DAO drama has once again hit Sky (formerly Maker) governance, in what is being characterized as a risky power grab or a “potential governance attack,” depending on who you ask.
The debate kicked off when GFX Labs’ PaperImperium — a long-time Maker community member and regular critic of the project’s recent direction — took to X to raise concerns over a fast-tracked governance proposal which relaxes restrictions on borrowing against the MKR governance token.
The changes which, according to the thread, ”bypassed due process” would have the effect of “>2x the credit line for MKR holders, and raise the LTV from 50% to 80%”.
PaperImperium also claimed that they, as well as GFX Labs, had been banned from the governance forum during the proposal.
Read more: Aave proposal to peg Ethena’s USDe to USDT raises concerns
Risk management and censorship concerns aside, the thread also worries that skirting the standard governance process would “delegitimize” Maker’s reassuring reputation for “boring, process-driven governance with its own legal code.”
The post picked up plenty of interest in decentralized finance (DeFi) circles, with the proposed loosening of borrowing restrictions likely reminding many of the risky actions of Curve Finance founder Michael Egorov.
After borrowing millions of dollars worth of stablecoins against highly leveraged CRV collateral, Egorov’s positions spectacularly blew up in June last year when he was liquidated across multiple DeFi lending protocols.
The context in which the approved emergency “Out-of-Schedule Executive Proposal for Community Security” was made, however, was conveniently left out of the original thread.
Recognizing that the proposal “may generate discussion,” the changes purport to offer “greater flexibility and responsiveness to emerging threats while maintaining community oversight.”
Worries within Maker about “malicious governance actions” appear to be based on “screenshots and whistle-blower reports,” though the evidence appears to indicate “very little likelihood” of success, according to the proposal, which is being made “out of an abundance of caution.”
The majority of replies to the proposal called for further explanation, but the vote was passed before any additional details were provided.
The screenshots in question can be found in this post from Phoenix Labs’ CEO Sam MacPherson (a Spark and ex-Maker contributor) and detail a plan to accumulate MKR voting power and conduct a “takeover” of the protocol’s governance.
More screenshots show Maker founder Rune Christensen describing a supposed plan to “force liquidations” of MKR positions, in order to pick up cheap governance tokens backed by “a crooked mercenary capital fund” who have a history of “leeching” off DeFi protocols.
DeFiLlama’s “0xngmi” neatly summed up the rationale behind the changes from a third-party perspective, saying, “So the idea is that Rune has a bunch of MKR/SKY on Aave and morpho for his loans, but he can’t vote with those tokens.
They added, “He wants to move those loans to Maker so he can vote with them and thus make it harder for others to outvote him in a governance attack against him.”
Read more: Curve Finance founder Michael Egorov hit amid $22M CRV liquidation cascade
Governance attack or activist investing?
This is far from the first time a DeFi protocol has been caught up in a debate about the accumulation of voting power in on-chain governance systems.
In 2023, projects such as Rook and Aragon were targeted by a group dubbed the RFV Raiders, who identified DAOs with treasury holdings valued higher than the price of a controlling stake of governance tokens.
Read more: Compound DAO asleep at the wheel as $25M governance ‘attack’ passes
Then last year, Compound DAO passed a proposal to move half a million COMP tokens (worth $25 million at the time) to a new vault set up by a group known as the Golden Boys who had accumulated enough tokens to vote through the changes.
However, the de-facto leader of the group, Humpy, who had previously pulled a similar scheme on decentralized exchange Balancer, rejected the accusation of “stealing” funds.
The “Trust Setup” multisig, he claimed, would only allow for withdrawal of the funds if voted through by the DAO, before signing off with, “On that note, I’d like to thank all holders who voted for our proposal.”
