Decentralized Autonomous Organizations (DAOs) are often hailed as the future of governance in the crypto world, heralding a new era of community-driven decision-making.
However, despite their decentralized nature, many DAOs are still susceptible to the influence of large token holders or “whales” whose actions (or inactions) can have a huge impact on these so-called democratic structures.
This happened recently with Compound Finance, where a group on X called the “Goldenboys” or “Humpy” used their token holdings to push for a controversial governance change.
Source: Compound FinanceIncident: Proposal #289
Earlier this year, a group of investors called the Goldenboys, led by Humpy, presented the Compound DAO with a series of proposals aimed at reshaping the protocol’s governance structure. The most important of these is Proposition 289, which calls for 499,000 $COMP tokens (a significant portion of Compound’s treasury) to be allocated to a yield protocol controlled by the Golden Boys group.
The proposal follows two previous attempts by the same group to gain approval for similar measures. Despite initial resistance, the proposal ultimately passed by a narrow margin, highlighting the outsized influence that large token holders can wield in DAO governance.
The vote saw a last-minute surge in support, tipping the scales in favor of the proposal, which many in the community initially opposed.
Source: Deutsche Bankaccusations of manipulation
OpenZeppelin Security Solutions Architect Michael Lewellen is concerned that the proposal’s passage was affected by a sudden influx of $COMP tokens from five addresses. The addresses reportedly withdrew more than 230,000 $COMP from the Bybit exchange ahead of the vote, raising questions about the integrity of the voting process.
Luellen called the situation a potential “governance attack,” suggesting the group used voting rights to bypass usual safeguards.
Humpy has faced similar accusations in the past. In 2022, he participated in the governance steering of the Balancer protocol, and he reportedly used a large amount of $BAL tokens to influence the outcome in his favor, a history that raises suspicions that recent events on Compound may represent a A well thought out strategy rather than an intentional one.
In response to the accusations, Hampy denied any wrongdoing and said “stealing funds” was a “wrong and misleading phrase.” The funds will be managed within a trust structure, which includes safeguards to prevent unauthorized use, he added. He emphasized that the proposal was a legitimate outcome of the governance process and expressed his gratitude to those who supported the proposal.
Impact and wider concerns
Compound’s situation was exacerbated by the inactivity of other large token holders, such as venture capital firm a16z, which abstained from voting, allowing Humpy to dominate the decision-making process.
Ultimately, the incident led to private negotiations and a compromise that replaced the original proposal with a “Staking Compound Product” proposal, redistributing 30% of Compound’s revenue to staked $COMP holders, and ultimately preventing the Goldenboys Group from gaining access to the Over control of protocol.
The incident raised concerns that the DAO is vulnerable to manipulation by large token holders, prompting calls for stronger safeguards and more active participation from the wider community.
The overall goal remains to develop governance systems that are resilient, responsive and capable of evolving to meet new challenges.
