Humpy’s Controversial Proposal Highlights DAO Governance Flaws

name, many decentralized autonomous organizations (DAOs) aren’t autonomous, and control is often centralized among large tokenholders who have the power to sway governance decisions. Whales or small groups of holders controlling as little as $17 million in tokens can attack protocols controlling over $2 billion in user funds. Ironically, inactivity from other whales is also a problem. Their outsized voting power can protect protocols from governance attacks but is often wasted away doing nothing in the background. “Participation in the current setup of DAO governance is very low, so the amount of money needed to attack these governance protocols is not so much,” Luca Prosperi, CEO of M^0 Labs, tells Magazine. In several recent cases, DeFi whales have acquired a significant number of tokens and influenced governance decisions to get what they wanted. The most infamous instance saw a crypto whale known as Humpy propose that Compound DAO allocate $25 million in COMP tokens to a yield-bearing protocol controlled by their group, the Golden Boys. After two failed attempts, Humpy’s third succeeded on July 28. Compound security adviser Michael Lewellin suspected this proposal was made so that voting would take place over a weekend when participation is lower. Though the proposal was ultimately canceled in favor of a yield-bearing product controlled by Compound, the situation could have been avoided if influential voters had been active. Humpy’s group accumulated an estimated 325,333 COMP in the open market, just 75,000 short of the 400,000 quorum threshold. At Compound, a16z holds the highest voting power through 333 delegations. Its 361,000 COMP represents 90.25% of the quorum. Despite this, the VC firm rarely votes in governance decisions, even to thwart proposals other users see as “governance attacks.” But maybe it has its reasons. “If you’re such a large vote holder, then either you should vote with integrity on (almost) everything or vote on nothing at all,” Dan Hughes, founder of DeFi platform Radix DLT, tells Magazine. “Voting on only a few proposals sends a signal of interference or agenda, even if it may not be. If your position is abstinence, then you should not accept delegation and delegate your vote power across a number of third parties.” Diego Alvarez, chief strategy officer at Ethereum layer-2 network Cyber, does not consider Humpy’s proposal at Compound a “governance attack” due to subsequent communications, a compromise and an eventual resolution. “It was done within the systems and processes of the DAO, so if anything, it was a bit shady, but it was not outside the remit,” he says. But Compound was not Humpy’s first rodeo. The whale has allegedly pulled similar governance “moves” at DeFi protocols Balancer and Sushi. While the Balancer saga ended in a “peace treaty,” Sushi’s run-in with Humpy left some dirty dishes in the sink. Sushi’s “head chef” at the time, Jared Grey — who now heads Sushi Labs — and his operations team received heavy backlash in March 2024 for a proposal to transfer Sushi’s treasury assets to Sushi Labs, a United Kingdom entity incorporated in October 2023. The move was called a “hostile takeover” by former Sushi developer Naïm Boubziz, but Grey defends it as an attempt to protect the protocol from Humpy’s alleged governance attack. “During the [discussions], he made several legal threats directed at me and the team,” Grey tells Magazine. “He delegated some of his holdings to a group of disgruntled former Sushi contributors and community members, SushiCitizens, led by [Boubziz]. He applied pressure on the operations team in any way possible to get his desired outcome.” Grey said that Humpy used SushiCitizens as a mouthpiece to launch “clandestine governance proposals” and post “inflammatory tweets” against the Sushi operations team. “The deal he offered for the Sushi DAO and operation team initially included a supply increase of 750 million tokens, with two-thirds of the newly minted tokens going to pools of his choosing, one-third directly supporting his Golden Boys project,” Grey alleges, adding that his team did not agree to the deal. Regarding the claims and allegations against them, Humpy asked Magazine “how” and “who” should judge governance proposals to be clandestine. The whale also defended SushiCitizens as legitimate concerned DAO members. “Legal action is by all means legal in democracy. Alas, I didn’t pursue legal action against this crooked team,” Humpy tells Magazine. “Under the false guise of Sushi being under attack, the core team sent most of the DAO’s reserves to a UK company whose ultimate ownership is members team and lawyer,” they say. Humpy did not say whether they believe recent proposals at Compound and Balancer to be governance attacks.

Many decentralized autonomous organizations aren’t autonomous, and control is often centralized among large tokenholders who have the power to sway governance decisions.

Whales or small groups of holders controlling as little as $17 million in tokens can attack protocols controlling over $2 billion in user funds.

Ironically, inactivity from other whales is also a problem. Their outsized voting power can protect protocols from governance attacks but is often wasted away doing nothing in the background.

“Participation in the current setup of DAO governance is very low, so the amount of money needed to attack these governance protocols is not so much,” Luca Prosperi, CEO of M^0 Labs, told Magazine.

In several recent cases, DeFi whales have acquired a significant number of tokens and influenced governance decisions to get what they wanted.

Humpy’s controversial proposal highlights DAO governance flaws

The most infamous instance saw a crypto whale known as Humpy propose that Compound DAO allocate $25 million in COMP tokens to a yield-bearing protocol controlled by their group, the Golden Boys.

After two failed attempts, Humpy’s third succeeded on July 28. Compound security adviser Michael Lewellin suspected this proposal was made so that voting would take place over a weekend when participation is lower.

Though the proposal was ultimately canceled in favor of a yield-bearing product controlled by Compound, the situation could have been avoided if influential voters had been active.

Humpy’s group reportedly accumulated an estimated 325,333 COMP in the open market, just 75,000 short of the 400,000 quorum threshold.

At Compound, a16z holds the highest voting power through 333 delegations. Its 361,000 COMP represents 90.25% of the quorum.

Despite this, the VC firm rarely votes in governance decisions, even to thwart proposals other users see as “governance attacks.” But maybe it has its reasons.

“If you’re such a large vote holder, then either you should vote with integrity on (almost) everything or vote on nothing at all,” Dan Hughes, founder of DeFi platform Radix DLT, told Magazine.

“Voting on only a few proposals sends a signal of interference or agenda, even if it may not be. If your position is abstinence, then you should not accept delegation and delegate your vote power across a number of third parties.”

Humpy sat on several walls before Compound

Diego Alvarez, chief strategy officer at Ethereum layer-2 network Cyber, doesn’t consider Humpy’s proposal at Compound a “governance attack” due to subsequent communications, a compromise and an eventual resolution.

“It was done within the systems and processes of the DAO, so if anything, it was a bit shady, but it was not outside the remit,” he said.

But Compound was not Humpy’s first rodeo.

The whale has allegedly pulled similar governance “moves” at DeFi protocols Balancer and Sushi.

While the Balancer saga ended in a “peace treaty,” Sushi’s run-in with Humpy left some dirty dishes in the sink.

Sushi’s “head chef” at the time, Jared Grey — who now heads Sushi Labs — and his operations team received heavy backlash in March 2024 for a proposal to transfer Sushi’s treasury assets to Sushi Labs, a United Kingdom entity incorporated in October 2023.

The move was called a “hostile takeover” by former Sushi developer Naïm Boubziz, but Grey defends it as an attempt to protect the protocol from Humpy’s alleged governance attack.

“During the [discussions], he made several legal threats directed at me and the team,” Grey told Magazine. “He delegated some of his holdings to a group of disgruntled former Sushi contributors and community members, SushiCitizens, led by [Boubziz]. He applied pressure on the operations team in any way possible to get his desired outcome.”

Grey said that Humpy used SushiCitizens as a mouthpiece to launch “clandestine governance proposals” and post “inflammatory tweets” against the Sushi operations team.

“The deal he offered for the Sushi DAO and operation team initially included a supply increase of 750 million tokens, with two-thirds of the newly minted tokens going to pools of his choosing, one-third directly supporting his Golden Boys project,” Grey alleges, adding that his team did not agree to the deal.

Humpy responds

Regarding the claims and allegations against them, Humpy asked Magazine “how” and “who” should judge governance proposals to be clandestine. The whale also defended SushiCitizens as legitimate concerned DAO members.

“Legal action is by all means legal in democracy. Alas, I didn’t pursue legal action against this crooked team,” Humpy told Magazine.

“Under the false guise of Sushi being under attack, the core team sent most of the DAO’s reserves to a UK company whose ultimate ownership