Summary
Timeline: From 2025-02-24 To 2025-02-25
Total Issues: 5 (0 resolved)
Medium Severity Issues: 3 (0 resolved)
Low Severity Issues: 2 (0 resolved)
Scope
OpenZeppelin reviewed Proposal 409.
System Overview
Proposal 409 intends to create the Delegate Compensation Program Pilot. This is an initiative by the Compound Governance Working Group (CGWG) with the aim of incentivizing improved delegate participation through creating a 6-month pilot program where selected delegates are rewarded based upon their participation.
We have confirmed that the proposal will execute successfully and will transfer 5760 COMP tokens to the CGWG multisig.
Security Model and Trust Assumptions
The CGWG is an elected entity and is implicitly trusted to act in the interest of Compound DAO at all times.
Potential Conflict of Interest
OpenZeppelin discloses that it may be eligible for participating in governance and earning compensation under the proposed Delegate Compensation Program Pilot. This is due to the fact that 16 delegates may be eligible for the program and OpenZeppelin is ranked within the top 16 according to the proposed delegate score.
Medium Severity
Exchange Rate Changes
The requested COMP amount relies on a speculative exchange rate for fixed USD-denominated expenses, which remain unaffected by COMP price fluctuations. The nature of token markets means that there may be unexpected volatility at any time during the pilot program. This would expose the DAO to price movements which are not explicitly handled within this proposal.
Where a fixed amount of USD-denominated compensation is required, consider converting the COMP to a stablecoin such as USDC to mitigate COMP price exposure for both parties.
Update: Acknowledged. The CGWG team stated that “like most [Compound] budgets, we will be using COMP. Payments to delegates will be made in COMP, from which they can choose to hold or sell.”
Lack of Mechanism to Return Excess Funds
The requested budget assumes all delegates will receive the full base compensation and bonus rewards throughout the program. The issue is that the proposal provides for scenarios where the entire allocation for any given month may not be used. For example, when a delegate does not participate in all the votes within a month they may only be eligible for part of the possible compensation. The proposal does not detail how the unspent allocation within each month should be managed and when it should be returned to the treasury, if at all.
Consider amending the proposal to provide clarity regarding the management of funds received, with timelines and expectations regarding the return of unused funds at regular intervals.
Update: Acknowledged. The CGWG team stated the following:
The CGWG stewards funds for various DAO led initiatives and intends to do so for this program as well. The full budget was requested in case all delegates meet requirements. If there are funds left over, they will be rolled into the next cycle or returned if no renewal is voted in. This all has precedent in Compound and across different DAO’s incentive programs. A forum post will be made detailing this more in depth. Future iterations will look to explore different ways to custody and distribute funds.
Potential Conflict of Interest
It is unclear if members of the CGWG (the proposers) are precluded from participating in the compensation program themselves. These members carry significant delegated voting power and are active voters.
A working group evaluating it’s own members for possible compensation is a conflict of interest, which should be disclosed. As an example, two members of the working group, PGov and Arana Digital, hold 32.5% of the voting power needed to achieve quorum. They are both in the top 8 delegates and so may themselves be eligible for compensation under this program.
Consider amending the proposal to detail how potential conflicts of interest should be disclosed and handled under the terms of the proposed Delegate Compensation Program Pilot.
Update: Acknowledged. The CGWG team stated the folowing:
The current criteria for receiving rewards and qualifying if voted in are objective on chain metrics. This was done on purpose as to ensure the CGWG has no subjectivity on who to include and not include. Some members of the CGWG have individual delegations as well and do intend to apply as payout metrics are objective and as they are active delegates in their own accord.
Low Severity
Lack of Transfer Controls
There are no enforceable mechanisms to ensure the proposer delivers on their stated commitments in exchange for the COMP. However, the proposer is the Compound Governance Working Group (CGWG) and the requested funds are transferred to their multisig.
There is an implicit trust assumption that the CGWG would act in the best interests of the community given that the working group is an entity that is elected every 6 months. It is also noted that the requested 5760 COMP does not represent a significant amount of voting power.
To reduce the role of the trusted intermediary a vault can be used to stream monthly allocations to the CGWG but also allow the DAO to recall funds if required.
Update: Acknowledged. The CGWG team stated that “future iterations will look to explore different ways to custody and distribute funds.”
Flawed Incentive Mechanism
The incentive mechanism as described aims to reward delegates based on their voting participation within a month. During periods of high proposal activity this may have the intended effect of incentivizing delegate participation, as the delegates would need to be more active to earn their full allocation. However, this design means that during periods of low proposal activity delegates will more easily earn the full amount and bonus. For example, in the unlikely scenario that only one proposal is submitted in a month, then the delegates would only need to participate in that one vote to earn the full compensation possible.
A more nuanced approach, which considers participation effort involved relative to the compensation earned, especially at lower levels of proposal frequency, may lead to better outcomes relative to the resources allocated by the DAO.
Update: Acknowledged. The CGWG team stated that “[the] topic has been discussed and ideated over, but ultimately a more flatline approach was preferred for the first cycle.”
Conclusion
It is recommended that Proposal 409 be cancelled. Addressing the issues raised will make the proposal clear and more robust, as well as enhancing trust in it’s execution. This is not intended to reflect on the intention of the proposer, rather, the issues raised in this report are part of OpenZeppelin’s proposal review responsibilities to the DAO.