Passage of Hybrid Finance Proposal Raises Concerns of ‘Governance Attack’

A recent governance proposal has sparked concerns about the integrity of the decentralized autonomous organization (DAO), with Compound Finance’s treasury being significantly depleted, allegedly facilitated by a COMP whale known as “Humpy.”

Humpy claimed on Sunday that he used his significant stake to pass a proposal to redirect 499,000 COMP tokens, worth roughly $25 million, from the Compound treasury to a yield-generating vault controlled by him and a group known as the “Golden Boys.” Industry Participants say.

that much proposal The proposal was passed narrowly on the lending platform’s DAO Governance Forum with 682,191 votes in favor and 633,636 votes against, with a 51% majority. The proposal claims to provide holders with additional yield on their COMP tokens.

The move, while legal within the framework of the DAO rules, was criticized by some community members and experts after COMP token holders voted on Sunday.

The text of the proposal reads: “When a user deposits COMP into the goldCOMP vault, the depositor receives goldCOMP, a semi-liquid wrapper token representing the initial deposit.”

“These goldCOMP tokens can be placed into the 99/1 Balancer Pool 1, creating a passive income stream for COMP holders who plan to hold COMP for the long term.”

In a discussion of a similar proposal that Humpy has been working on for the past two to three months, Michael Lewellen, security solutions architect at OpenZeppelin, said: I warned you This is a precaution against a potential “governance attack” that could occur in early May.

“This proposal was not previously discussed in the forums and the delegate did not disclose himself to the community before the proposal was made,” Lewellen wrote in May. “Additional delegates have been created who raise concerns that this may be a coordinated governance attack.”

Critics argue that the accumulation of voting rights through open market purchases undermines the principle of decentralized governance, which states that decisions are intended to reflect the interests of the whole, not the agenda of a few powerful entities.

With the above in mind, the latest proposal attempted to assuage concerns by insisting on a new “trust setup” that would allow the Golden Boys multisig to process investments, dispositions, and rewards only with prior approval from Compound Governance.

But central control of the new vault has been met with skepticism.

Omer Goldberg, founder and CEO of Chaos Labs, a company focused on providing security and risk management solutions for DeFi protocols, said the proposal is at best “under-delivered” and at worst an attack “out of the blue.”

“The important lesson here is still clear: If the potential rewards exceed the costs of exploitation, someone will try,” Goldberg said. tweeted Sunday “The only variable is the time frame.”