Decentralized Autonomous Organizations (DAOs) are generally entities that operate based on smart contracts. This is another of the blockchain implementation options. Financial transactions and rules are encoded in a blockchain, which eliminates the need for central management. One such DAO was a project that was created in 2016. It was called DAO, or Genesis DAO.
History of Decentralized Autonomous Organization
The Slock IT team developed the DAO programming framework. It was possible to purchase DAO tokens during the creation period by sending ETH to a unique address. The ratio was set at 100 DAO per 1 ETH. It was an unexpected success, and 12.7 million ethers were collected (at the then rate of about $ 150 million). With the price of Etherea rising to $ 20, the coins selected were worth over $ 250 million at one time.
The platform enabled the financing of exciting projects using Decentralized Autonomous Organization tokens, the owners of which had voting rights and a share in the profit. The idea was good, and it still is, unfortunately. On June 17, 2016, there was a hack. During the first few hours of the attack, 3.7 million ETHs were stolen, which was about $ 50 million to $ 70 million at the time. The developers of the project made several fatal mistakes and, due to the size of the project, they negatively affected Ethereum itself, on which the DAO stood.
The developers, the community, and the Etherea team quickly took control and began working on a solution. The hacker could not complete the attack because the funds were in an account covered by a 28-day holding period. An Ether hard drive has occurred to return resources to the pre-hack state. However, part of the Etherea community did not agree with such a procedure because it violated the blockchain’s principle of decentralization and immutability. Therefore, the network split, and a fork of Ethereum Classic (ETC) was created.
End of project
In September 2016, he delisted Decentralized Autonomous Organization Poloniex tokens, and in December, Kraken joined. The Securities and Exchange Commission (SEC) subsequently dealt a final blow, which may have seemed like a “grace” blow in the context of previous events. She stated:
“The tokens offered and sold by a “virtual” organization known as the “dDAO” were securities and are therefore subject to federal securities laws. The report confirms that issuers of distributed securities based on a distributed ledger or blockchain must register these securities’ offers and sales unless a valid exemption applies. Participants in unregistered offers may also be liable for breaches of securities laws. “
This is the end of the DAO project, but the consequences remain.
Consequences of the first Decentralized Autonomous Organization
Although many have criticized the fork Vitalik Buterin and other Etherea developers, have chosen a procedure that has eliminated much of the future problem. Many Eth coins came under the control of a hacker, which could otherwise cause chronic problems with this cryptocurrency. The hard fork has also saved the resources of a large number of investors. However, it has been shown that in some cases, someone can and even must intervene in the blockchain directly, which somewhat undermines principles such as decentralization and immutability.
DAO has shown that it is not a very good idea to give something the same as a whole superset of similar projects. It provides a valuable lesson that platform security is a critical prerequisite for crypto world survival. We already know that the poor security of one project can jeopardize the platform itself.
As for the US SEC, current projects are trying to find ways to avoid being classified as “security,” such as using a particular utility value (the usefulness of tokens in a blockchain platform) that prevents the Howey test from passing.
Decentralized Autonomous Organizations was a transparent and flexible decentralized venture capital fund. About a month after its inception, however, the hacker found a bug in the code and stole about a third of the total amount of ETH that the fund withdrew from investors. As a result, ETH dropped from about $ 20 to $ 12, and the network broke, which divided the platform into Ethereum (ETH) and Ethereum Classic (ETC). In the second most vital cryptocurrency history, this is a very significant scar that the platform has suffered. At the same time, it is another critical point in the history of cryptocurrencies.