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Decentralized Autonomous Organization (DAO) Definition

What Was the Decentralized Autonomous Group (DAO)?

One of many main options of digital currencies is that they’re decentralized. This implies they don’t seem to be managed by a single establishment like a authorities or central financial institution, however as an alternative are divided amongst a wide range of computer systems, networks, and nodes. In lots of instances, digital currencies make use of this decentralized standing to realize ranges of privateness and safety which can be usually unavailable to plain currencies and their transactions.

Impressed by the decentralization of cryptocurrencies, a gaggle of builders got here up with the thought for a decentralized autonomous group, or DAO, in 2016.

Key Takeaways

  • The DAO was a corporation created by builders to automate choices and facilitate cryptocurrency transactions.
  • In June 2016, as a consequence of programming errors and assault vectors, hackers attacked the DAO, accessing 3.6 million ETH.
  • Digital alternate currencies de-listed the DAO token in September 2016.

Understanding the Decentralized Autonomous Group (DAO)

The DAO was a corporation that was designed to be automated and decentralized. It acted as a type of venture capital fund, primarily based on open-source code and with no typical administration construction or board of administrators. To be totally decentralized, the DAO was unaffiliated with any specific nation-state, although it made use of the ethereum community. 

Why make a corporation just like the DAO? The builders of the DAO believed they may remove human error or manipulation of investor funds by putting decision-making energy into the arms of an automatic system and a crowdsourced course of. Fueled by ether, the DAO was designed to permit traders to ship cash from anyplace on the planet anonymously. The DAO would then present these house owners tokens, permitting them voting rights on attainable tasks.

The DAO launched in late April 2016 due to a month-long crowdsale of tokens that raised greater than $150 million in funds. On the time, the launch was the most important crowdfunding fundraising marketing campaign of all time.

Criticisms of the DAO

By Might 2016, the DAO held an enormous share of all ether tokens that had been issued as much as that time (as much as 14%, based on reporting by The Economist). At roughly the identical time, nonetheless, a paper was printed which addressed a number of potential safety vulnerabilities, cautioning traders from voting on future funding tasks till these points had been resolved.

Later, in June 2016, hackers attacked the DAO primarily based on these vulnerabilities. The hackers gained entry to three.6 million ETH, price about $50 million on the time. This prompted an enormous and contentious argument amongst DAO traders, with some people suggesting numerous methods of addressing the hack and others calling for the DAO to be completely disbanded. This incident additionally figured prominently within the arduous forking of ethereum that came about shortly thereafter.

In line with IEEE Spectrum, the DAO was susceptible to programming errors and assault vectors. The truth that the group was charting new territory when it comes to regulation and company regulation probably didn’t make the method any simpler. The ramifications of the construction of the group have been probably quite a few: traders have been involved that they might be held responsible for actions taken by the DAO as a broader group.

The DAO operated in murky territory about whether or not or not it was promoting securities, as effectively. Additional, there have been long-standing points concerning the best way that the DAO would operate in the true world. Traders and contractors alike wanted to transform ETH into fiat currencies, and this might have impacted the worth of ether.

Following the contentious argument over the DAO’s future and the huge hacking incident of earlier in the summertime, in September 2016, a number of outstanding digital currency exchanges de-listed the DAO token, marking the efficient finish for the DAO because it was initially envisioned.

In July 2017, the Securities and Trade Fee (SEC) issued a report, which decided that the DAO offered securities within the type of tokens on the ethereum blockchain, violating parts of US securities regulation.

Way forward for the DAO

What does the long run maintain for the DAO? The DAO as initially envisioned had not returned as of mid-2020. Nonetheless, curiosity in decentralized autonomous organizations as a broader group continues to develop. In 2021, The Maker Basis, an icon within the crypto business as the unique champion of DAO, introduced that it was formally turning operations over to MakerDAO (creator of the DAI stablecoin) and would dissolve by the top of the yr.

Whereas there are numerous lingering considerations and potential points concerning legality, safety, and construction, some analysts and traders consider that any such group will finally come to prominence, even perhaps changing historically structured companies.


The favored digital currency Dash is an instance of a decentralized autonomous group due to the best way it’s ruled and the best way its budgeting system is structured. It could solely be a matter of time earlier than further DAOs enter the sector.

Investing in cryptocurrencies and different Preliminary Coin Choices (“ICOs”) is very dangerous and speculative, and this text just isn’t a advice by Investopedia or the author to spend money on cryptocurrencies or different ICOs. Since every particular person’s state of affairs is exclusive, a professional skilled ought to at all times be consulted earlier than making any monetary choices. Investopedia makes no representations or warranties as to the accuracy or timeliness of the knowledge contained herein. As of the date that this text was written, the creator owns cryptocurrencies.

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