In the dynamic realm of decentralized finance (DeFi), recent actions by a cohort of governance-token holders within the Compound lending protocol have ignited debates. Contrary to claims of a “governance attack,” Dennison Bertram, CEO and co-founder of Tally Protocol, posits that the actions of Humpy and the Golden Boys adhered strictly to the rules and were not an exploitation of smart contracts.

Governance in Action, Not Subversion

Bertram elucidates that the democratic mechanisms underpinning the decentralized autonomous organization (DAO) that governs Compound were leveraged effectively, albeit imperfectly. “Someone had a really strong opinion that was outside social norms, and they did the requisite legwork necessary to get it to pass,” Bertram stated in an interview. The apparent apathy of other COMP token holders, who failed to oppose the proposal, underscores the need for enhanced engagement in DAO governance.

Read more: COMP Token Surges as Governance Dispute in Compound is Averted

The GoldCOMP Proposal and Its Implications

The contentious proposal from Humpy, the Golden Boys’ leader, aimed to introduce a yield-bearing product named goldCOMP. Despite only a 49% voter turnout, the proposal passed, highlighting systemic issues in DAO participation. This event has catalyzed discussions about improving the democratic processes within DAOs to prevent such occurrences.

Tally Protocol: Fostering Active Engagement

Bertram announced that Tally Protocol, soon entering its testnet phase, seeks to remedy low participation in DAO governance. By introducing governance staking and restaking, Tally incentivizes active engagement. Users who stake governance tokens with Tally receive Tally Liquid Staked Tokens (tLSTs), which accrue passive, auto-compounding yields while retaining governance rights.

This innovative mechanism ensures that token holders are rewarded for their participation rather than merely holding tokens passively. “People need to be paid to run these billion-dollar organizations,” Bertram emphasized, highlighting the necessity of compensating participants for their time and effort.

Addressing Misaligned Incentives

Bertram points out that fluctuations in token prices can misalign incentives within DAOs. If a token’s value plummets to zero, the DAO fails; if it skyrockets, holders might sell off, seeking maximum financial gain. Tally Protocol aims to rectify this by aligning economic incentives with performance, thus attracting more dedicated and attentive participants.

Distinguishing DAO Tokens from Securities

Bertram asserts that rewarding DAO token holders proportionally to their efforts distinguishes these tokens from securities, which often attract scrutiny from regulatory bodies like the SEC. This approach fosters a more sophisticated and motivated participant base, crucial for the sustainable operation of billion-dollar DeFi organizations.