As a seasoned crypto investor with several years of experience navigating the decentralized finance (DeFi) ecosystem, I find myself deeply concerned about the recent $25 million governance attack on Compound Finance. The incident serves as a stark reminder of the challenges that plague DeFi and its decentralized autonomous organization (DAO) models.
A governance attack on Compound Finance (COMP) resulted in the loss of approximately $25 million from their treasury, sparking concerns over the security and effectiveness of decentralized governance within the Decentralized Finance (DeFi) sector.
Compound DAO Hijacked
Based on the findings of researcher DeFi Ignas, the assault commenced through a preliminary suggestion to allot 92,000 COMP tokens, which was put forth without any previous conversation on the Compound Decentralized Autonomous Organization (DAO) forum.
In spite of “obvious security concerns” highlighted by project’s security expert, Michael Lewellen, the alert met with limited response from the broader community. Only a handful of individuals, like MonetSupply and Wintermute, expressed their apprehensions regarding this matter.
As an analyst, I found the narrative taking a concerning twist when Humpy reappeared with a revised proposition, this time asking for 499,000 COMP tokens – a significant jump of 5.4 times the original 92,000 tokens. Remarkably, this proposal was approved, garnering votes from just 57 unique addresses.
Who Is Humpy, And How Did He Amass Such Outsized Influence?
As reported by DeFi researcher StableScarab, Humpy is a prominent figure in various DeFi protocols, skillfully leveraging incentive structures to accumulate substantial governance tokens. By employing these tactics, he was able to exert considerable influence over Balancer, an Ethereum-based automated market maker in 2022. Currently, his focus has shifted towards Compound.
Based on my extensive experience in the Decentralized Finance (DeFi) sector and observing various developments within this space, I must admit that the recent incident exposing a critical issue in DeFi governance has been quite thought-provoking for me. It’s disheartening to see how an illusion of decentralization can still permeate through some DeFi projects despite their decentralized label.
In contrast to the notion that Compound’s Decentralized Autonomous Organization (DAO) serves as a decentralized decision-maker, it’s important to note that, according to StableScarab, only about 20 addresses are usually involved in casting governance votes.
The researchers observe that controversial suggestions often fail to elicit a strong response from the wider public, who appear unfazed, ignorant, or unbothered by the potential consequences.
Additionally, the Compound team seems unresponsive as their official @CompoundFinance X account has stopped posting updates following the recent incident.
As a researcher examining the governance structure of this particular protocol, I’ve come across some intriguing questions. It appears that Gauntlet, who serves as a paid advisor, holds significant influence over the Decentralized Autonomous Organization (DAO). StableScrab made this observation as well.
Humphrey’s impact extends beyond just governing. He has his own token, @Gold_On_Chain, which is used by his “Golden Boys” community. Following today’s Compound event, the value of $GOLD more than doubled as investors placed wagers on Humphrey’s knack for discovering profitable governance and farming strategies.
Instead of “On the other hand,” you could use “Contrarily,” or “However.” As for paraphrasing the rest, how about:
Furthermore, this situation has worsened the continuing decline of the token’s price since its record-breaking peak during the 2021 bull market. The token reached an unprecedented value of $910 in May 2021, but now hovers around just 5% of that amount.
As an analyst, I can’t predict with certainty what Communications the Compound team will release to investors following the exploit. However, I anticipate that new information may emerge in the aftermath, shedding more light on the situation.
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2024-07-30 09:05