The DAO (DAO)

Basics

• Former Ethereum project that aimed to be a Decentralised Autonomous Organisation. Had a huge ICO.
• From this blog (22-4-2020):

"In 2016, Ether was not popular quite yet, and the number of projects that collected investments in it was small. The most successful of the projects founded was The DAO, which collected nearly 12,000,000 ETH. The DAO accounted for 80% of the total Ether collected in 2016. However, in the same year, during an attack on The DAO smart contract, a large amount of money was stolen. As a result, the project was closed and Ethereum forked. 115,000 ETH remained on the WithdrawDAO smart contract, which is listed as the current balance."

• "The DAO went on to host the biggest blockchain crowdsale to date. At its peak, 14% of all ether in existence was held in the DAO contract - a crazy notion relative to something like DeFi today (11-12-2019) which holds ~2% of all Ether in circulation. DAO tokens were freely traded on secondary exchanges like Poloniex and Kraken as everything was looking good and functioning well."

• "The now infamous DAO was essentially a decentralised crowdfunding organisation which aggregated pledged ETH into a pool. Investors were then able to vote, proportional to their DAO token holdings, on which projects they wanted the DAO to fund."
• In essence, the platform would allow anyone with a project to pitch their idea to the community and potentially receive funding from The DAO. Anyone with DAO tokens could vote on plans, and would then receive rewards if the projects turned a profit. With the financing in place, things were looking up.
• Stopped after an exploit of the contract, also known as The DAO Hack. This hack led to the split between Ethereum and Ethereum Classic.
• For an explanation of this whole episode go here.

The Hack

• Toby Hoenisch got outed as the hacker behind The DAO by Laura Shin (2-2022).

• From Token Tuesdays (11-12-2019):

"In early June, just 3 months after it’s launch, community members started vocalizing vulnerabilities surrounding recursive calls. Almost immediately after, a hacker exploiting the issues in questions as fixes were undergoing voting.

Without going into too much detail, the attacker was able to “ask” the DAO contract to give ETH back multiple times before the smart contract could update its balance. Here’s a great explainer for anyone interested in going deeper into what happened.

Upon the attack being triggered, ⅓ of the DAO funds (roughly 4% of all Ether in circulation) was siphoned and held in escrow. One of the more fascinating aspects regarding the hack was that multiple sources cited that more funds could have been taken but for some reason the attack stopping at about a third of the way there.

In the next few weeks, the community rallied together to figure out a mechanism for retrieving the stolen funds. In July of 2016, Ethereum forked and returned the stolen funds back to the original owners. This is what created Ethereum Classic as we know it today.

Upon the hack being reversed, DAO tokens became redeemable for ETH (1 ETH = 100DAO) signaling when the DAO started losing traction. By September, many exchanges were delisting DAO tokens and in the coming summer, the SEC stepped in and labeled DAO tokens a security - effectively marking it game over."

Community members

• Butterin, Vitalik; signatory
• Jentzsch, Christoph; wrote the code
• Rapp, Timon; signatory
• Tual, Stephan
• Emin Gun Sirer; Helped to expose multiple flaws on the DAO, before the hack.