Compound Foundation Rejects Claims of Misusing V2 Reserves

Foundation denies misuse of reserve funds

The Compound Foundation rejected claims on September 28 that it misused 8.42 million DAI from the lending protocol's V2 reserves. Governance participant Ugur Mersin alleged the funds were converted to COMP tokens and used to sway a recent vote on a $52 million budget.

In response, the Foundation stated that the assets remain owned by the decentralized autonomous organization (DAO) and were not spent on its own operations. The group confirmed converting the reserves into COMP but emphasized the tokens were held in a secure wallet requiring four of six signers to move them.

Allegations center on voting power

• Mersin claimed the Foundation used 344,780 COMP tokens, derived from the reserves, to support governance proposals without a specific mandate.
• The dispute involves Proposal 582, which allocated $52 million for the V4 program and $14 million for a Foundation-controlled wallet.
• On-chain records confirm the transfer of 8.42 million DAI in February and the arrival of COMP tokens in May.
• The Foundation argues the tokens were used to ensure "governance continuity" as permitted by earlier votes.

What the on-chain data shows

A transaction on May 5 shows the COMP tokens arriving at the Foundation's multi-signature wallet, increasing its voting power. Later that day, the Foundation cast votes totaling about 912,717 COMP in favor of treasury management and V4 funding proposals. The final tally for the V4 proposal was approximately 1.88 million votes in favor, well above the required 400,000-quorum.

Even without the disputed 344,780 COMP tokens, the proposal would have met the quorum requirement. However, this does not settle the question of whether the reserve funds were authorized for this specific voting purpose.

Scope of the original mandate

Proposal 536, executed on February 19, authorized the stewardship of DAI reserves following the wind-down of V2. The mandate allowed funds to support protocol operations and governance continuity, including maintaining COMP availability. It explicitly excluded discretionary trading and expenses specific to the Foundation.

The approved V4 budget designates $38 million for a program reserve managed by a five-of-seven committee, with releases based on milestones. The Foundation has not yet provided a detailed list of how the reserve funds were spent, though quarterly reporting is required under Proposal 536.

Unresolved questions on authority

While the vote passed regardless of the disputed tokens, the core disagreement remains about the scope of the Foundation's authority. Mersin contends the tokens were used without proper authorization to approve treasury changes. The Foundation maintains the actions were within the bounds of supporting governance continuity.

Source

• The Defiant

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