Compound (COMP) Down 6.7% Amid Governance Attack Concerns

The Compound (COMP) token has faced a significant drop of 6.7%, following allegations of a “governance attack” on its Decentralized Autonomous Organization (DAO). A whale holding a substantial number of COMP tokens has played a crucial role in pushing through a controversial governance proposal, raising concerns among the community and major stakeholders.

The Governance Attack Explained

A governance attack in the context of a DAO involves an entity acquiring enough voting power to influence the protocol’s decisions for personal gain. This exploit takes advantage of the decentralized and often permissionless nature of governance tokens. In Compound’s case, the attack was orchestrated by a whale known as Humpy, who, along with a group called the “Golden Boys,” managed to pass a proposal after three prior attempts.

The Controversial Proposal

The proposal in question aims to allocate $24 million in COMP tokens to a yield-bearing protocol named goldCOMP. The goldCOMP protocol promises to provide passive income to COMP holders. However, the proposal has faced significant backlash, with many community members and stakeholders, including Wintermute, expressing concerns that it constitutes a governance attack designed to misappropriate funds.

History of Attempts

The attack began with Proposal 118, which sought to transfer 5% of COMP’s treasury to a multi-sig wallet controlled by the Golden Boys. This proposal was rejected due to suspicious circumstances and strong community opposition. A second attempt, Proposal 247, aimed to invest 5% of COMP tokens into a goldCOMP vault, but it failed to reach quorum and was subsequently canceled.

The third attempt, Proposal 289, successfully passed, leading to the current controversy. Humpy and the Golden Boys defended their proposal, asserting that the goldCOMP fund is structured to prevent the misappropriation of funds through a trust setup with strict constraints.

Community Response

In response to the passed proposal, the Compound community has moved swiftly to mitigate potential risks. Proposal 290, which will soon open for voting, seeks to transfer control of the Timelock Admin, a smart contract that enforces a two-day delay on governance actions. This measure is intended to provide the community more time to react and prevent future governance attacks.

Broader Implications

This incident highlights the vulnerabilities and challenges of decentralized governance systems. It underscores the need for robust security measures and vigilant community oversight to safeguard the integrity of DAOs. As the situation develops, it remains to be seen how effective the proposed countermeasures will be in protecting Compound from further governance exploits.