Compound's Governance System Exposed as Vulnerable to Manipulation

Compound is a decentralized autonomous organization (DAO) that governs itself through token holders who delegate their COMP ($20.07 · Live) tokens. In July 2024, Proposal 289 nearly transferred $24 million to a small group of voters, raising concerns about the lack of emergency brakes in the system.

The proposal passed by a narrow margin, with supporters casting 563,591 votes out of 1.2 million total possible votes. However, the vote was highly contested and remains a contentious issue within the Compound community.

Researchers from the Max Planck Institute for Software Systems and Vrije Universiteit Amsterdam studied 48 large Ethereum DAOs and found that most have vulnerabilities in their governance systems. These vulnerabilities can be exploited by malicious actors to influence votes or control the outcome of proposals.

The researchers identified several issues with Compound's governance system, including a lack of emergency brakes, high concentration of voting power among a few addresses, and a system that rewards wealthy holders and established delegates.