The Story of DAO

What is DAO?

Launched in 2016, the DAO was a pre-existing independent organization (DAO) aimed at operating as an investor-led firm. Recommended as a transformation project, DAO raised ether (ETH) to $ 150 million USD and was one of the first large-scale fundraisers and high-profile projects built on the Ethereum blockchain – then one year old. Less than three months after the launch, the DAO was hacked and 60 million ether stolen. The Ethereum blockchain, on which DAO was built, was later put on a fork to recover stolen funds, which were returned to investors.

Features of DAO

Flat and Fully Democratic

Members vote to implement any changes

No intermediary is required to tally the votes and implement the changes

Automatic Decentralization for offered services

Transparent Activities

The DAO Hack

The sale of the tokens was scheduled to last for 28 days, during which the tokens were “closed,” after which the DAO would take effect. In the three weeks of the sale of the token, the DAO had raised more than $ 150 million from more than 11,000 investors, making it one of the largest fundraising campaigns in history at that time. However, even before the token sale ended, a few observers expressed concern about the dangers of the DAO code. Specifically, computer scientists were concerned that the error of DAO’s wallet smart contract would allow them to be released. While the planners were trying to fix the error, the attacker exploited the risk and began withdrawing funds from the DAO.

Meanwhile, the Ethereum community discussed how to respond to the attack. The failure of DAO would not only mean financial losses for investors, but also negative consequences for the newborn Ethereum network. DAO had become such an investment project that its contracts contained about 14% of all ether (ETH) distributed at the time. In just one year, the promising technology of Ethereum and the community was facing a real threat.

The Ongoing Impact of The DAO’s Rise and Fall

Although the DAO project has been threatened, its impact is still ongoing. The current blockchain development teams are always looking to the DAO model for guidance – on what not to do.


First, DAO teaches an important lesson about the importance of establishing secure blockchain platforms. The DAO hack was not due to an existing problem in the Ethereum blockchain; comes from a source code written by a clever scam. If the code was properly written, theft would have been avoided.


Second, the SEC’s decision on DAO has encouraged blockchain startups to come up with ways to avoid security registrations and state regulations. One of the ways companies do this is to use the SAFT method. If tokens have an active value in the blockchain platform area,

violating part of Howey’s case, so they cannot be listed as securities or regulated by the SEC.

Several lessons we can learn from

  1. Managing a company according to DAO principles is like stopping a car from driving automatically. It is a major obligation that needs to be tested to avoid accidents. It is possible that Ethereum may be closer to the DAOs as Tesla wants to offer us automated cars, but we are not yet there. We need a training guide first, and we may need to start with self-control, just as Tesla drivers can temporarily remove their hands from the wheel to watch and learn how a car behaves on the highway, and just as we can call a car out. of the garage, or let it park itself, – two harmless processes, even if they fail.
  2. Simplicity raises complexity. The DAO, as it was built was complex and over-constructed. The DAOhub website was gradually upgraded throughout the fundraising cycle and eventually improved. The more I read, though, the more I understood, and the more questions I had. If it is complicated, it is bad news. The language was semi-legal, semi-technical, semi-contractual, non-committal, and technical all at the same time. It was confusing, based on interpretation, yet gained high scores on the size of the marketing sizzle.
  3. DAO rule is not easy. The DAO has had two joint management challenges in its hands, not just one. It had to deal with its own governance, and it had to acquire a subsequent division of its functions in relation to the implementation of smart contracts, as well as relationships with aid companies and their voting members. This has created a growing complexity that may not have been conceived by the founders of DAO.
  4. Independence comes with a lot of work. A smart contract containing money is not a piñata. It is a great responsibility. We need to be especially careful when smart contracts have a significant economic value.
  5. Wise contracts are not a hammer. For some crypto lovers, smart contracts are like a hammer. They wanted to apply them to everything, and the DAO was an example of that belief. But not everything is nail polish. Perhaps it is too early for smart contracts to take over the world.
  6. Security first. The greater the amount of money at risk, the higher the security requirements. Security is required before shipment, not during flight. Blockchains fall into mandatory “testnet” categories with an empty cryptocurrency. Why not this DAO? There was so much meeting in the air.
  7. Adult technology experts alone are not enough. You cannot have experience in management and operations if you have not been part of a well-managed organization. Involving a few non-technical professionals with business experience will go a long way in avoiding common mistakes and trivial matters. Do not associate DAO if you have never had experience working, because you will encounter blind people. It takes more than curators to make sure DAO works well.
  8. Successful facial leadership is still a science fiction novel. Are we ready to trust in factual leadership? The only faceless leadership we know today of this evil genius: ISIS / ISIL and Al-Qaeda. It is true that Satoshi Nakamoto was a faceless leader, but he/they were present at least until that leadership was replaced by one.
  9. Good intentions do not count. In the presence of evil or inadequacy, sadly, good intentions will then be sung. That is true.
  10. A smart contract with money is not the same as any part of the code. You can’t just generate smart contract code just because you can code a few lines of Java. Smart contracts with value for money should be stronger than firms. It’s about trust, isn’t it? Divided international protocols promise a better version of trust where we trust the equipment more than the existing trusted proxy servers. Bedbugs are expensive, figuratively speaking.
  11. Code-based rule is not yet mature. We are still in the stages of children’s steps. Let’s not overdo what we can do, and let’s start with a little experimentation. I wrote about What It Takes to Succeed as a Non-Governmental Organization in February 2015, 16 months ago; and many of you still work today. I have reviewed these ideas in my book, The Business Blockchain (Wiley, 2016).
  12. Pure DAO is difficult. Why not start with a mixed version? Pure DAOs require guidance and duplication of business model. We would not think that they will be so well put together from the beginning.

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