Compound Finance Faces Governance Attack from Community Whales

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As a long-term investor in Compound Finance and someone who has closely followed its governance process, I find the recent developments surrounding proposal 289 and the “Golden Boys” bloc deeply concerning. I have seen firsthand how crucial the governance structure is for the success of decentralized finance protocols like Compound.

Compound Finance’s lending protocol has recently undergone a contentious proposal, leading some community members to accuse governance manipulation. They argue that a select few gained significant control over the proposal by purchasing a substantial amount of COMP tokens on the open market.

Last week, on July 28th, Compound Finance successfully passed Proposal 289. Some observers on social media accused a group called the “Golden Boys” of carrying out a governance attack in recent times. The approved proposal designates 5% of Compound’s Treasury, which is equivalent to approximately 499,000 COMP tokens or around $24 million, for a yield-generating protocol created by the Golden Boys. With a close margin, the proposal garnered a total of 682,191 votes in favor compared to 633,636 against it.

On the Compound governance forums, some individuals with inside knowledge had predicted this occurrence a few days prior to the ensuing debates. The Golden Boys have been attempting to exert influence over Compound Finance’s governance for several months now.

In May, Compound Finance rejected a proposition named “Treasury to Invest 5% of COMP Holdings into goldCOMP Vault.” Likewise, in July, the “Golden Boys” bloc attempted to pass proposal 279, which suggested transferring 92,000 COMP to the goldCOMP Treasury Fund for a one-year investment. However, this proposition was also rejected by the community. Nevertheless, the “Golden Boys” were successful in passing proposal 289.

How Did Golden Boys Bloc Get Compound Finance Governance in Control?

Michael Lewellen, a security consultant at Compound Finance, sheds insight on a recent development where various accounts acquired large quantities of COMP tokens in the open market, and subsequently aimed to transfer their COMP holdings towards the goldCOMP product. This concern was echoed by other members within the Compound Finance community. Following the approval of proposal 289, Lewellen further commented:

From my perspective, the behaviors of @Humpy and the Golden Boys could be seen as an attempt to undermine the governance of Compound DAO if they continue trying to extract funds against the wishes of the majority of its delegates.

After the approval of Proposal 289, the head of the Golden Boys faction countered Lewellen’s criticism. “The term ‘steal funds’ is an inaccurate and misleading label, especially from the Compound’s risk expert,” Humpy asserted. “Funds for investment are channeled through a Trust Setup with clearly defined restrictions that prevent unauthorized withdrawal or misappropriation of funds.”

Previously, there have been allegations that Humpy attempted to manipulate the DAO governance process for substantial profits. In 2022, the Balancer (BAL) Decentralized Finance (DeFi) protocol on Ethereum faced a long-term conflict with an influential figure named Humpy. By amassing a considerable voting power, Humpy managed to approve proposals individually.

Humpy’s faction employed the use of numerous wallets to manage more than half of the votes, resulting in a protracted battle for power. In due course, the two sides signed a truce to put an end to the dispute.

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2024-07-29 11:47