In February 2026, the Compound community transferred about 8.42 million v2 DAI reserves from the DAO-controlled wallet to the Compound Foundation through governance proposal 536, with the foundation managing them and “only for supporting protocol operations, not for speculation or self-trading.” At that time, this was seen as a trust vote handing the funding key to a professional institution. The contradiction was ignited a few months later by on-chain activity: these 8.42 million DAI flowed from the foundation-managed wallet to centralized exchange-related addresses, gradually exchanged for about 344,780 COMP, which were then transferred to governance voting addresses associated with the Compound Foundation, completing self-delegation under this address, thereby making the COMP acquired from the DAO public reserve a voting power controlled by the foundation. On September 28, 2026, community member ugurmersin posted on the governance forum, directly pointing out that the foundation did not use the v2 DAI reserves in accordance with the intended purposes of proposal 536. The core accusation was that the foundation used DAO assets to purchase and hold COMP, effectively creating “self-made chips” in governance, potentially violating the restriction of “not for speculation or self-trading.” As the post spread, debates quickly escalated around “whether this constitutes an abuse of community authorization” and “whether it undermines governance voting fairness.” However, as of now, there has been no publicly confirmed response from the foundation or governance rulings, and how the event will ultimately be characterized and handled remains an open question.
The trajectory of 8.42 million DAI: from treasury reserves to self-delegation of COMP
By tracing the on-chain movements of this fund, a reasonably clear path can be seen. In February 2026, after governance proposal 536 was approved, the approximately 8.42 million v2 DAI reserves were first transferred from the DAO-controlled wallet to a new wallet managed by the Compound Foundation, completing the first migration of “management authority” from the community to the foundation. Subsequently, this batch of DAI was transferred from the foundation wallet to a centralized exchange-related address, being gradually exchanged for about 344,780 COMP, finalizing the transformation from protocol reserve assets to governance tokens.
More controversial is the flow after the exchange: on-chain records show that these COMP were subsequently transferred uniformly to a governance address associated with the Compound Foundation, where self-delegation was set up under this address, granting this address governance voting rights corresponding to 344,780 COMP. In terms of the main path “from the DAO treasury to the foundation wallet, then to the exchange for COMP, and finally to the governance address for self-delegation,” current on-chain data can directly support this. However, more detailed information regarding the specific configuration of the foundation's internal multi-signature, the exact timing of each exchange, and transfer remains unverified and is not sufficient to be treated as established facts.
The red line of proposal 536: operational expenses or a disguised increase in holdings?
Proposal 536 draws a seemingly clear red line regarding the use of funds: the ownership of approximately 8.42 million v2 DAI always belongs to the DAO, and the Compound Foundation is only responsible for “managing and executing” them; this money is “only for supporting protocol operations” and is explicitly prohibited from being used for “speculation or self-trading.” In other words, the community agreed during voting to outsource a portion of the protocol reserve to the foundation for daily operations, cooperation, development, and other “cost items,” rather than giving the foundation an asset management authorization to freely accumulate or adjust positions.
The problem lies in the gap between this red line and the actual operations. On-chain, it can be seen that after the proposal passed, this batch of DAI was transferred to the foundation wallet, then went to the exchange, ultimately being exchanged for about 344,780 COMP, which were sent to a governance address associated with the foundation for self-delegation, but the intended purpose of “converting reserves into COMP and holding them to increase voting rights” was not listed in the authorization of proposal 536. Thus, the focus of the community debate falls upon one question: does converting DAO reserves into governance tokens and participating in voting under a controlled address count as “supporting protocol operations,” or has it already slid into the “self-trading” and disguised increase in holdings that the proposal explicitly sought to prohibit? Currently, there has been no regulatory body or court providing legal characterization on this matter, and this article does not attempt to draw legal conclusions but views it as a governance compliance dispute regarding the interpretation and execution of DAO's own rules.
Using DAO's funds to create voting rights? The core of community skepticism
In ugurmersin's narrative, this is not an ordinary asset reorganization but an operation of “using DAO's funds to mint voting rights for themselves.” In a lengthy post on the governance forum dated September 28, he unfolded accusations along a clear on-chain path: after proposal 536 passed, approximately 8.42 million v2 DAI moved from DAO-controlled addresses to the foundation-managed wallet, then transferred to a centralized exchange address, gradually exchanged for about 344,780 COMP, and finally this batch of COMP was moved into governance voting addresses associated with the Compound Foundation and completed self-delegation. Ugurmersin's conclusion is that the foundation did not act in accordance with the constraints of the proposal “only to support protocol operations and not for speculation or self-trading,” but instead exchanged public reserves for governance weight that was more beneficial for themselves.
In the context of DAO, this structure is viewed as a potential conflict of interest, crucially due to the misalignment of roles between “trustor” and “trustee”: DAO funds theoretically belong to all token holders, and the foundation only has authorization to manage and execute; once the trustee uses the entrusted assets to purchase governance tokens, and then self-delegates the voting rights to themselves, it effectively amplifies their voice in governance without bearing market costs. Voices supporting ugurmersin thus argue that this deviates from the spirit of the proposal's restriction of “not for speculation or self-trading”; however, it should be clarified that the on-chain verifiable parts only include the path of funds from DAI to COMP, and then to self-delegated governance addresses, along with corresponding time points, but whether this constitutes “speculation,” “self-enrichment,” or “manufacturing voting rights” remains a value judgment colored by perspective. Currently, there has been no officially confirmed response from the foundation that would reconstruct this narrative.
The power boundary between the foundation and the DAO: who guards the treasury and the ballots
If we imagine the DAO as a clearly divided “corporate law,” then in most projects, the role of the foundation written into the articles is often that of an “executive director”: responsible for implementing decisions that have already been voted on within the chain rather than influencing outcomes during the voting phase. This is also why many projects proactively put on a “tight suit”—either restricting treasury assets from participating in governance or capping the voting power of specific addresses, using technical means to reduce the systemic temptation of “voting with public funds for oneself.”
What is special about Compound is that the core entities of this dispute are simultaneously managing approximately 8.42 million v2 DAI reserves from proposal 536, which means these funds have been exchanged on-chain for about 344,780 COMP, ultimately flowing to a governance address associated with the foundation, completing self-delegation, creating a highly overlapping identity of “those managing money also holding votes.” Even if it is currently impossible to fully reconstruct how these COMP were voted on in specific proposals, this structure itself is sufficient to trigger questions of trust and legitimacy: when treasury assets can be converted into additional voting rights, does the voting of other coin holders still count as “majority will”? It is precisely for this reason that the community focuses the discussion on “whether it is necessary to further clarify the boundaries for treasury assets participating in voting at the rules level,” which makes the Compound incident potentially evolve into a landmark case for the entire industry to reassess how far “treasury management” and “governance power” should be separated.
The dispute remains unresolved: where might Compound go next?
As of September 28, 2026, the controversy surrounding the v2 reserves being exchanged for COMP and self-delegated has moved from on-chain clues to an open confrontation in the governance forum, placing the community’s doubts about whether the foundation overstepped its authority or distorted the voting landscape in the spotlight. However, there is still a lack of an officially substantiated response, and no new proposals or on-chain rollback actions explicitly labeled as “against this accusation” have emerged. Whether it can lead to a substantive resolution largely depends on three lines: first, whether discussions on the governance forum will shift from emotional outbursts to concrete rule texts, promoting the incorporation of “treasury assets must not be converted into additional voting rights” into the system; second, whether the foundation chooses to provide a public explanation that can be matched with the on-chain path, clarifying the origin and destination of the current batch of COMP; third, whether the community will initiate a special governance proposal calling for the redistribution or re-delegation of relevant assets, using on-chain actions to “return voting rights to their rightful place.” Regardless of whether the final outcome is a clarification of misunderstandings, a repair of rules, or a redefinition through asset disposal, this dispute has been viewed as a mirror to test the transparency of DAO treasury management and the boundaries of governance power, and the answers given by the Compound community will serve as a reference for other protocols in designing treasury and voting structures in the future.
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