Initially, Ethereum founder Vitalik Buterin proposed a soft fork of the Ethereum network, adding a snippet of code that would effectively blacklist the attacker and prevent them from moving the stolen funds. At only one year old, the promising Ethereum technology and community was faced with a genuine existential threat. The DAO had become such a heavily invested project that its contracts contained approximately 14% of all ether (ETH) in circulation at the time. The DAO’s failure would not only mean financial loss for investors, but it also bore dire repercussions for the nascent Ethereum network.
In the meantime, the Ethereum community debated how to respond to the attack. While programmers attempted to fix the bug, an attacker exploited the vulnerability and began siphoning funds from The DAO. More specifically, computer scientists were concerned that a bug in The DAO’s wallet smart contracts would allow them to be drained. However, even before the token sale had concluded, several onlookers expressed concerns about vulnerabilities in The DAO’s code. By three weeks into the token sale, The DAO had raised more than $150 million from more than 11,000 investors, making it one of the largest crowdfunding campaigns in history at the time. The token sale was set to last 28 days, during which the tokens were “locked up,” and after which the DAO would begin to operate. After approving funding proposals, stakeholders could be in position to profit from their investments by reaping dividends or benefiting from a token price increased by representation in ownership of successful companies. These DAO tokens provided the right to vote on allocation of The DAO’s collectivized funds to entities, businesses, and technologies seeking investment. While The DAO was an early iteration of DAO governance, decentralized autonomous models remain highly influential in blockchain-related use, particularly amongst decentralized finance (DeFi) platforms.Īfter Ethereum protocol engineer Christoph Jentzsch released open source code for a collectivized, ETH-based investment organization, The DAO launched on April 30, 2016, with a token sale that distributed DAO tokens in exchange for ETH. DAOs are built on top of blockchains (often Ethereum) and their transactions are visible on the underlying blockchain protocol.
DAOs replace centralized management structures with a techno-democratic approach wherein decisions are voted upon by investor-stakeholders. What Is a DAO?Ī decentralized autonomous organization is a blockchain-based cooperative that is collectively owned by its members, with rules set and executed through code.
The Ethereum blockchain, on which The DAO was built, was later controversially forked to restore the stolen funds, which were returned to investors. Less than three months after its launch, The DAO was hacked and $60 million of ether was stolen.
Lauded as a revolutionary project, The DAO raised $150 million USD worth of ether (ETH) and was one of the earliest crowdfunding efforts and high-profile projects built on the Ethereum blockchain - which at the time was only one year old. Launched in 2016, The DAO was an early decentralized autonomous organization (DAO) intended to act as an investor-directed venture capital firm.