Original author: @StableScarab, @t__norm
Original translation: Peisen, BlockBeats Editor's note:
On July 29, the recently passed proposal of DeFi lending protocol Compound triggered accusations of governance attacks from community members. Proposal 289 allocated 5% of Compound funds (499,000 COMP tokens worth about $24 million) to a yield protocol designed by the âGolden Boysâ for a period of one year.
The proposal narrowly passed with 682,191 votes to 633,636, but community members claim that a small group of people were able to force the proposal through the approval process after purchasing a large number of tokens on the open market. Compound Finance security consultant Michael Lewellen said that several accounts hoarding COMP tokens on the open market were related to several proposals to allocate COMP to the goldCOMP product created by a group called Golden Boys.
@t__norm pointed out that this is not the first time that Golden Boys has committed a crime. As early as 2022, they attacked Balancer with similar methods, triggering an "arms race" between Balancer stakeholders, Humpy, and community stakeholder Aura.
The Compound treasury just had $25 million withdrawn in what is being called a governance attack.
Who is behind this?
The most important whale in DeFi youâve probably never heard of â Humpy (@Titanium_32). His story spans many years, multiple DeFi protocols, and millions of dollars.
Humpy is not your typical whale. He is a major player in multiple protocols, cleverly using incentive design to earn large amounts of governance tokens. His tactics have allowed him to accumulate wealth and controversial control, most notably over Balancer in 2022.
Balancer crisis two years ago
Over the course of eight months in 2022, Balancer quietly navigated one of the most controversial (and illuminating) governance sagas of the year.
veBAL was launched to align token holders with DAO goals and protocol revenues. But what happens when the incentive system has unintended consequences?
Balancer has been struggling to align its systems with the activities of a particular veBAL whale named Humpy. When incentives fail, Balancer is drawn into a cat-and-mouse game of controlling the whaleâs profit-seeking behavior through governance.
Humpyâs strategy was simple: dominate the poolâs liquidity, actively vote on the meter, and collect BAL emissions. The only problem was that the meter he used generated very little revenue for Balancer.
Humpyâs strategy was adjusted by Balancer to prevent them from farming low-income pools. Humpy found new loopholes every time the incentive indicator framework was updated.
Unfortunately, Humpy accidentally trapped their capital in the illiquid tetuBAL pool, forcing them to double down on their position to protect their meter strategy at all costs.
What transpired could only be described as an arms race as Balancer stakeholders, Humpy, and community stakeholders such as Aura fought to gain sufficient governance power to defend their interests.
As Humpyâs governance activity escalated, tensions boiled over, with the DAO struggling to compete with his voting power, leading to multiple proposal re-votes and a controversial strategy to reduce friction in unlocking Auraâs total governance power.
Thankfully, the DAO was able to come to an agreement with the whales on a peace treaty proposal that closed for voting today.
If youâre interested in DAO governance and incentive design, or want to hear a fascinating story about power and money, check out the latest Governorâs Note, which dives deep into this saga, its impact, and its consequences.
Where is the way out for decentralized governance?
In the latest governance attack, Humpy used his voting power to deposit $25 million from the Compound vault directly into his own goldCOMP vault. This allowed users to earn yield on their COMP while increasing Humpyâs influence. While legal, it raises questions about decentralized governance.
Humpyâs influence extends beyond governance. He has his own token, which he uses for his âGolden Boysâ community. Its value has doubled after todayâs Compound event as speculators bet on Humpyâs ability to continue to find âhighly profitableâ governance or farming strategies.
This incident highlights a key question in DAOs and DeFi protocols: How decentralized are they when a single whale can influence major decisions in their favor? Humpyâs actions are a case study in the power dynamics of decentralized governance and incentive design.
What do you think? Is this a governance attack or is it within the rules of the game? One thing is for sure, this wonât be the last.
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