Compound Finance Faces Controversy Over $24 Million Proposal

TLDR

Compound Finance passed a controversial proposal allocating $24 million worth of COMP tokens to a new vault
The proposal was narrowly approved despite objections from many community members
Critics argue this may be a “governance attack” by a group called the “Golden Boys”
The proposal’s main supporter, known as “Humpy,” has been involved in similar controversial actions with other DAOs
This event has raised concerns about the vulnerability of DAO governance systems

Compound Finance, a popular decentralized lending platform, is facing criticism after passing a controversial proposal that allocates 499,000 COMP tokens, worth about $24 million, to a new yield-bearing vault.

The proposal, known as Proposal 289, was narrowly approved on July 28, 2024, sparking debate about the integrity of decentralized autonomous organization (DAO) governance.

The proposal passed with a slim majority of 51%, receiving 682,191 votes in favor and 633,636 against. It was put forward by a group called the “Golden Boys,” led by a COMP token holder known as “Humpy.”

The approved plan will move the tokens to a new vault controlled by this group, supposedly to provide additional yield for COMP holders.

According to the proposal:

“When a user places COMP into the goldCOMP vault, the depositor receives goldCOMP, a semi-liquid wrapped token representing their initial deposit.” The proposal claims these tokens can then be used to create “a passive income stream for COMP holders who plan to hold COMP for a long period of time.”

However, many community members and experts have raised concerns about this development.

Michael Lewellen, a security solutions architect at OpenZeppelin and advisor to Compound Finance, warned of a potential “governance attack” as early as May. Lewellen noted that the proposal “was not discussed prior in the forums and the delegate did not identify itself to the community prior to the proposal being created.”

Critics argue that the Golden Boys accumulated voting power through open market purchases, potentially undermining the principle of decentralized governance. The concern is that decisions may reflect the interests of a few powerful entities rather than the broader community.

Omer Goldberg, CEO of Chaos Labs, a firm focused on DeFi security, commented that the proposal was “poorly communicated” at best and potentially an attack happening in “plain sight” at worst. Goldberg emphasized, “The key lesson here remains clear: if the potential payoff exceeds the cost of exploitation, someone will attempt it.”

This isn’t the first time Humpy has been involved in controversial DAO actions. In 2022, the Ethereum-based Balancer protocol struggled with similar proposals from Humpy. A Messari report described it as a “cat-and-mouse game to control the whale’s profit-seeking activity through governance.” Humpy was also accused of attempting a governance attack on SushiSwap in March 2024.

The passage of Proposal 289 has led to a drop in COMP’s token price, which fell nearly 7% in the 24 hours following the vote. This decline suggests that the broader market views these developments negatively.

In response to criticisms, Humpy defended the proposal, stating, “‘Steal funds’ is a wrongful & misleading phrase, especially coming from compound’s risk specialist. Requested investment goes through a Trust Setup with a constraint set of actions that doesn’t permit stealing/diverting of funds.”

However, questions remain about the actual constraints on the Golden Boys’ control over the new vault. Wintermute’s governance account pointed out that “Any form of withdrawal action (divest) is solely controlled by GoldenBoyzMultisig, meaning that the DAO cannot actually recall funds at any time under their own discretion.”