The DAO, whose logo featured a capital letter Đ, was a digital decentralized autonomous organization and a form of investor-directed

venture capital fund Venture capital (often abbreviated as VC) is a form of private equity financing that is provided by venture capital firms or funds to startups, early-stage, and emerging companies that have been deemed to have high growth potential or which hav ...

. After launching in April 2016 via a token sale, it became one of the largest

crowdfunding Crowdfunding is the practice of funding a project or venture by raising money from a large number of people, typically via the internet. Crowdfunding is a form of crowdsourcing and alternative finance. In 2015, over was raised worldwide by crow ...

campaigns in history. The DAO had an objective to provide a new

decentralized Decentralization or decentralisation is the process by which the activities of an organization, particularly those regarding planning and decision making, are distributed or delegated away from a central, authoritative location or group. Conce ...

business model for organizing both

commercial Commercial may refer to: * a dose of advertising conveyed through media (such as - for example - radio or television) ** Radio advertisement ** Television advertisement * (adjective for:) commerce, a system of voluntary exchange of products and s ...

and

non-profit A nonprofit organization (NPO) or non-profit organisation, also known as a non-business entity, not-for-profit organization, or nonprofit institution, is a legal entity organized and operated for a collective, public or social benefit, in co ...

enterprises. It was instantiated on the

Ethereum Ethereum is a decentralized, open-source blockchain with smart contract functionality. Ether (Abbreviation: ETH; sign: Ξ) is the native cryptocurrency of the platform. Among cryptocurrencies, ether is second only to bitcoin in market capita ...

blockchain A blockchain is a type of distributed ledger technology (DLT) that consists of growing lists of records, called ''blocks'', that are securely linked together using cryptography. Each block contains a cryptographic hash of the previous block, a ...

and had no conventional management structure or board of directors. The

code In communications and information processing, code is a system of rules to convert information—such as a letter, word, sound, image, or gesture—into another form, sometimes shortened or secret, for communication through a communication ...

of the DAO is

open-source Open source is source code that is made freely available for possible modification and redistribution. Products include permission to use the source code, design documents, or content of the product. The open-source model is a decentralized sof ...

In June 2016, users exploited a vulnerability in The DAO code to enable them to siphon off one-third of The DAO's funds to a subsidiary account. The Ethereum community controversially decided to hard-fork the Ethereum blockchain to restore approximately all funds to the original contract. This split the Ethereum blockchain into two branches, each with its own cryptocurrency, where the original unforked blockchain continued as

Ethereum Classic Ethereum Classic is an open source, blockchain-based distributed computing platform featuring smart contract (scripting) functionality. It supports a modified version of Nakamoto consensus via transaction-based state transitions executed on a p ...

. By September 2016, the value token of The DAO, known by the moniker DAO, was

delisted In corporate finance, a listing refers to the company's shares being on the list (or board) of stock that are officially traded on a stock exchange. Some stock exchanges allow shares of a foreign company to be listed and may allow dual listing, su ...

from major cryptocurrency exchanges (such as Poloniex and

Kraken The kraken () is a legendary sea monster of enormous size said to appear off the coasts of Norway. Kraken, the subject of sailors' superstitions and mythos, was first described in the modern age at the turn of the 18th century, in a travelogu ...

) and had, in effect, become defunct.

History

The

open source Open source is source code that is made freely available for possible modification and redistribution. Products include permission to use the source code, design documents, or content of the product. The open-source model is a decentralized sof ...

computer code behind the organization was written principally by Christoph Jentzsch, and released publicly on

GitHub GitHub, Inc. () is an Internet hosting service for software development and version control using Git. It provides the distributed version control of Git plus access control, bug tracking, software feature requests, task management, continuous ...

, where other contributors added to and modified the code. Simon Jentzsch, Christoph Jentzsch's brother, was also involved in the venture. The DAO was launched on 30 April 2016 at 01:42:58 AM +UTC on Ethereum Block 1428757, with a website and a 28-day crowdsale to fund the organization. The token sale had raised more than by 10 May 2016, and more than -worth of ''

Ether In organic chemistry, ethers are a class of compounds that contain an ether group—an oxygen atom connected to two alkyl or aryl groups. They have the general formula , where R and R′ represent the alkyl or aryl groups. Ethers can again be c ...

'' (ETH)—the digital value token of the

network—by 12 May, and over by 15 May 2016. 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. The fund's Ether value was more than , from more than 11,000 investors. As of May 2016, The DAO had attracted nearly 14% of all Ether tokens issued to date.Staff, The Economist. May 21st, 201
The DAO of accrue. A new, automated investment fund has attracted stacks of digital money
On 28 May 2016 the DAO tokens became tradable on various cryptocurrency exchanges. A paper published in May 2016 noted a number of

security vulnerabilities Vulnerabilities are flaws in a computer system that weaken the overall security of the device/system. Vulnerabilities can be weaknesses in either the hardware itself, or the software that runs on the hardware. Vulnerabilities can be exploited by ...

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. An Ethereum developer on GitHub pointed out a flaw relating to "recursive calls". On June 9 it was blogged about by Peter Vessenes, founder of the Blockchain Foundation. By June 14, fixes had been proposed and were awaiting approval by members of The DAO. On June 16, further attention was called to recursive call vulnerabilities by bloggers affiliated with the Initiative for CryptoCurrencies & Contracts (IC3). 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. 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.Klint Finley for Wired. June 18, 201
A $50 Million Hack Just Showed That The Dao Was All Too Human
Eventually on July 20, 2016, 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. However, some continued to use the original unforked Ethereum blockchain, now called

. In September 2016, Poloniex de-listed DAO trading pairs, followed by

in December 2016.

Operation

The DAO was a decentralized autonomous organization that exists as a set of

contracts A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to tran ...

that resides on the

; It did not have a physical address or 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. As a blockchain-enabled organization, The DAO claimed to be completely transparent: everything was done by the code, which anyone could see and audit. 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; 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. The profits from the investments will then flow back to its stakeholders. The DAO did not hold the money of investors; instead, the investors owned DAO tokens that gave them rights to vote on potential projects. Anyone could pull out their funds by the time they first voted. The DAO's reliance on Ether allowed people to send their money to it from anywhere in the world without providing any identifying information. In order to provide an interface with real-world legal structures, the founders of The DAO established a

Swiss Swiss may refer to: * the adjectival form of Switzerland * Swiss people Places * Swiss, Missouri * Swiss, North Carolina *Swiss, West Virginia * Swiss, Wisconsin Other uses *Swiss-system tournament, in various games and sports *Swiss Internation ...

-based company, DAO. Link, registered as a

Société à responsabilité limitée A (SARL, S.à r.l. and similar; literally "society with limited responsibility") is a form of private company that exists mainly in French-speaking countries, such as France, Luxembourg, Monaco, Algeria, Morocco, Tunisia, Madagascar, Lebanon, ...

(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."

Marketing

In May 2016, ''

TechCrunch TechCrunch is an American online newspaper focusing on high tech and startup companies. It was founded in June 2005 by Archimedes Ventures, led by partners Michael Arrington and Keith Teare. In 2010, AOL acquired the company for approximately ...

'' 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."

Risks

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

attack vector In computer security, an attack vector is a specific path, method, or scenario that can be exploited to break into an IT system, thus compromising its security. The term was derived from the corresponding notion of vector in biology. An attack ve ...

s and

programming error A software bug is an error, flaw or fault in the design, development, or operation of computer software that causes it to produce an incorrect or unexpected result, or to behave in unintended ways. The process of finding and correcting bugs i ...

s. Additional risks included the lack of precedence in regulatory and corporate law; it was unknown how governments and their regulatory agencies would treat The DAO and the contracts it made. There was also a risk that there would be no

corporate veil Piercing the corporate veil or lifting the corporate veil is a legal decision to treat the rights or duties of a corporation as the rights or liabilities of its shareholders. Usually a corporation is treated as a separate legal person, which is s ...

protecting investors from individual legal and financial liability for actions taken by The DAO and by contractors in which they have invested. It was unclear if the DAO was selling securities, and if it was, what type of securities those might be. DAO has a democratized organizational structure so that control can be spread among members. There is no leadership or regulation in this structure. If members transfer cryptocurrency under little regulation, the risk of fraud remains. There is also no way to recover funds if a member mistakenly transfers cryptocurrency to the wrong wallet. 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. However, this would not prevent the making of fraudulent profitability projections, and in addition, a paper cited a "number of security vulnerabilities".Popper N.
Paper Points Up Flaws in Venture Fund Based on Virtual Money
." ''New York Times'' May 27, 2016

Proposals

Slock.it (a German

Blockchain A blockchain is a type of distributed ledger technology (DLT) that consists of growing lists of records, called ''blocks'', that are securely linked together using cryptography. Each block contains a cryptographic hash of the previous block, a ...

venture), and Mobotiq (a French

electric vehicle An electric vehicle (EV) is a vehicle that uses one or more electric motors for propulsion. It can be powered by a collector system, with electricity from extravehicular sources, or it can be powered autonomously by a battery (sometimes cha ...

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.

Regulation

On 25 July 2017, the

U.S. Securities and Exchange Commission The U.S. Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street Crash of 1929. The primary purpose of the SEC is to enforce the law against market ...

published a report on

initial coin offering An initial coin offering (ICO) or initial currency offering is a type of funding using cryptocurrencies. It is often a form of crowdfunding, although a private ICO which does not seek public investment is also possible. In an ICO, a quantity of cr ...

s (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.