Compound Finance, the decentralized lending protocol of the Ethereum ecosystem, seems to be experiencing a fierce controversy within the community regarding governance recently.

Proposition 289, which passed on July 28, appears to have been the trigger for a series of accusations on social media. The charge alleges a governance attack by a voting bloc called "Golden Boy." On the Compound governance forum, insiders were specifically warning that such an incident could occur days before the proposal discussion took place.

Governance attack?

On May 6, 2024, Compound Governance rejected Proposition 247 because it did not have the necessary quorum.

The proposal is proposed to be called "Invest 5% of COMP holdings in goldCOMP vaults." It is reported that this proposal aims to create a COMP wrapped token called "GoldCOMP", which will be kept in an independent treasury operated by "Golden Boy" and supported by COMP funds. According to Golden Boy member Humpy, this is to provide COMP holders with an additional passive income that will be freely invested and divested by Golden Boy.

Humpy explained in an article:

“When users deposit COMP into the goldCOMP vault, the depositor receives goldCOMP, a semi-liquid wrapped token that represents their initial deposit. These goldCOMP tokens can be placed in a 99/1 Balancer pool, Create a source of passive income for holders who plan to hold COMP for the long term.”

After Proposition 247 failed, the group updated Proposition 279, which still failed to pass on the July 19 ballot. It originally requested that "92,000 COMP be sent to the goldCOMP treasury as a one-year investment."

At the time of the 279 failure, “Wintermute Governance” representing market maker Wintermute expressed concerns on the Compound governance forum about the Golden Boy proposal, arguing that the proposal would give the group complete control of transferred funds. Michael Lewellen of the auditing company OpenZeppelin even said that Golden Boy’s proposal can be regarded as a “governance attack”:

“In my personal opinion, Humpy and Golden Boy’s actions could be considered a governance attack if they insist on withdrawing money from the protocol, in clear opposition to the wishes of all other Compound DAO representatives.”

Proposition 289 unexpectedly passes

However, on July 28, Golden Boy's follow-up proposal (No. 289) unexpectedly passed by a vote of 682,191 in favor to 633,636 against. The new proposal also increases the funding requirement from 92,000 COMP to 499,000 COMP to fund the goldCOMP treasury. Under the terms of Proposition 289, the requested COMP of 499,000 (valued at approximately $24.1 million) is expected to be transferred to the goldCOMP treasury on or about July 30.

While the overall cryptocurrency market has rebounded significantly over the past 24 hours, the Compound token price has still fallen by approximately 5%, perhaps influenced by the passage of this proposal. This Compound Finance governance crisis highlights the fragility of the governance structure and potential conflicts of interest in the field of decentralized finance (DeFi).

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