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 weak to the affect of huge tokenholders, or “whales,” whose actions—or inactions—can have outsized impacts on these supposedly democratic constructions.
This situation performed out lately in Compound Finance when a bunch generally known as “Goldenboys” or “Humpy” on X used their token holdings to push by a controversial governance change.
Supply: Compound FinanceThe Incident: Proposal #289
Earlier this yr, a bunch of buyers generally known as Goldenboys led by Humpy, launched a sequence of proposals to the Compound DAO, aiming to reshape the protocol’s governance construction. Probably the most important 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 comparable measures. Regardless of dealing with preliminary resistance, the proposal ultimately handed by a slim margin, highlighting the outsized affect that enormous tokenholders can wield in DAO governance.
The vote noticed a last-minute surge of assist, tipping the scales in favor of the proposal, which many locally 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 trade 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 comparable allegations previously. 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 current occasions on Compound might signify a deliberate technique fairly than a respectable governance resolution.
In response to the allegations, Humpy denied any wrongdoing and said “steal funds” is a “wrongful & deceptive phrase.” He added that the funds could be managed inside a belief construction that features safeguards in opposition to unauthorized use. He emphasised that the proposal was a respectable consequence of the governance course of and expressed appreciation to those that supported it.
Repercussions and Broader Issues
The scenario at Compound was exacerbated by the inactivity of different giant tokenholders, resembling enterprise capital agency a16z, which abstained from voting, permitting Humpy to dominate the decision-making course of.
In the end, this incident led to personal 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 in the end 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 giant tokenholders, prompting requires stronger safeguards and extra lively participation from the broader neighborhood.
The overarching objective stays to develop governance methods which can be resilient, responsive, and able to evolving to satisfy new challenges.
