Compound Finance, a major DeFi protocol, recently faced backlash following the approval of Proposal 289, directing 5% of its treasury—equivalent to 499,000 COMP tokens worth around $24 million—to goldCOMP Vault. This move caused COMP token’s value to drop by approximately 5% in the past 24 hours, falling below $50, leading to investors withdrawing their assets from the protocol. The total value locked in Compound Finance has declined by over 2%, now standing at $3.15 billion, the largest drop among the top 20 DeFi protocols in the past 24 hours.
The controversial proposal was initiated almost three months ago when Humpy, leading the “Golden Boys” group, introduced Proposal 247, seeking a COMP investment in goldCOMP’s DeFi vault. However, concerns about oversight and lack of proper safeguards led to the rejection of Proposal 247. The group then submitted Proposal 279 with similar requests but with a Trust Setup to address the concerns. When this was also rejected, they proposed Proposal 289, which was approved. This proposal increased the COMP allocation to 499,000 tokens, used the TrustSetup, and updated the PHASE to allow the Golden Boys’ multi-sig call to invest in the TrustSetup contract.
Despite the move being within the DAO’s rules, it has faced criticism from community members and experts pointing out its potential risks and undermining decentralized governance. Eskender Abebe, head of product and strategy at Ethereum Name Service, highlighted the significant risk Humpy poses to Compound Finance with its substantial COMP portfolio and control over voting. Community members also highlighted Humpy’s past actions in manipulating governance processes in protocols like Balancer and SushiSwap, raising concerns about their influence over DeFi protocols.
In response to the backlash, Compound Finance DAO defended the decision to approve Proposal 289, stating that it was within the DAO’s rules and aimed at maximizing value for COMP holders. They emphasized the importance of maintaining decentralization and transparency in governance, while acknowledging the concerns raised by community members and experts. The DAO assured that they would continue to monitor the situation and make necessary adjustments to address any issues that may arise from the allocation to goldCOMP Vault.
The controversy surrounding Compound Finance’s allocation of COMP tokens to goldCOMP Vault highlights the challenges of decentralized governance in DeFi protocols. It raises questions about the influence of powerful entities and the need for greater transparency and accountability in decision-making processes. As the DeFi space continues to evolve, it is essential for protocols to prioritize the interests of the community and uphold the principles of decentralization to build trust and ensure the long-term sustainability of the ecosystem.
