Compound Finance passes controversial $24 million proposal amid governance attack fears

Compound Finance’s decentralized autonomous organization (DAO) has passed a proposal to allocate 499,000 COMP tokens worth around $24 million to goldCOMP DeFi vault 1, a yield-bearing protocol created by Golden Boyz. The drama surrounding the proposal’s passage has sparked concerns about a potential governance attack on the lending protocol.

Efforts to pass the proposal started in May with proposal 247, which asked for an investment of 92,000 COMP into the goldCOMP DeFi vault in exchange for 5% annual returns. Under this proposal, Compound DAO will transfer 92,000 COMP to Golden Boys’ multi-sig wallet. The wallet would deposit the tokens into the vault to receive goldCOMP and stake the goldCOMP in a goldCOMP/wETH Balancer pool.

How the controversial Compound Finance proposal was passed

However, there were concerns about this proposal. Compound Finance security advisor Michael Lewellen noted that the transactions surrounding proposal 247 make it suspicious because several addresses have accumulated COMP tokens from the ByBit exchange with the intention of voting on the proposal. He also questioned why the proposal was not discussed in the forum first, as is usually the case in the Compound DAO.

Other stakeholders, including Wintermute Governance, Penn Blockchain, StableLab, and Columbia Blockchain, also resisted proposal 247, leading to its cancellation. A follow-up proposal 279 was submitted with a minor adjustment of a Trust Setup instead of multi-sig. They claimed this would address the concerns about delegating COMP tokens without any oversight from the DAO or clawback mechanism.

After failing to pass the second attempt, a third proposal, 289, was submitted. The proposal increased the requested COMP allocation to 499,000 tokens, used the TrustSetup, and updated the PHASE to allow Goldenboys multi-sig call to invest the TrustSetup contract.

Proposal 289 has now passed narrowly by a vote of 682,191 to 633,636. The passage is now being criticized, with many noting that it was done against the community’s wishes. Lewellen had called for its cancellation before its passage, saying:

“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.”

However, the whale leader of the Golden Boys, Humpy, criticized the risk assessment and defended the proposal, stating that there are mechanisms in place to prevent “stealing or diverting funds.”

Despite Humpy’s claims that the Trust Setup will address risks of funds diversion, Wintermute Governance had earlier disagreed, noting that GoldenBoyz multisig still controls withdrawal action. This means DAO cannot automatically claw back assets and would need to vote to initiate any divest function.

Community members allege selfish interests

Meanwhile, the overwhelming opinion within the crypto community is that this incident is due to the whale’s selfish interests. Bryan Cooligan, CEO of the Compound Growth team, noted that the 5% APR in the proposal is too low even without the security risks. He added that the team has found better opportunities offering higher returns.

One of the five named governors of the GoldenBoyz multisig, Ogle, also acknowledged that the group is “self-serving but good actors.” However, he denied having any knowledge of or voting on the proposal. He added that he is only part of the multisig because he bought a GOLD token last year when it was a meme coin and ended up losing money. He said:

“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 bc of your tag and some dms, so I don’t know any more than you do.”

Meanwhile, this is not the first time that Humpy has manipulated the DAO governance process to his advantage. He did a similar thing on Balancer protocol and Aura Finance. He could unilaterally pass proposals on Balancer by using several wallets to control over 50% of votes.