A recently approved proposal by the lending protocol Compound Finance has led to allegations of a governance attack, with community members arguing that a small group pushed the proposal through by purchasing large quantities of tokens on the open market.
Compound Finance Governance Controversy Over Proposal 289
Proposal 289, which allocates 5% of Compound’s treasury, or 499,000 COMP tokens worth approximately $24 million, to a yield-bearing protocol designed by a group known as the “Golden Boys” for one year, narrowly passed by a vote of 682,191 to 633,636 on Sunday. Voting for the proposal began on Thursday at 11:40 pm and lasted through the weekend.
However, community members, including Michael Lewellen, a security solutions architect at Open Zeppelin and a security advisor for Compound Finance, have alleged that several accounts amassed COMP tokens on the open market to support proposals aimed at diverting COMP holdings toward the gold COMP product created by the Golden Boys. Lewellen highlighted these concerns on his X account, connecting the dots between the token acquisitions and multiple proposals linked to the Golden Boys.
In response to Lewellen’s alert, several community members, including Winter mute Governance, Columbia Blockchain, Penn Blockchain, and Stable Lab, echoed similar concerns. They pointed out that the group had made two additional attempts to pass its initial failed proposal. Lewellen stated, “In my personal opinion, the actions of @Humpy and the Golden Boys can be considered a governance attack if they persist in their attempts to take funds from the protocol in clear opposition to the will of all other Compound DAO delegates.” Lewellen was not immediately available for comment.
Defense and Doubts: The Aftermath of Proposal 289
Following the passage of Proposal 289, Humpy, the apparent leader of the Golden Boys, defended the proposal, countering Lewellen’s accusations. Humpy stated, “‘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, Wintermute’s governance account questioned the effectiveness of the ‘Trust Setup’ in preventing fund diversion, noting that any withdrawal action would be controlled by Golden BoyzMultisig, which could bypass DAO control.
Bryan Colligan, founder and CEO of Compound’s official growth team, expressed skepticism about the proposal’s benefits. He highlighted that there are better opportunities available, stating, “Security concerns aside, from our early analysis there are much better POL opportunities available leveraging partnerships from emerging chains and dexes available. Most of these opportunities we are evaluating are starting at 15-20% APR and some as high as 40% APR.”
Adding to the controversy, one of the five members of the Golden Boys multisig, X user Ogle, claimed to be unaware of the proposal. “On multisig from long ago, didn’t know this was a vote happening and didn’t vote in it,” Ogle wrote. Ogle also provided a more measured response to the governance attack allegations, suggesting that the group’s intentions might not be malicious, stating, “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…so I don’t know any more than you do.”
Compound’s token price dropped nearly 7% in the 24 hours following the proposal’s passage, according to The Block’s Compound Price Page.
A Pattern of Governance Manipulation?
Humpy has allegedly been involved in similar governance manipulation attempts in the past. In 2022, the Ethereum-based Balancer DeFi protocol struggled with Humpy over proposals that he was able to pass by amassing a large vote share. A Messari report details how Balancer faced a protracted struggle to align Humpy’s activity with DAO objectives, eventually reaching a peace treaty after months of conflict.
Humpy was also accused of attacking SushiSwap by its ‘Head Chef’ Jared Grey in March of this year. Grey alleged that Humpy aimed to extract value from SushiSwap to support his GOLD token’s performance and distribution. Following Proposal 289’s passage, Grey expressed sympathy for Compound, writing, “Feel bad for Compound and the governance attack perpetuated by Humpy,” in an X post on Sunday.
The unfolding situation at Compound Finance underscores the vulnerabilities in decentralized governance systems, highlighting the need for robust safeguards to prevent manipulation and ensure the integrity of DAO decision-making processes.
