Blockchain-based protocol Compound Finance is under scrutiny after Proposal 289 narrowly passed by a vote of 682,191 to 633,636. This proposal allocates 499,000 COMP tokens, worth around $24 million, from the protocol’s treasury to a yield-bearing protocol designed by the “Golden Boys” for a year. 

The new proposal upped the amount of COMP requested to fund the goldCOMP treasury from 92,000 to 499,000.

The proposal’s approval has sparked accusations of a governance attack. Critics allege that a small group manipulated the voting process by acquiring large amounts of COMP tokens on the open market. 

Michael Lewellen, a security advisor for Compound, pointed out connections between these token acquisitions and the Golden Boys’ proposals.

The intent of the proposal, according to one of its purported supporters, was to establish a wrapped COMP token called “GoldCOMP” that would be held in a separate treasury operated by the Golden Boys and funded by COMP. 

Concerns Over Governance Integrity

According to community concerns, a substantial drain on Compound Finance’s treasury, allegedly facilitated by a COMP whale known as "Humpy" via a recent governance proposal.

Golden Boy "Humpy" claimed that this was to provide additional "passive income" for COMP holders, which would be invested and divested at the Golden Boys' discretion.

Industry participants say Humpy leveraged his holdings on Sunday to reroute 499,000 COMP tokens valued at approximately $25 million from the Compound treasury to a yield-bearing vault owned by him and his Golden Boys group.

Taking note of the above, the latest proposal claimed a "Trust Setup" that would allow Golden Boys multisig to invest, divest, and handle rewards only with Compound Governance's approval. 

Community Outcry

The move, though legal within the framework of the DAO’s rules, was called out by several community members and experts following its passage on Sunday by a vote from COMP token holders. 

Michael Lewellen warned of a potential “governance attack” taking place as early as May.

“The proposal was not discussed prior in the forums and the delegate did not identify itself to the community prior to the proposal being created,” Lewellen posted following the creation of Proposal 289. “There are additional new delegations that have been made that raise concerns that this is possibly a coordinated governance attack.” 

Critics argue that the accumulation of voting power through open market purchases undermines the principle of decentralized governance, where decisions are intended to reflect the collective interest rather than the agenda of a few powerful entities.

In response to Lewellen's security alert, several community members including Wintermute Governance, Columbia Blockchain, Penn Blockchain, and StableLab echoed similar concerns, especially as the group made two additional attempts to pass its initial failed proposal.

Worth noting, on May 6, Compound Governance rejected proposal 247 when it failed to reach a quorum. The proposal, dubbed “Treasury to Invest 5% of COMP holdings into goldCOMP Vault,” was subsequently canceled.

Future Implications

As of the time of this article’s publication, 289’s passage indicates an implementation date of July 30. It’s been followed by proposal 290, “Precautionary Transfer of Timelock Admin,” which proposes sending the Compound Governance Timelock Admin to “CommunityMultiSig.”

Transferring the Timelock Admin could potentially hinder future efforts to pass proposals similar to the Golden Boys. But it might be a case of too little too late when it comes to proposal 289.

In accordance with proposal 289's terms, the 499,000 COMP requested - worth approximately $24.17 million as of the publication of this article - is expected to move to the goldCOMP treasury fund on or around July 30.

Golden Boys’ Defense

However, following Proposal 289's passage, the apparent leader of the Golden Boys, who goes by Humpy, defended the proposal in a rebuke to Lewellen's post. 

"Steal funds’ is a wrongful & misleading phrase, especially coming from compound’s risk specialist. Requested investment goes through a Trust Setup with a constraint set of actions that doesn’t permit stealing/diverting of funds," Humpy claimed.

At least one of the five members of the Golden Boys multisig says they were completely unaware of the proposal, even though Humpy appears to be acting alone. 

"On multisig from long ago, didn't know this was a vote happening and didn't vote in it," wrote X user Ogle, one of four other members named by Humpy as governors of the multisig.

Compound's token's price is down nearly 4.5% in the past 24 hours following the passage of the proposal, according to The Block's Compound Price Page. 

This comes following Decentralized finance giant Compound Finance's frontend was compromised earlier on July 11.