Compound Governance Attack Controversy: Suspected 'Repeat Offender' Whale Hoards Large Amounts of Coins, Forcing Through $24 Million Proposal

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

Author: Zack Abrams, The Block

Compilation: Fairy, ChainCatcher

A recent proposal by the lending protocol Compound Finance has sparked accusations of governance attacks from community members, claiming that a small group forcefully passed the proposal by acquiring a large amount of Token on the open market.

On Sunday, Proposal 289 passed by a narrow margin of 682,191 votes to 633,636 votes. The proposal allocates 5% of the Compound Treasury, approximately $24 million worth of 499,000 COMP tokens, to a profit protocol designed by the ‘Golden Boys’ for a period of one year. Voting for the proposal began at 11:40 pm on Thursday and continued until the weekend.

However, community members claim that there are more long-hidden things behind these voting results.

OpenZeppelin’s security solution architect and Compound Finance’s security consultant Michael Lewellen pointed out on his X account that a long account has been buying a large amount of COMP Token in the open market and proposed the intention to transfer the holding of COMP to the goldCOMP product created by Golden Boys.

After Lewellen’s security alert, several community members, including Wintermute Governance, Columbia Blockchain, Penn Blockchain, and StableLab, expressed similar concerns as the team made two attempts after the initial proposal failed. In his personal opinion published after proposal 289 was created, Lewellen stated, ‘In my personal view, if @Humpy and the Golden Boys team continue to insist on trying to obtain funds from the protocol, it is obviously against the will of all other Compound DAO representatives, and their actions can be considered 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 wrong and misleading term, especially when it comes from a risk expert. The requested investment is made through a trust setup, with a series of constraints that do not allow for embezzlement or transfer of funds.”

Wintermute’s governance account questioned in a previous post whether the ‘Trust Setting’ actually prevents fund transfers, stating, ‘Any form of withdrawal action (withdrawal of funds) is completely controlled by GoldenBoyzMultisig, which means that the DAO cannot recall funds on its own. The DAO needs to vote to initiate the PHASE update and then rely on GoldenBoyzMultisig to invoke the relevant withdrawal function.’

Bryan Colligan, founder and CEO of the official rise team of Compound, pointed out that even without considering the risks, this opportunity does not seem so profitable for Compound Finance. ‘Leaving aside the security issues, according to our early analysis, there are many better POL opportunities that can be achieved through cooperation with emerging chains and Decentralizationexchange. The Annual Percentage Rate of these opportunities is mostly between 15-20%, and some are even as high as 40%.’

Although Humpy does not seem to be acting completely alone, at least one of the five members of Golden Boys long-signed Wallet claims to have no knowledge of the proposal. Another one of the four managers of long-signed Wallet mentioned by Humpy, Ogle, said, “Multi-signature has been used for a long time and I don’t know about the current voting or participate in it.” Ogle subsequently made a more cautious response to the accusation of governance attack, writing under the proposal, “From my interaction with them last year, although they were acting in their own interests, there was nothing wrong with their behavior, so I am surprised if anyone is “hurt”. My guess is that this is a way for everyone, including the team, to make money, but I just heard about it…So I don’t know more than you do.”

According to The Block’s Compound price page, the price of Compound’s Token dropped by nearly 7% in the 24 hours after the proposal was passed.

Humpy is not launching a governance attack for the first time

It is said that Humpy has been involved in similar attempts, apparently using the governance process of DAO to obtain personal gains. In a long event in 2022, the Ethereum-based Decentralized Finance protocol Balancer had a prolonged struggle with Humpy, and Humpy’s proposal was passed with a large number of votes by Whale.

A report from Messari suggests that from April to December 2022, Balancer has been striving to align Humpy’s activities with the goals of DAO through incentive mechanisms, and it has been forced into a cat-and-mouse game to control the profit-seeking activities of Whales through governance.

Although Humpy’s team and protocol eventually reached a peaceful agreement, this battle involved Humpy using long wallets to control over 50% of the voting shares, effectively unilaterally passing a proposal.

In March this year, Humpy was also accused of launching an attack by Jared Grey of SushiSwap. Grey wrote in his description of the attack in a X post: “As the process develops, if his governance attack succeeds, he will extract the value of Sushi by creating Inflation to support the performance and distribution of its underperforming GOLD Token.”

Grey also responded to Proposal 289, posting on X on Sunday, saying, “Feeling sorry for the sustained governance attacks on Compound and Humpy.”