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.
Nonetheless, 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 state of affairs performed out not too long ago in Compound Finance when a bunch referred to as “Goldenboys” or “Humpy” on X used their token holdings to push via a controversial governance change.
The Incident: Proposal #289
Earlier this yr, a bunch of buyers referred to as Goldenboys led by Humpy, launched a collection 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 finally handed by a slender margin, highlighting the outsized affect that enormous 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.
Allegations 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 concerning 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 standard safeguards.
Humpy has additionally confronted comparable 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 relatively than a reliable governance determination.
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 reliable 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 giant tokenholders, similar 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 concerning the susceptibility of DAOs to manipulation by giant tokenholders, prompting requires stronger safeguards and extra energetic participation from the broader neighborhood.
The overarching aim stays to develop governance techniques which are resilient, responsive, and able to evolving to satisfy new challenges.
