Compound Finance's Governance Under Scrutiny
The governance model of Compound Finance, based on blockchain technology, is currently facing intense scrutiny following the controversial approval of Proposal 289. This proposal, narrowly passed with a vote tally of 682,191 to 633,636, involves the transfer of 499,000 COMP tokens, valued at approximately $24 million, from the protocol's treasury to a yield-bearing protocol developed by a group known as the 'Golden Boys' for a one-year duration.
The revised proposal significantly increased the COMP tokens requested for the goldCOMP treasury from 92,000 to 499,000.
Allegations of Governance Malpractice
The acceptance of Proposal 289 has ignited allegations of a governance attack within the Compound Finance community. Critics argue that a minority collective manipulated the voting system by acquiring substantial COMP tokens from the open market.
Michael Lewellen, a security advisor associated with Compound, has highlighted suspicious links between the token acquisitions and the proposals advocated by the Golden Boys.
The primary goal behind the proposal, as indicated by one of its advocates, was to introduce a new wrapped COMP token named 'GoldCOMP,' slated to be stored in a distinct treasury managed by the Golden Boys and funded by COMP.
Integrity Concerns in Governance
Community members have raised concerns about a considerable depletion of Compound Finance's treasury, allegedly orchestrated by a major COMP holder referred to as 'Humpy' through a recent governance initiative.
Golden Boy 'Humpy' defended the action as a means to provide additional 'passive income' for COMP holders, with full control over investments and divestments vested in the hands of the Golden Boys.
Reports indicate that 'Humpy' redirected 499,000 COMP tokens, valued at roughly $25 million, from the Compound treasury to a yield-bearing vault owned by 'Humpy' and his associates by leveraging his holdings on a Sunday.
In response to the evolving situation, the latest proposal introduced a 'Trust Setup' for the Golden Boys multisig, restricting investment, divestment, and reward management actions to be sanctioned solely by Compound Governance.
Community Backlash
While technically in compliance with the DAO's rules, the move has been met with criticism from various community stakeholders and experts following its approval by COMP token holders. Michael Lewellen stated concerns about a potential 'governance attack' date as early as May.
Critics argue that amassing voting power through market acquisitions contradicts the essence of decentralized governance principles, which are intended to prioritize collective interests over the agendas of a select powerful few.
In response to Lewellen's security warning, several community members, including Wintermute Governance, Columbia Blockchain, Penn Blockchain, and StableLab, voiced similar apprehensions, particularly after the group attempted twice to pass their initial failed proposal.
Projected Impact and Strategies
With Proposal 289 slated for implementation on July 30, subsequent action through Proposal 290, 'Precautionary Transfer of Timelock Admin,' suggests a potential transfer of Compound Governance Timelock Admin to 'CommunityMultiSig,' a move that could potentially deter similar proposals mirroring those of the Golden Boys.
Despite the postulated impediments, Proposal 289 mandates the transfer of 499,000 COMP tokens, valued at approximately $24.17 million, to the goldCOMP treasury fund around July 30.
Golden Boys' Justification
Following the approval of Proposal 289, the figurehead of the Golden Boys, known as Humpy, contested Lewellen's critique with a defense of the proposal.
Humpy dismissed the accusations of 'fund theft,' emphasizing that the proposed investment would proceed through a Trust Setup imposing strict limitations to prevent fund misdirection.
One of the Golden Boys multisig members disavowed knowledge of the proposal, casting doubts on the collective decision-making process within the group.
Compound's token value witnessed a decline of nearly 4.5% in the 24 hours post the proposal's approval, as reported by The Block's Compound Price Page.
These developments follow the compromise of the frontend of Compound Finance's decentralized finance platform on July 11.
