DAO governance needs to be rethought, and shares need to look like a multi-class structure, similar to Meta and other Silicon Valley giants.
Such a change would help prevent governance attacks, such as what recently happened against Compound.
It is virtually impossible to conduct a governance attack on Meta.
Shareholder activism is a non-starter in Mark Zuckerberg’s empire, as the company’s dual-class share structure – where Class B shares held by insiders have more voting weight than Class A shares available to the public – means Zuckerberg holds approximately 58% of the shares. company voice control.
But in the world of decentralized autonomous organizations (DAOs), which are in many ways analogous to corporations, it’s one sign for one vote.
That’s how a whale – a big badge holder – riding the handle of Humpy and his “GoldenBoys”, an affiliated group led by Humpy or perhaps Humpy himself, led what some call a “governance attack” against the Compound lending protocol.
They used their collective voting power to allocate $24 million worth of COMP tokens to a yield-bearing protocol called goldCOMP, which they controlled, to generate passive income for token holders.
Recently, a lawsuit by the FTX estate appeared to “dox” (or appoint) Humpy, accusing him of having ties to criminal networks. Nawaaz Mohammad Meerun, the person behind the alias, said in a statement to CoinDesk that the allegations of criminal connections are false.
Although some have described the “attack” as a Due to voter apathy, OpenZeppelin, a security audit firm with which Compoud’s DAO has an agreement, and an active participant in the governance forum, sees it differently.
In an interview with CoinDesk during Devcon, Michael Lewellen describes what Humpy did as an exploit on the model itself.
“Governance models that are dominant over the token holders, where there is no control over the token holders in any meaningful sense, are all ultimately susceptible to this. It’s just a matter of when,” he said during a recent interview with CoinDesk.
While decentralization is a crucial principle for blockchain technology, one that guarantees trust and security, Lewellen says it will be a challenge to implement for governance.
“Decentralization is like an objective good, but it is not a good in terms of governance, just as it is a good in terms of blockchain,” he said. “More voices in that discussion are not necessarily better if many of those voices are not aligned with the DAO and are not informed.”
Know-your-customer (KYC) initiatives are part of the future of DAO governance, Lewellen says, and the industry needs to figure out how this can be done to introduce accountability without compromising anonymity.
‘There should be a way to verify that this is a real person, and that they are not impersonating others. For example, zero-knowledge cryptography can help verify identities without revealing personal information,” he said.
Such measures would also prevent actors like Humpy from creating multiple profiles of delegates to manipulate the board.
“If someone has significant government power, they should be upfront about it,” Lewellin argued. “People should have the opportunity to recognize exactly what kind of influence they have and the ability to counter it if necessary.”
And to prepare for a new “Humpy”, DAOs must participate in wargaming exercises.
“Threat modeling for worst-case scenarios should be a standard practice,” Lewellin said. “Teams need real answers to questions like: What if a malicious actor gains significant voting power? How do we respond on-chain?”
Apathy remains a key challenge in DAO governance, with voter participation often low, meaning a solution lies in encouraging good participatory behavior. Somehow, DAOs must adopt governance models that prioritize decision-making quality over quantity, and ensure that critical decisions – especially those related to user funds and protocol security – are handled with care and expertise, rather than solely about to those who own the most tokens.
“We need to give token holders reasons to be responsible stewards of the protocol,” Lewellin said. “By rewarding participation, we can ensure that governance decisions are made by informed and engaged stakeholders.”
In an ideal world, billion-dollar DAOs would structure their governance more around Meta and less around their current version.
“We need governance systems that reflect this reality, systems that balance decentralization with safeguards to ensure long-term sustainability,” Lewellin said.
