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Decentralized Autonomous Organization (DAO)

[Harvard University - World Book]

- Overview

A Decentralized Autonomous Organization (DAO) is an emerging form of legal structure that has no central governing body and whose members share a common goal of acting in the best interests of the entity. With the popularity of cryptocurrency enthusiasts and blockchain technology, DAOs are used to make decisions with a bottom-up management approach. 

A DAO is an entity structure in which token holders participate in the management and decision-making of the entity. DAOs have no central authority; instead, power is distributed among token holders who vote collectively. All votes and activity through the DAO are published on the blockchain, making all user actions publicly viewable. The first DAO, called The DAO, was an organization created by developers to automate decision-making and facilitate cryptocurrency transactions. DAOs must ensure security is a priority, as exploits could drain DAOs of millions of dollars in financial savings.


- Decentralized Autonomous Organization (DAO)

The first Decentralized Autonomous Organization (DAO), a hedge fund originally called "The DAO", runs on the Ethereum network. Depending on the amount of money they put into the joint venture (especially ether), members have varying amounts of voting power. 

When The DAO was hacked in 2016, extracting about $60 million worth of ether from the fund, members took a very different view of what to do and whether the hack constituted a "theft" Morphological position. One camp argues that the ill-gotten gains of bad actors exploiting software vulnerabilities should be returned to the rightful owners. Another camp believes that DAOs should avoid reversing fraudulent transactions, but simply fix the bug and keep the chain running. 

The group believes that "code is law" and "blockchains are immutable", so hackers act according to the code and there is nothing unethical about it. The former camp eventually won and established a "hard fork" that directed funds to recovery addresses where users could get their investment back, essentially rewriting the history of the blockchain. 


-  Juno Governance 

The second example is the controversy over Juno governance of another DAO. In February 2021, Juno conducted an "airdrop" (sending free tokens to community members to increase engagement) on its network. One wallet holder figured out how to play around with the system and received a large portion of the tokens, worth over $117 million at the time. 

In March 2022, a proposal was made to withdraw the majority of the "whale" tokens to an amount considered to be a fair share of the airdrop. A month later, the proposal officially passed with 72% of the vote, resulting in the withdrawal of all but 50,000 whale tokens. The whale threatened to sue Juno by claiming he was investing other people's money. 


[More to come ...]

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