Compound suffered a governance attack. Who is behind it?

Original author: @StableScarab, @t__norm

Original translation: Peisen, BlockBeats

Editor's note:

On July 29, the recently passed proposal of DeFi lending protocol Compound triggered accusations of governance attacks from community members. Proposal 289 allocates 5% of Compound funds (499,000 COMP tokens worth about $24 million) to a yield protocol designed by the "Golden Boys" for one year.

The proposal narrowly passed with 682,191 votes to 633,636, but community members claim that a small group of people were able to force the proposal through the approval process after purchasing a large number of tokens on the open market. Michael Lewellen, security consultant for Compound Finance, said that several accounts hoarding COMP tokens on the open market were related to several proposals to allocate COMP to the goldCOMP product created by an organization called Golden Boys.

@t__norm pointed out that this was not the first time that Golden Boys had committed a crime. As early as 2022, they attacked Balancer with similar tactics, triggering an "arms race" between Balancer stakeholders, Humpy, and community stakeholders Aura.

The Compound Treasury just withdrew $25 million, which is called a governance attack.

Who is behind it?

The most important whale in DeFi that you may never have heard of-Humpy (@Titanium_32). His story spans many years, multiple DeFi protocols, and millions of dollars.

Humpy is not your typical whale. He is a major player in multiple protocols, cleverly using incentive design to earn large amounts of governance tokens. His tactics have enabled him to accumulate wealth and controversial control, most notably control of Balancer in 2022.

Balancer Crisis Two Years Ago

For eight months in 2022, Balancer quietly went through one of the most controversial (and instructive) governance sagas of the year.

veBAL was launched to align token holders with DAO goals and protocol revenues. But what happens when the incentive system has unintended consequences?

Balancer had been struggling to align its system with the activities of a particular veBAL whale named Humpy. When incentives failed, Balancer was drawn into a cat-and-mouse game of controlling the whale’s profit-seeking behavior through governance.

Humpy’s strategy was simple: dominate the pool’s liquidity, actively vote on the meter, and collect BAL emissions. The only problem was that the meter he was using generated very little revenue for Balancer.

Humpy’s strategy was adjusted by Balancer to discourage them from farming low-income pools. Humpy would find new loopholes with each update to the incentive metric framework.

Unfortunately, Humpy accidentally trapped their capital in the illiquid tetuBAL pool, forcing them to double down on their position and protect their meter strategy at all costs.

The events that unfolded can only be described as an arms race as Balancer stakeholders, Humpy, and community stakeholders such as Aura fought to gain sufficient governance power to defend their interests.

Tensions boiled over as Humpy’s governance activity escalated, making it difficult for the DAO to compete with his voting power, leading to multiple proposal re-votes and a controversial strategy to reduce friction in unlocking Aura’s total governance power.

Thankfully, the DAO was able to reach an agreement with the whales in the Peace Treaty Proposal , which ended voting today.

If you are interested in DAO governance and incentive design, or want to hear a fascinating story about power and money, check out the latest Governor Note , which delves into this saga, its impact, and its consequences.

Where is the way out for decentralized governance?

In the latest governance attack, Humpy used his voting power to deposit $25 million from the Compound vault directly into his own goldCOMP vault. This allowed users to earn yield on their COMP while strengthening Humpy's influence. While legal, it raises questions about decentralized governance.

Humpy's influence goes beyond governance. He has his own token, which he uses for his "Golden Boys" community. Its value has doubled after today's Compound event as speculators bet on Humpy's ability to continue to find "highly profitable" governance or farming strategies.

This incident highlights a key question in DAOs and DeFi protocols: How decentralized are they when a single whale can influence major decisions in their favor? Humpy's actions are a case study in the power dynamics of decentralized governance and incentive design.

What do you think? Is this a governance attack or is it within the rules of the game? One thing is for sure, it won't be the last.

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