Proposal 416 Review

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Summary

Timeline: From 2025-03-07 To 2025-03-07

Total Issues: 3 (0 resolved)

Critical Severity Issues: 1 (0 resolved)

High Severity Issues: 2 (0 resolved)

Scope

OpenZeppelin has reviewed Compound Governance Proposal #416, submitted by AlphaGrowth. The proposal aims to transfer 142,047 COMP tokens in a single transaction to a multisig wallet controlled by AlphaGrowth. The stated purpose of the funds is to support the continuation of the Compound Growth Program and expand its scope to new business units, as outlined in the forum discussion.

The Compound Growth Program was initially approved through Proposal 199, which allocated 7,770 COMP tokens on December 10, 2023, for a 4-month period. It was subsequently renewed on May 26, 2024, with an allocation of 75,246 COMP tokens, extending its duration until May 2025.

In December 2024, Proposal 381 was introduced to request an early renewal of the program but was later canceled due to concerns over governance centralization and fund distribution. The current proposal represents a renewed attempt to extend the Growth Program.

Overview

While the proposal highlights AlphaGrowth’s past achievements and outlines ambitious goals, it introduces several concerns regarding adherence to existing processes, governance centralization, and potential risks to the Compound protocol.

  1. Deviation from Established Payment Process: Proposal 249 defined the Aera Vault as the standard mechanism for payments in stablecoins rather than COMP tokens. By requesting payment in COMP, this proposal bypasses the DAO-approved system designed to ensure stability, accountability, and risk mitigation.

  2. Significant Lump-Sum Transfer: The requested transfer of 142,047 COMP tokens is proposed as a single, upfront payment. This structure requires substantial trust in the proposer and provides no incremental safeguards tied to deliverables or milestones.

  3. Concentration of Governance Power: If executed, this proposal would result in AlphaGrowth controlling a significant portion of the total COMP supply, amounting to a significant percentage of the current governance quorum. This poses a risk of centralization and potential influence over the protocol’s governance.

Trust Assumptions

Given AlphaGrowth’s role as a funding intermediary for its multiple proposed business units, centralizing a substantial portion of treasury control, we assume that all payments and compensation to AlphaGrowth’s new business units will be properly managed, ethically distributed, and in accordance with all statements outlined in the forum post proposal.

Critical Severity

Lack of Transfer Controls

This transaction mirrors the previous AlphaGrowth proposal to renew the Compound Growth Program, proposing to transfer voting power without safeguards.

In response to community feedback on V2 of this proposal, it was proposed that an execution script would be included to distribute the budget across eight Aera Vaults instead of transferring the entire COMP allocation to a wallet controlled by AlphaGrowth. However, this proposed mechanism has not been included in this proposal. As a result, there are no enforceable mechanisms to ensure the proposer fulfills their stated commitments in exchange for the COMP.

High Severity

Governance Centralization

The COMP amount requested significantly centralizes governance power, creating a potential risk for the DAO. It represents over 35% of the proposal quorum and 13% of the current COMP reserves in the Comptroller. Even if the proposer has verbally agreed not to vote with the Growth Program budget, the DAO cannot afford to disregard even the most unlikely scenarios. This risk is both unnecessary and avoidable.

Speculative Exchange Rate

The requested COMP amount relies on a speculative exchange rate for fixed USD-denominated expenses, which remain unaffected by COMP price fluctuations. Expenses should be estimated in USD, with a payment vault used to mitigate COMP price exposure for both parties and ensure recourse for the DAO.

Conclusion

Like the cancelled Proposal 381, this proposal introduces an unnecessary risk to the Compound DAO. We recommend cancelling the proposal, submitting each decision as a separate proposal, and using the vendor payment system to distribute funding incrementally rather than as a single lump sum.

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@jbass-oz
curious how Proposal 416, Proposal 381, and Proposal 409 is an issue.

Given the fact that Proposal 413 has no issues.
Is there a technical difference or is this simply subjective process?

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Compound Proposal Report Issues Comparison

Issue Proposal 381 (AlphaGrowth Renewal) Proposal 416 (AlphaGrowth Renewal v3) Proposal 409 (Delegate Compensation) Proposal 413 (Morpho Migration)
COMP Amount 163,562 COMP (~$8.2M) 142,047 COMP (~$7.1M) 5,760 COMP (~$288K) 25,565 COMP (~$1.28M)
% of Governance Quorum ~40% ~35% ~1% ~7%
Recipient & Proposed Use Multisig to fund multiple budgets including team compensation and grants for one year Multisig to fund multiple budgets including team compensation and grants for one year CGWG multisig for distribution to delegates as compensation Multisig for coordinating incentives where Polygon already provided matching funds
Transfer Controls & Payment Mechanism CRITICAL - Large amount; safer mechanisms like vaults recommended CRITICAL - Large amount; safer mechanisms like vaults recommended LOW - Small amount; safer mechanisms like vaults recommended TRUST ASSUMPTION - no better alternative to multisig given context of coordinating matching funds and multiple campaigns
Governance Centralization CRITICAL - Significant portion of quorum HIGH - Significant portion of quorum Not flagged as issue - Minimal amount Not flagged as issue - Market rate per counterparty agreement
Exchange Rate Issues HIGH - Speculative exchange rate with large USD impact HIGH - Speculative exchange rate with large USD impact MEDIUM - Speculative exchange rate with moderate USD impact NOTE - Amount of COMP valued less than proposed USD amount, calculation methodology initially unclear but provided during review

Key Insights

  1. Amount and Governance Impact Matters:

    • The severity of identical technical issues scales directly with the amount of COMP and potential governance impact
    • Large transfers (381/416) create critical centralization risks; small/moderate transfers (409/413) do not

  2. Practical Implementation Requirements and Alternatives Matter:

    • For proposals compensating for performance over time (381/416/409), streaming from vaults is recommended for its benefits and risk mitigations
    • The severity assessment remains primarily driven by amount and governance impact

  3. Exchange Rate Methodology Matters:

    • An acceptable or justifiable method of calculating the exchange rate affects whether there is an issue with speculative rates
    • The severity of exchange rate issues scales with the potential impact of using a significantly different rate
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Thank you for the clarity in your analysis. We’d like to highlight a few points for further consideration:

  1. Transfer Controls
  • While you note “no better alternative” for coordinating funds, this does not inherently reduce the overall risk. A multi-sig, regardless of intent or context, still carries the same operational and trust-based risks at a fundamental level.
  1. Governance Centralization
  • AlphaGrowth has explicitly committed to not using the transferred COMP for governance activities. This commitment directly mitigates centralization concerns. We believe it’s important to recognize and weigh that factor in the risk assessment.
  1. Exchange Rate Issues
  • The proposal pricing was pegged to the spot price at the time of submission. While we acknowledge that pricing can be fluid, it’s important to note that the basis used was current market value, which helps minimize risks for the DAO.

We appreciate the thoroughness of your review and hope these clarifications add helpful context to your assessment.

1 Like