Compound Finance’s (COMP) treasury was drained of $25 million in a recent governance attack, raising alarms about the state of decentralized governance in the decentralized finance (DeFi) ecosystem.
DAO Compound Hijacked
According to For DeFi researcher Ignas, the attack began with an initial proposal to grant 92,000 COMP tokens, submitted without prior discussion on the Compound DAO forum.
Despite the “glaring red flags” identified by the project’s security consultant, Michael Lewellen, the advisory received minimal community engagement, with only a few voices, such as MonetSupply and Wintermute, raising concerns.
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But the story took an even more worrying turn when Humpy returned with a third proposal, this time requesting 499,000 COMP tokens – a 5.4x increase from the initial 92,000. Interestingly, this proposal was approved, with only 57 addresses voting.
Who is Humpy and how did he amass such an outsized influence?
According to For DeFi researcher StableScarab, Humpy is a key player in several DeFi protocols, skillfully exploiting incentive schemes to accumulate large amounts of governance tokens. His tactics allowed him to gain significant control over Balancer, an Ethereum-based automated market maker in 2022, and he now has his sights set on Compound.
The researcher highlights that this incident reveals a critical issue in DeFi governance: “the illusion of decentralization”.
While composed decentralized autonomous organization (DAO) is presented as a decentralized decision-making body, the reality, in the words of StableScarab, is that only 20 addresses typically participate in governance votes.
Researchers say that even when controversial proposals are put forward, the broader community remains largely indifferent, seemingly unaware or indifferent to the implications.
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Furthermore, the Compound team itself appears uncommitted, with the official @compoundfinance X account going silent at the time of writing, hours after the incident.
This raises questions about the true nature of the protocol. governance structureit appears that Gauntlet, a paid consultant, effectively runs the DAO. StableScrab further noted:
Humpy’s influence extends beyond governance. He has his own token, @Gold_On_Chain, for his ‘Golden Boys’ community. Following today’s Compound event, the value of $GOLD doubled as speculators bet on Humpy’s ability to continue finding “highly profitable” governance/farming strategies.
On the other hand, Compound’s native token COMP has retraced over 1% in the past 24 hours and over 7% in the past week alone following the latest governance exploit considered.
Furthermore, this has further exacerbated the token’s ongoing bearish trend since the 2021 bull run, which saw the token reach an all-time high of $910 in May of that year, and is currently down nearly 95% from that level.
It remains to be seen what communications the Compound team will issue to investors and what other discoveries will emerge following the exploration.
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