Compound Finance Faces Backlash After Approving Proposal to Allocate 5% of Treasury to Yield-bearing Protocol

Compound Finance DAO, the decentralized organization managing the crypto lending protocol, narrowly approved Proposal 289 on July 28.

Prominent DeFi protocol Compound Finance faced backlash on Friday after a contentious proposal was approved, allocating 5% of its treasury to a lesser-known yield-bearing protocol. This move sparked criticism and led to a decline in the COMP token's price and investors' assets in the protocol.

According to CryptoSlate’s data, the approval of Proposal 289 by Compound Finance DAO on July 28 had a negative impact on the COMP token. Its price dropped by approximately 5% in the past 24 hours, falling below the $50 mark.

Data from DeFillama also showed that the incident caused investors to withdraw their assets from the protocol. Its total value locked (TVL) declined by over 2%, now standing at $3.15 billion. This drop was the largest among the top 20 DeFi protocols in the 24 hours.

The decentralized organization managing the crypto lending protocol narrowly approved Proposal 289, which allocated 499,000 COMP tokens, valued at roughly $24 million, to a yield-bearing protocol.

The effort to pass this proposal began almost three months ago in May, when Humpy, leading the “Golden Boys” group, introduced Proposal 247. This proposal sought a 92,000 COMP investment in goldCOMP’s DeFi vault for 5% annual returns. However, it was rejected due to concerns about the multi-sig’s future actions and the lack of proper safeguards.

The Golden Boys then submitted Proposal 279, which had similar requests to Proposal 247 but introduced a Trust Setup instead of a multi-sig. This was intended to address concerns about oversight and clawback mechanisms. However, this attempt also failed.

Undeterred, the group submitted Proposal 289, which was ultimately 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.

While the move appeared legal under the DAO’s rules, it faced strong criticism from community members and experts. They argued that it undermined decentralized governance, which was meant to reflect the collective interest rather than the agenda of a few influential entities.

Eskender Abebe, the head of product and strategy at Ethereum Name Service, pointed out that Humpy could pose a huge risk to Compound Finance with its substantial COMP portfolio. He wrote:

“Assuming they can direct the 600k tokens that voted FOR the proposal, and the additional 500k they received from the proposal, Humpy and the Golden Boys are now the number one Compound delegate, 4x larger than the [number] 2 delegate a16z and larger than the next 9 delegates combined!”

Meanwhile, community members also quickly pointed out that Humpy has a history of manipulating DAO governance processes to his advantage, using similar tactics on the Balancer protocol.

In March, Jared Grey, Head of SushiSwap, accused Humpy of attacking the SushiSwap protocol by accumulating SUSHI and leveraging governance to support his struggling GOLD token.

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