Compound governance turmoil: Suspected "repeat offenders" hoarding large amounts of tokens, forcibly passing a $24 million proposal

Original Title: $24 million Compound Finance proposal passed by whale over DAO objections

Author: Zack Abrams, The Block

Translation: Fairy, ChainCatcher

The lending protocol Compound Finance recently passed a proposal that has sparked accusations of governance attacks from community members, who claim that a small group forced the proposal through by acquiring a large amount of tokens on the open market.

On Sunday, Proposal 289 was narrowly approved with 682,191 votes to 633,636 votes, allocating 5% of the Compound treasury, or approximately $24 million worth of 499,000 COMP tokens, to a yield protocol designed by the "Golden Boys" for a duration of one year. The voting for the proposal began at 11:40 PM on Thursday and continued through the weekend.

However, community members claim that there is more to the voting results than meets the eye.

Michael Lewellen, a security solutions architect at OpenZeppelin and a security advisor for Compound Finance, pointed out on his X account that multiple accounts had purchased COMP tokens in large quantities on the open market and proposed several intentions to transfer COMP holdings to the goldCOMP product created by Golden Boys.

After Lewellen's security alert was issued, several community members, including Wintermute Governance, Columbia Blockchain, Penn Blockchain, and StableLab, expressed similar concerns, as the team made two additional attempts after the initial proposal failed. In a personal opinion published after the creation of Proposal 289, Lewellen stated, "In my personal view, if @Humpy and the Golden Boys team continue to try to extract funds from the protocol, clearly against the will of all other Compound DAO representatives, their actions can be seen as a governance attack."

However, after Proposal 289 was passed, Humpy, the main leader of Golden Boys, defended the proposal in an article criticizing Lewellen. Humpy claimed, "'Stealing funds' is a mischaracterization and misleading term, especially coming from a risk expert. The requested investment is set up through a trust, with a series of constraints that do not allow for the misappropriation or transfer of funds."

Wintermute's governance account questioned earlier in a post whether the "trust setup" actually prevents the transfer of funds, writing, "Any form of withdrawal action (divestment) is completely controlled by GoldenBoyzMultisig, meaning the DAO cannot recall the funds on its own. The DAO needs to vote to initiate a PHASE update and then trust GoldenBoyzMultisig to call the relevant withdrawal functions."

Bryan Colligan, founder and CEO of Compound's official growth team, pointed out that even setting aside risks, this opportunity does not seem very profitable for Compound Finance. "Putting security concerns aside, based on our early analysis, there are many better POL opportunities that can be realized through partnerships with emerging chains and decentralized exchanges. The annualized returns for these opportunities mostly range from 15-20%, with some even reaching 40%."

While Humpy does not appear to be acting entirely alone, at least one of the five members of the Golden Boys multisig wallet claimed to be completely unaware of the proposal. Ogle, one of the other four managers of the multisig wallet mentioned by Humpy, stated: "I used the multisig a long time ago, was unaware of the ongoing voting, and did not participate in the voting." Ogle later responded more cautiously to the accusations of governance attacks, writing under the proposal, "From my interactions with them last year, while they acted out of self-interest, there was nothing inappropriate about their behavior, so I would be surprised if it was to 'harm' certain individuals. My guess is that this is a way for everyone, including the team, to make money, but I really just heard about this… so I know no more than you do."

According to The Block's Compound price page, the price of Compound's token fell nearly 7% within 24 hours after the proposal was passed.

Humpy has not been the first to initiate a governance attack

Humpy is said to have been involved in similar attempts, seemingly exploiting the DAO's governance process for excessive personal gain. In a lengthy incident in 2022, the Ethereum-based DeFi protocol Balancer had a prolonged struggle with Humpy, whose proposals were passed by whales with large votes.

A report from Messari noted, "From April to December 2022, Balancer struggled to align Humpy's activities with the goals of the DAO through incentive mechanisms, being forced into a cat-and-mouse game to control the profit-seeking activities of whales through governance."

Although Humpy's team and the protocol eventually reached a peace agreement, the battle involved Humpy using multiple wallets to control over 50% of the voting share, effectively unilaterally passing multiple proposals.

In March of this year, Humpy was also accused of launching an attack by Jared Grey of SushiSwap. In a post describing the attack on X, Grey wrote, "As the process unfolded, if his governance attack succeeded, he would extract value from Sushi by creating inflation to support the performance and distribution of its underperforming GOLD token."

Grey also responded to the passing of Proposal 289, posting on X on Sunday, "Sad to see the ongoing governance attacks on Compound and Humpy."