The DAO (organization)

The DAO (stylized Đ) was a digital decentralized autonomous

The DAO (organization)
organization,[5] and a form of investor-directed venture capital
fund.[6] It launched in April 2016 after a crowdfunding campaign
via a token sale and it became one of the largest crowdfunding
campaigns in history.[6]

The DAO had an objective to provide a new decentralized

business model for organizing both commercial and non-profit
Type Decentralized
enterprises.[7][8] It was instantiated on the Ethereum blockchain, autonomous
and had no conventional management structure or board of organization
directors.[7] The code of the DAO is open-source.[9]
Industry Cryptocurrency
In June 2016, users exploited a vulnerability in The DAO code to software venture
enable them to siphon off one-third of The DAO's funds to a capital fund
subsidiary account. The Ethereum community controversially Founded 2016
decided to hard-fork the Ethereum blockchain to restore virtually Area served Global[1]
all funds to the original contract. This split the Ethereum
blockchain into two branches, each with its own cryptocurrency, Key people Stephan Tual, Simon
where the original unforked blockchain continued as Ethereum Jentzsch, Christoph
Jentzsch
Classic.[10]
Total assets ETH 11.5 million[2]
By September 2016, the value token of The DAO, known by the Owners +18 000
moniker DAO, was delisted from major cryptocurrency exchanges stakeholders[3]
(such as Poloniex and Kraken) and had, in effect, become
Number of 0 (automated)[4]
defunct.[11][12]
employees

The DAO (software)

Contents Repository github.com
History /blockchainsllc/DAO (h
ttps://github.com/block
Operation
chainsllc/DAO)
Marketing
Written in Solidity
Risks
License GNU LGPL v3+
Proposals
Regulation
References
Further reading

History
The open source computer code behind the organization was written principally by Christoph Jentzsch, and
released publicly on GitHub, where other contributors added to and modified the code.[6] Simon Jentzsch,
Christoph Jentzsch's brother, was also involved in the venture.[6]

The DAO was launched on 30 April 2016 at 01:42:58 AM +UTC on Ethereum Block 1428757,[13] with a
website and a 28-day crowdsale to fund the organization.[14] The token sale had raised more than
US$34 million by 10 May 2016, and more than US$50 million-worth of Ether (ETH)—the digital value
token of the Ethereum network—by 12 May, and over US$100 million by 15 May 2016.[14][15] On 17
May 2016, the largest investor in the DAO held less than 4% of all DAO tokens and the top 100 holders
held just over 46% of all DAO tokens.[16] The fund's Ether value as of 21  May  2016 was more than
US$150 million,[17] from more than 11,000 investors.[18]

As of May 2016, The DAO had attracted nearly 14% of all ether tokens issued to date.[1]

On 28 May 2016 the DAO tokens became tradable on various cryptocurrency exchanges[19].[11][12]

A paper published in May 2016 noted a number of security vulnerabilities associated with The DAO, and
recommended that investors in The DAO hold off from directing The DAO to invest in projects until the
problems had been resolved.[20] An Ethereum developer on GitHub pointed out a flaw relating to
"recursive calls". On June 9th it was blogged about by Peter Vessenes, founder of the Blockchain
Foundation.[21] By June 14, fixes had been proposed and were awaiting approval by members of The
DAO.

On June 16th, further attention was called to recursive call vulnerabilities by bloggers affiliated with the
Initiative for CryptoCurrencies & Contracts (IC3).[22]

On June 17, 2016, the DAO was subjected to an attack exploiting a combination of vulnerabilities,
including the one concerning recursive calls, that resulted in the transfer of 3.6 million Ether - around a
third of the 11.5 million Ether that had been committed to The DAO - valued at the time at around
$50M.[2][23] The funds were moved into an account subject to a 28-day holding period under the terms of
the Ethereum smart contract so were not actually gone.

Members of The DAO and the Ethereum community debated what to do next, with some calling the attack
a valid but unethical maneuver, others calling for the Ether to be re-appropriated, and some calling for The
DAO to be shut down.[23][24] Eventually, the Ethereum network was hard forked to move the funds in The
DAO to a recovery address where they could be exchanged back to Ethereum by their original owners.[25]
However, some continued to use the original unforked Ethereum blockchain, now called Ethereum Classic.

In September 2016, Poloniex de-listed DAO trading pairs, followed by Kraken in December 2016.[11][12]

Operation
The DAO was a decentralized autonomous organization[26] that exists as a set of contracts that resides on
the Ethereum blockchain;[27]
it did not have a physical address, nor people in formal management roles.
The original theory underlying the DAO was that by removing delegated power from directors and placing
it directly in the hands of owners the DAO removed the ability of directors and fund managers to misdirect
and waste investor funds.[28]

As a blockchain-enabled organization, The DAO claimed to be completely transparent: everything was

done by the code, which anyone could see and audit.[29] However, the complexity of the code base and the
rapid deployment of the DAO meant that the intended behavior of the organization and its actual behavior
differed in serious ways that weren't apparent until after the attack occurred.
The DAO was intended to operate as "a hub that disperses funds (currently in Ether, the Ethereum value
token) to projects". Investors received voting rights by means of a digital share token;[26] they vote on
proposals that are submitted by "contractors" and a group of volunteers called "curators" check the identity
of people submitting proposals and make sure the projects are legal before "whitelisting" them.[6] The
profits from the investments will then flow back to its stakeholders.[3]

The DAO did not hold the money of investors; instead, the investors owned DAO tokens that gave them
rights to vote on potential projects.[17] Anyone could pull out their funds until the time they first voted.[3]

The DAO's reliance on Ether allowed people to send their money to it from anywhere in the world without
providing any identifying information.[17]

In order to provide an interface with real-world legal structures, the founders of The DAO established a
Swiss-based company, DAO.Link, registered as a Société à responsabilité limitée (SARL) in Switzerland,
apparently co-founded by Slock.it and Neuchatel-based digital currency exchange Bity SA. According to
Jentzsch, DAO.Link was in Switzerland because Swiss law allowed it to "take money from an unknown
source as long as you know where it's going."[6]

Marketing
In May 2016, TechCrunch described The DAO as "a paradigm shift in the very idea of economic
organization. ... It offers complete transparency, total shareholder control, unprecedented flexibility, and
autonomous governance."[26]

Risks
In May 2016, the plan called for The DAO to invest Ether in ventures it would back (contractors) and to
receive in return "clear payment terms" from contractors. The organizers of the DAO promoted the DAO
as providing investors in the DAO a return on their investment via those "clear payment terms" and they
warned investors there is "significant risk" that the ventures funded by the DAO may fail.

Risks included unknown attack vectors and programming errors.[27][30] Additional risks noted included the
lack of precedence in regulatory and corporate law; how governments and their regulatory agencies would
treat The DAO and contracts it made was unknown. There was also a risk that there would be no corporate
veil protecting investors from individual legal and financial liability for actions taken by The DAO and by
contractors in which The DAO invested. It was unclear if The DAO was selling securities, and if it was,
what type of securities those might be.[18]

Additionally, to function in the real world, contractors would likely need to convert the invested Ether into
real-world currencies. In May 2016, attorney Andrew Hinkes said that those sales of Ether would be likely
to depress the value of Ether.

The code behind The DAO had several safeguards that aimed to prevent its creators or anyone else from
mechanically gaming the voting of shareholders to win investments.[17] However, this would not prevent
the making of fraudulent profitability projections, and in addition, a paper cited a "number of security
vulnerabilities".[20]

Proposals
Slock.it (a German Blockchain venture), and Mobotiq (a French electric vehicle start-up) were listed as
seeking potential funding on the daohub.org website during the May "creation period". Both Jentzsch
brothers were involved in Slock.it as well.[6]

Regulation
On 25 July 2017, the U.S. Securities and Exchange Commission published a report on initial coin offerings
(ICOs) and The DAO, examining "whether The DAO and associated entities and individuals violated
federal securities laws with unregistered offers and sales of DAO Tokens in exchange for 'Ether,' a virtual
currency." The SEC concluded that DAO tokens sold on the Ethereum blockchain were securities and
therefore possible violations of U.S. securities laws.[31]

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Capitalist" (https://www.nytimes.com/2016/05/22/business/dealbook/crypto-ether-bitcoin-curr
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18. Macheel, Tanaya (19 May 2016). "The DAO Might Be Groundbreaking, But Is It Legal?" (htt
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Further reading
Vessenes, Peter (18 June 2016). "Deconstructing The DAO Attack: A Brief Code Tour" (htt
p://vessenes.com/deconstructing-thedao-attack-a-brief-code-tour/).
DuPont, Quinn (2017). “Experiments in Algorithmic Governance: An ethnography of "The
DAO," a failed Decentralized Autonomous Organization (https://www.taylorfrancis.com/chapt
ers/oa-edit/10.4324/9781315211909-8/experiments-algorithmic-governance-quinn-dupont)”
(archive link (https://web.archive.org/web/20171215144748/http://iqdupont.com/assets/docu
ments/DUPONT-2017-Preprint-Algorithmic-Governance.pdf)). In Bitcoin and Beyond: The
Challenges and Opportunities of Blockchains for Global Governance, edited by Malcolm
Campbell-Verduyn. Routledge (in press).

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