Compound Finance is back in the middle of a DAO dispute. A Compound community member using the name ugurmersin has accused the Compound Foundation of the “misappropriation” of 8.42 million DAI.
According to a post on the project’s governance forum, that money was used to buy 344,780 COMP tokens. Those tokens were delegated to the foundation’s voting address and then used to vote on two proposals. One of them included a $14 million transfer to the foundation for a year of development on the v4 protocol.
The foundation has responded to the accusation and said its conduct was consistent with the conditions attached to the grant. Protos also reported that both proposals cited in the complaint had enough support to pass even without the additional COMP tied to the foundation.
Disputed funds came from deprecated v2 reserves
The funds at the center of the dispute were left over from the reserve of Compound’s now-deprecated v2. Proposal 536, which passed in February, transferred the DAI to the foundation to be used “in a manner prudent for addressing important protocol needs.”
That proposal “does not establish an explicit treasury management program,” according to the report. It does, however, state that the foundation is “allowed to maintain sufficient COMP availability for protocol components that depend on it, such as reward distribution and other forms of governance execution.”
Ugurmersin’s forum post objects to the use of those funds to vote on Proposals 580 and 582. The post says those proposals “moved nearly the entirety of DAO funds” to a Treasury Management Committee, which the author believes “has a separate control issue,” and approved a $52 million v4 package that “benefits themselves.”
Foundation says assets remain DAO-owned
In its own forum response, the Compound Foundation said Proposal 536 “expressly did not prescribe” how the money had to be spent. It said the proposal excluded only “discretionary trading/speculative activity,” non-essential operations, and foundation overhead, personnel, or vendor costs.
The foundation also confirmed that the DAI reserves were converted into COMP. It said the tokens were used “to support protocol operations and governance continuity.” The post denied any trading or foundation spending and stressed that “the assets remain DAO-owned.”
The response did not address the use of COMP to vote on Proposals 580 and 582.
Ugurmersin later pushed back on the foundation’s statement and disputed its claim that the funds were not traded. “You sent 100K COMP straigth (sic.) back to Binance after passing the votes. LMAO,” the user wrote. Protos said it was unable to verify that claim.
Another governance controversy as Compound turns eight
The dispute arrives as Compound, one of the oldest protocols in decentralized finance, marks its eighth anniversary. Over that period, the lending protocol has seen repeated governance disputes play out on its forums.
Last year, conflict-of-interest allegations surrounded a proposal by Gauntlet to deploy funds to its client, and Compound competitor, Morpho. Gauntlet’s contract renewal later drew opposition as well.
A 2024 proposal described as a governance attack exposed the risks of DAO apathy at Compound after it narrowly passed on its third attempt.
Protocol has also faced technical and security incidents
Protos also pointed to a string of technical and security problems in Compound’s history. In 2021, the protocol was hit by a two-stage “reverse rug” that led to a total of $147 million in excess rewards being distributed.
Less than a year later, a faulty upgrade froze the $830 million cETH market while the DAO worked through a fix.
The Compound Finance front end has also been hijacked twice, once in 2024 and again in March this year. Its X account, then Twitter, was compromised in 2023 and used to spread a phishing link.