How Compound DAO lost $24M — and how to avoid making the same mistake

In 2024, Compound DAO approved a proposal to send 5% of its treasury ($24 million) to a group called the “Golden Boys.” Only 51 out of 5,000+ token holders voted. The vote was valid — but the community simply didn’t notice in time

How did this happen, especially with a major project like Compound?

1️⃣ The governance model was designed back in 2020, during the early days of DAOs. It was basic: token-based voting, no quorum. At the time, that seemed fine

2️⃣ The assumption was that token distribution = decentralization. But in practice, ownership ≠ participation. Most holders don’t vote

3️⃣ The system relied on “common sense”. But when there are no safeguards, someone always finds a way to exploit it. That’s how a questionable proposal got pushed through while everyone was distracted

The result: even decentralization can fail without proper governance mechanisms in place ����‍♂️

How to avoid this?

With XDAO, you define your own DAO rules:

— Minimum % of votes required for approval
— Quorum, multisigs, withdrawal limits
— There are two types of tokens (GP and LP), allowing you to form a group of managers with delegated voting power over the DAO treasury

Unlike Compound’s legacy setup, XDAO is a flexible framework — where your governance is as secure and smart as the rules you design