Foundation Creation Proposal Review

1

Summary

Timeline: From 2025-06-03 To 2025-06-06

Total Issues: 7 (1 resolved)

High Severity Issues: 4 (1 resolved)

Medium Severity Issues: 1 (0 resolved)

Low Severity Issues: 1 (0 resolved)

Notes & Additional Information: 1 (0 resolved)

Scope

This document is a review of the proposal to create a Compound Foundation, which is presented as a strategic centralized layer to provide leadership and orchestrate execution for the protocol’s long-term growth and maintenance. Our intent is to highlight potential considerations and offer recommendations for refinement. The goal is to surface any questions or concerns for the community’s discussion well in advance of the formal vote.

This analysis is focused on the information presented in the Compound Community Forum post number 6777 by the Compound_Foundation account. Additionally, statements made in response to community feedback have been considered.

Additionally we reviewed the on-chain data payload that will be proposed to execution shared by the Compound Foundation team.

Overview

The proposal requests financial support for the creation and operational budget of the Compound Foundation to finance its activities during the proposed period. The core of the request is detailed through a series of key objectives and the corresponding actions planned to achieve them. The document also presents a suggested organizational structure and a projected implementation timeline for the 18-month period from July 1, 2025, to December 31, 2026.

Budget Requested

The Compound Foundations is requesting a budget of $6M per year ($9M for the duration of the 18-month period). The following disbursement schedule is proposed:

  • Initial Payment upon Approval: $3M.

  • Quarterly Payments in 2026: Four equal quarterly payments of $1.5M at the beginning of each quarter:

    • Q1 2026 January 1: $1.5M.
    • Q2 2026 April 2: $1.5M.
    • Q3 2026 July 2: $1.5M.
    • Q4 2026 October 1: $1.5M.

All requested amounts would be paid by the Compound Treasury in COMP tokens.

Proposal Pseudo Transaction

The Compound Foundation team has shared with the OpenZeppelin team the following pseudo-transaction, which would mirror the structure of the actual final proposal transaction:

0x5e449ca8 <-- createWithTimestampsLT selector
0000000000000000000000007c01aa3783577e15fd7e272443d44b92d5b21056 <-- SablierLockup
000000000000000000000000c00e94cb662c3520282e6f5717214004a7f26888 <-- COMP token
0000000000000000000000000000000000000000000000000000000000000060
0000000000000000000000000000000000000000000000000000000000000001
0000000000000000000000000000000000000000000000000000000000000020
000000000000000000000000d8da6bf26964af9d7eed9e03e53415d37aa96045 <-- sender
000000000000000000000000db65702a9b26f8a643a31a4c84b9392589e03d7c <-- recipient
0000000000000000000000000000000000000000000000000005b49a0c186b24 <-- totalAmount
0000000000000000000000000000000000000000000000000000000000000001 <-- cancelable
0000000000000000000000000000000000000000000000000000000000000001 <-- transferable
000000000000000000000000000000000000000000000000000000006955ff50 <-- startTime (January 1, 2026 5:00:00 AM GMT)
0000000000000000000000000000000000000000000000000000000000000140
0000000000000000000000000000000000000000000000000000000000000260
0000000000000000000000000000000000000000000000000000000000000000 <-- Broker.address
0000000000000000000000000000000000000000000000000000000000000000 <-- Broker.fee
0000000000000000000000000000000000000000000000000000000000000004
00000000000000000000000000000000000000000000000000016d2683061ac9 <-- Tranche_1.amount
000000000000000000000000000000000000000000000000000000006955ff51 <-- Tranche_1.timestamp (January 1, 2026 5:00:01 AM GMT)
00000000000000000000000000000000000000000000000000016d2683061ac9 <-- Tranche_2.amount 
0000000000000000000000000000000000000000000000000000000069f5f550 <-- Tranche_2.timestamp (May 2, 2026 1:00:00 PM GMT)
00000000000000000000000000000000000000000000000000016d2683061ac9 <-- Tranche_3.amount
000000000000000000000000000000000000000000000000000000006a95eb50 <-- Tranche_3.timestamp (August 31, 2026 9:00:00 PM GMT)
00000000000000000000000000000000000000000000000000016d2683061ac9 <-- Tranche_4.amount
000000000000000000000000000000000000000000000000000000006b35e150 <-- Tranche_4.timestamp (December 31, 2026 5:00:00 AM GMT)
000000000000000000000000000000000000000000000000000000000000000f
7472616e63686564537465707065720000000000000000000000000000000000 <-- "tranchedStepper"

Other Considerations

All of the data presented below is accurate as of the time this report was prepared:

Trust Assumptions

The Foundation would be entrusted to assemble a team with the necessary human capital within the proposed timeline, enabling it to serve as the primary entity responsible for product development and the growth of the Compound Protocol in alignment with the proposed OKRs.

The Foundation would be trusted to manage all distributed COMP as promised and in a manner that does not result in a negative market impact, while also utilizing its significant voting power within the best interests of the protocol.

The Foundation would be trusted to provide accurate and timely bi-annual operational reporting with all spending and OKR progress.

The Foundation acknowledges that the Compound Grants Program is scheduled for renewal in September 2025 and would be trusted to carefully evaluate this timeline within the scope of its proposed remit. It would be dedicated to collaborating closely with current contributors, the DAO, and other key stakeholders to uphold continuity, foster transparency, and ensure robust execution aligned with Compound’s objectives.

High Severity

Lack of Transfer Controls

In addition to initiating a payment stream, the proposal makes an initial lump-sum transfer equivalent to $3M USD in COMP tokens (~68k COMP at market price of time of review) immediately. This initial transfer represents ~17% of the Compound Governor proposal quorum and ~7.8% of the current COMP reserves in the Compound Comptroller. Initial setup costs have been detailed, but it must be noted that the initial lump-sum payment has no safeguards and the DAO has no recourse should the Foundation not meet the stated objectives which cover the first six months of budget.

The proposal makes thoughtful use of payment streams to enable quarterly payments for the 12 months starting in 2026. Given the size of the lump-sum transfer, consider the use of a similar approach to create a quarterly funding mechanism for the second half of 2025 with a smaller proportion of total budget being required up-front. This allows for a smaller initial up-front risk to the DAO while still allowing it some recourse within the first six months of the Foundation’s mandate.

Update: Acknowledged in response from proposer: “Upfront capital allocation is essential to accelerate Foundation’s set-up, for key items like Legal, compliance, and securing top talent hires. We have mitigated this risk by minimizing the upfront ask ($3M, <2% of protocol’s overall treasury valued at $165M) and via commitments to transparency pre- and post-proposal approval.”

COMP vs USD Streaming

While the proposal mentions that COMP would be used to fund the Foundation’s operations, all expenses are denominated in USD. Consequently, the amount of COMP required would depend on a speculative exchange rate to cover fixed USD-denominated costs. Recent proposals have presented solutions to support streams valued in USD but paid in COMP.

Consider exploring such streaming solutions as a way to mitigate exchange rate risk to the DAO.

Update: Acknowledged in response: “We will use a trailing 30D TWAP from the day the Foundation proposal is approved on chain to determine a fixed number of COMP units to be allocated for upfront payment and for ongoing streams.”

Governance Centralization

While most COMP funding would be disbursed in quarterly installments and portions converted into stablecoins and fiat, centralization risks would persist. Upon successful acceptance of the proposal, an initial lump-sum payment equivalent to $3M USD in COMP tokens (~68k COMP at market price of time of review) would be released immediately. These figures would represent ~17% of the Compound Governor proposal quorum and ~7.8% of the current COMP reserves in the Compound Comptroller. Overall, the proposed $9M (~204k COMP at market price of time of review) allocation would account for about ~51% of the quorum and ~23.4% of the current Comptroller’s reserves.

The Foundation would retain certain voting power at its own discretion. Given the significant COMP allocation and the potential for conflicts of interest in governance, we would strongly encourage the development of clear guidelines on the use of funded COMP and appropriate limits on this voting authority.

Update: Acknowledged in response from proposer: “While we believe the current proposal includes transparent mitigants from centralization risk, we welcome principles that maximize decentralization - such as recusing Foundation from voting on proposals that may pose a conflict of interest.”

Inconsistent Proposed Sablier Vesting Schedule

Per the Compound Foundation proposal, streamed payments would be disbursed in four equal installments of approximately ~$1.5M each on the first day of every quarter, beginning January 1, 2026. It appears, however, that the proposed pseudotransaction would schedule these payments on dates that do not align with the first day of each 2026 quarter.

To maintain consistency with the payment schedule outlined in the proposal, we would recommend scheduling the payments on the following dates:

  • Q1 2026 January 1: $1.5M.
  • Q2 2026 April 2: $1.5M.
  • Q3 2026 July 2: $1.5M.
  • Q4 2026 October 1: $1.5M.

Update: Resolved by amending proposal as recommended to minimize risk without introducing meaningful additional complexity.

Medium Severity

Transparency and Reporting

Given that the DAO would not be directly involved in the day-to-day operations of the proposed Foundation, it would rely on the Foundation for full transparency and timely reporting. While reports would be published bi-annually, it would be preferable to specify exact publication dates to ensure clarity. Additionally, the OKRs should be well-defined with specific, measurable Key Performance Indicators (KPIs) for the DAO to evaluate whether objectives are being met.

In order for the DAO to maintain an appropriate balance of power with the proposed Compound Foundation, financial oversight would require particular care. It would therefore be advisable to link each OKR (and the smaller objectives that comprise it) to a defined timeline and to commit to more frequent, informal updates, such as regular town halls, to reinforce accountability and foster ongoing dialogue.

Update: Acknowledged in response from proposr: “We will amend the proposal to include specific dates for the publication of the bi-annual reports, in line with industry reporting norms set by other Foundation peers in the industry. As far as KPIs, there was healthy discussion on this topic on the forum, and we have outlined specific KPIs in our original proposal as well as additional operational KPIs appropriate for the first two quarters of operations. We will embed these as part of our proposal as well.”

Low Severity

Vendor Discretion

The mandate granted in this proposal gives the Foundation power to appoint vendors at its own discretion, subject to financial reporting. Once approved, the Executive Director would be able to execute freely on its mandate, with no formal requirements for the DAO to approve any operational decisions.

While there is a balance of power stemming from the financial oversight role of the DAO, the degree of operational independence of the Foundation from the DAO is a point of consideration. We recommend additional safeguards or DAO oversight beyond funding approval, while also striking a compromise with the operational speed enabled by the present proposal.

Update: Acknowledged in response from proposer: “We would welcome the opportunity to demonstrate impact by executing rather than add additional bureaucracy layers that would slow us down. It is worth mentioning that in addition to the Executive Director, we committed to appointing two external board members who would be ratified by the DAO. We believe this is a constructive and strategic measure that would appropriately ensure oversight and effective execution.”

Notes & Additional Information

Existing Vendor Overlap

The DAO already has existing vendors mandated for development work and ecosystem partners. For example, the WOOF! team has been mandated for 12 months of dev work and other ecosystem partners may have already been paid incentives. Where there are areas of overlap with existing vendors, it is recommended that the proposal include guidelines for limiting wastage of paid-for-work product.

Consider providing greater detail on areas where there is vendor overlap in order to mitigate any wastage of existing resources.

Update: Acknowledged in response from proposer: The Foundation team and the Woof team, as well as other teams, have had the opportunity to discuss this potential concern prior, during and after the approval of the recent Woof proposal. Woof is aligned on staying nimble in their execution to allow for the Foundation time to develop and publish a comprehensive product roadmap, and we will work collaboratively to ensure efficient execution as we make progress. We do agree, as a matter of principle, that the Compound DAO must stay vigilant in ensuring there is no wastage in how its treasury is being deployed, and look forward to partnering with it and with other stakeholders in developing strong financial controls and market perspective to ensure this will indeed be the case.

Conclusion

The proposed Foundation is a good starting point for the discussion on the growth mandate of the Compound protocol, and the team is commended for providing a draft proposal prior to on-chain submission.

The review has identified a critical severity issue related to the large up-front COMP transfer proposed. Additionally, two high severity issues have been identified, which relate to governance centralization and an incongruence between the payload provided and the payment stream schedule described in the proposal. Several minor issues are raised for the DAO’s consideration as well.

Any proposal granting a mandate to act on behalf of the Compound protocol requires careful consideration of the trade-offs made with regards to decentralization of DAO operations. Well-defined, precise expectations are important in order to avoid any ambiguity in potential decision making.

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