The Descent of COMP Amid Governance Manipulation Allegations

In a dramatic turn of events, COMP, the proprietary token of the decentralized lending protocol Compound, has nosedived over 6% following allegations of a purported “governance attack” on the Compound Decentralized Autonomous Organization (DAO).

A governance attack is a strategic maneuver where an assailant accrues substantial voting power within a DAO, aiming to manipulate the protocol’s decisions for personal gain. This exploitation leverages the permissionless and tradeable essence of governance tokens, threatening the integrity of the protocol.

The Orchestrated Exploit

Per discussions on Compound’s forums, this attack on Compound was orchestrated through a series of calculated actions designed to sway the platform’s decision-making mechanism. Central to this scheme was a whale, known as Humpy, who marshaled $24 million worth of COMP into a yield-bearing protocol under his control, dubbed goldCOMP, operated by a consortium known as the Golden Boys.

This faction’s manipulative attempts spanned several proposals, with their latest finally succeeding. The initial attempt began in early May with Proposal 118, which aimed to transfer 5% of COMP’s treasury to a multi-signature wallet under the Golden Boys’ control. This proposal was thwarted after community scrutiny revealed dubious elements surrounding its introduction.

Undeterred, the group advanced Proposal 247, seeking to invest 5% of COMP tokens into a goldCOMP vault, promising passive income for COMP holders. This, too, faltered, failing to achieve quorum and subsequently being annulled.

The Decisive Blow

Persistence paid off for the Golden Boys with Proposal 289, which has been ratified. Amidst accusations of fund appropriation, Humpy defended their position, asserting that the GoldCOMP fund operates under a “Trust Setup with constrained actions that preclude fund diversion.”

In a reactive measure, the community has rallied against the Golden Boys’ sanctioned proposal, advancing Proposal 290. Set to open for voting shortly, this proposal aims to transfer control of the Timelock Admin—an essential smart contract that sequences governance actions and imposes a two-day execution delay. This initiative is intended to afford the community additional time to respond to potential governance threats.

While this move may hinder future governance exploits, its efficacy in obstructing the Golden Boys from commandeering the sought-after COMP tokens remains uncertain.

Market Repercussions

The market has responded swiftly to these developments, with COMP’s value tumbling by 6.7%. This incident underscores the vulnerabilities within DAO governance structures and the imperative for robust safeguards to prevent similar exploits in the future.