision-making process, “I genuinely am just hearing about this…so I don’t know any more than you do.”

From my interactions I had last year they were self-serving but good actors, as in I'd be surprised if this was meant to *harm* anybody. My guess is it's meant as a way to make everybody money including the group, but I genuinely am just hearing about this bc of your tag and some…

— ogle | glue.net (@cryptogle) July 28, 2024

Implications for Compound Finance

The passage of Proposal 289 has led to significant discord within the Compound Finance community. Critics argue that the ability to amass voting power through open market purchases undermines the principles of decentralized governance. Bryan Colligan, founder and CEO of Compound’s official growth team, noted that the proposed investment did not appear lucrative compared to other available opportunities.

The controversy surrounding this proposal has highlighted the challenges of decentralized platforms in maintaining truly decentralized and fair governance. The proposal’s implementation date is set for July 30. The community remains divided on its implications and the future of governance within Compound Finance.

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