The DAO

When discussing DAOs, one of the best case studies is unfortunately also one of the worst. The DAO was a venture fund, constructed as a smart contract on the Ethereum blockchain. It raised the equivalent of $150 million during its initial token offering.

The idea was that anyone could pitch an idea to The DAO, and the token holders would vote to implement it or not. If the vote went in favor of the pitcher, the smart contract underpinning The DAO would automatically execute the transfer of funds. The incentive for token holders was that they would get a share of the profits from successful projects.

However, using a vulnerability in the smart contract code itself, a hacker managed to find a way to drain funds from The DAO, siphoning off the equivalent of $70 million in ETH tokens. The Ethereum community ultimately voted to save the day by reversing the transaction. However, after this incident and an unfavorable SEC ruling, The DAO folded.

Despite this particular story having a negative ending, it illustrates very well the principles of a DAO and the use of smart contracts in governance. The case for smart contracts and DAOs in a blockchain context remains compelling. After all, there have been various data breaches by private companies over recent years, for example, Equifax or more recently, Marriott Hotels.

However, these kinds of data breaches don’t destroy faith in using the internet for transactions. There are many examples of smart contracts working successfully in practice. Websites like State of the Dapps show lists of all the applications successfully running smart contracts on platforms including Ethereum, EOS, and Tron. One of the most well-used is MakerDAO, a project using smart contracts for governance in its stable coin system.