Decentralized Autonomous Organizations or DAOs are sometimes hailed as the way forward for governance within the crypto world, promising a brand new period of community-driven decision-making.
Nevertheless, regardless of their decentralized nature, many DAOs stay susceptible to the affect of enormous tokenholders, or “whales,” whose actions—or inactions—can have outsized impacts on these supposedly democratic buildings.
This situation performed out lately in Compound Finance when a bunch often known as “Goldenboys” or “Humpy” on X used their token holdings to push by means of a controversial governance change.
Supply: Compound FinanceThe Incident: Proposal #289
Earlier this 12 months, a bunch of traders often known as Goldenboys led by Humpy, launched a sequence of proposals to the Compound DAO, aiming to reshape the protocol’s governance construction. Essentially the most vital of those was Proposal #289, which referred to as for the allocation of 499,000 $COMP tokens—representing a considerable portion of Compound’s treasury—right into a yield-bearing protocol managed by the Golden Boys group.
The proposal got here after two earlier makes an attempt by the identical group to achieve approval for related measures. Regardless of dealing with preliminary resistance, the proposal finally handed by a slender margin, highlighting the outsized affect that giant tokenholders can wield in DAO governance.
The vote noticed a last-minute surge of help, tipping the scales in favor of the proposal, which many in the neighborhood had initially opposed.
Supply: DeBankAllegations of Manipulation
Michael Lewellen, an OpenZeppelin safety options architect, has raised issues that the proposal’s passage was influenced by a sudden inflow of $COMP tokens from 5 addresses. These addresses reportedly withdrew over 230,000 $COMP from the Bybit change simply earlier than the vote, elevating questions in regards to the integrity of the voting course of.
Lewellen referred to the scenario as a possible “governance assault,” suggesting that the group used their voting energy to bypass the same old safeguards.
Humpy has additionally confronted related allegations prior to now. In 2022, he was concerned in directing governance on the Balancer protocol, the place he reportedly used a big amount of $BAL tokens to affect outcomes in his favor and this historical past has fueled suspicions that the latest occasions on Compound might symbolize a deliberate technique somewhat than a legit governance choice.
In response to the allegations, Humpy denied any wrongdoing and acknowledged “steal funds” is a “wrongful & deceptive phrase.” He added that the funds can be managed inside a belief construction that features safeguards in opposition to unauthorized use. He emphasised that the proposal was a legit final result of the governance course of and expressed appreciation to those that supported it.
Repercussions and Broader Considerations
The scenario at Compound was exacerbated by the inactivity of different massive tokenholders, comparable to enterprise capital agency a16z, which abstained from voting, permitting Humpy to dominate the decision-making course of.
Finally, this incident led to non-public negotiations and a compromise that changed the unique proposal with a “Staked Compound Product” proposal, redistributing 30% of Compound’s income to staked $COMP holders and finally stopping the Goldenboys group from gaining extreme management over the protocol.
The incident has raised issues in regards to the susceptibility of DAOs to manipulation by massive tokenholders, prompting requires stronger safeguards and extra lively participation from the broader group.
The overarching purpose stays to develop governance programs which are resilient, responsive, and able to evolving to satisfy new challenges.
