Compound Foundation faces allegations over DAO fund use

Compound Finance, a DeFi lending protocol, is again at the center of DAO-related controversy. A community member going by the handle “ugurmersin” has charged the Compound Foundation with “misappropriation” of 8.42 million DAI.

A post on the project’s governance forum claims the funds were used to acquire 344,780 COMP tokens, which then went to the Foundation’s voting address via delegation.

Those tokens reportedly helped vote on two proposals, including one that would transfer $14 million to the foundation for a year of v4 protocol development.

The foundation has pushed back against the accusations in its own statement, arguing that its actions were in line with the terms under which the funds were originally granted.

Both proposals referenced in the complaint would have passed even without the foundation’s extra COMP votes, the foundation noted.

Compound Foundation raiding the DAO treasury? https://t.co/z85nqvfU1g pic.twitter.com/CdnhiOlkV1

— Mikko Ohtamaa (@moo9000) September 28, 2026

“Misappropriation” of DAO funds?

The DAI at issue came from reserves of Compound’s now-defunct v2 protocol.

Proposal 536, which passed in February, gave the foundation the DAI to be used “in a manner prudent for addressing important protocol needs.”

It “does not establish an explicit treasury management program,” the proposal states, though it does allow the foundation to “maintain sufficient COMP availability for protocol components that depend on it, such as reward distribution and other forms of governance execution.”

Ugurmersin’s post objects to the use of those funds for voting on proposals 580 and 582. Those measures, the accuser says, “moved nearly the entirety of DAO funds” to a Treasury Management Committee — which he claims “has a separate control issue” — and approved the $52 million v4 package that “benefits themselves.”

The foundation replied on the forum, stating that Proposal 536 “expressly did not prescribe” how the money would be spent and “excluded only ‘discretionary trading/speculative activity,’ non-essential operations, and Foundation overhead, personnel or vendor costs.”

That post also confirms the DAI reserves were swapped for COMP and used “to support protocol operations and governance continuity.”

It denies any trading or spending by the foundation and insists that “the assets remain DAO-owned.”

The voting on proposals 580 and 582 using COMP is not discussed in the response.

Ugurmersin then replied to the foundation’s statement, disputing the claim that no trading took place. “You sent 100K COMP straigth (sic.) back to Binance after passing the votes. LMAO,” he wrote.

Protos has not been able to verify that assertion.

Compound’s DAO dramas

The latest dispute comes as Compound — one of DeFi’s oldest lending protocols — marks its eighth anniversary. Over those eight years, the platform has seen considerable DAO infighting play out on its governance forums.

Last year, conflict-of-interest allegations surfaced around a Gauntlet proposal that would deploy funds to the firm’s client and Compound competitor Morpho. Gauntlet’s contract renewal later drew backlash.

this is honestly some of the griftiest stuff i've ever seen from gauntlet and that is saying a lot

like at least have some class and abstain from voting for yourself smh https://t.co/yOywSes9Qg pic.twitter.com/kJ96MeTs0E

— Togbe (@Togbe0x) March 8, 2025

A 2024 proposal, described as a governance attack, revealed the risks of DAO apathy at Compound after it scraped through on its third attempt.

Technical problems have also hit the lending protocol. A two-stage “reverse rug” in 2021 saw $147 million in excess rewards handed out.

Less than a year on, a flawed upgrade froze the $830 million cETH market while a fix moved through DAO governance.

Add to that two front-end hijackings at Compound Finance — one in 2024 and another in March this year. Its X account was also compromised and used to push a phishing link in 2023.