The DAO Campbell R. Harvey Duke University and

Transcript:The DAO Campbell R. Harvey Duke University and:
The DAO Campbell R. Harvey Duke University and NBER February 3, 2018 Innovation and Cryptoventures Campbell R. Harvey 2018 2 Background Decentralized Autonomous Organization Purpose: Venture Capital Fund for blockchain based investments that would be directed by investors Smart contract on Ethereum blockchain No management structure, no Board of Directors, no employees Code was open-source The DAO was stateless – (not tied to any country) – so not obvious how it would (or could) be regulated 3 Campbell R. Harvey 2018 Background Decentralized Autonomous Organization Launched April 30, 2016 on Ethereum block 1428757 with a 28-crowdsale to fund the organization. Ether value about $150 million by May 21 (about 14% of all ether at the time). DAO tokens were traded on various exchanges by May 28 4 Campbell R. Harvey 2018 Background 5 Campbell R. Harvey 2018 June 2, 2016 Background 6 Campbell R. Harvey 2018 June 16, 2016 Background Decentralized Autonomous Organization June 17, 2016 The DAO attacked and user gained access to about $50 million of ETH Funds put in a 28-day holding period (as per the contract) Community debated what to do 7 Campbell R. Harvey 2018 https://en.wikipedia.org/wiki/The_DAO_(organization) Background 8 Campbell R. Harvey 2018 June 17, 2016 Mechanism How did it work? As an investor, you would call the smart contract, and send it ETH in exchange for DAO tokens. The token is just simply a way to vote, but it had value. However, this value was not close to the value of Ether but similar to any other ERC20 token’s value. The tokens were what you could use to vote on proposals. The more tokens you had, the more ETH you had committed, and the more say you had in voting. 9 Campbell R. Harvey 2018 https://www.sec.gov/news/press-release/2017-131 The Fork How did it close? When The DAO closed, all transactions were reverted from the hack, and all ether was returned to the original contract (and subsequently to initial investors). The contract itself stored ETH which it exchanged for tokens (to investors), thus, when the contract was hacked, the DAO lost most of its committed ETH. The loss of ETH was significant enough that the ETH core developer team decided to fork the chain instead of allow the hack (i.e., Eth-Classic and Ethereum chains). There was also a holding period of 28 days that the attacker had to wait before he could trade the funds, which is why