The Build Finance DAO was a decentralized autonomous organization (DAO), a venture based on blockchain technology. It was the subject of a 2022 hostile takeover by a member who amassed enough votes to pass a motion that allowed them to liquidate the DAO's cryptocurrency holdings and flood the market with new tokens.
History
editBuild Finance DAO was formed around September 2020. It was described as a "decentralized venture builder", designed around its BUILD token, that would fund new ventures.[1] The ventures funded by the DAO would adopt the BUILD token, helping popularize it.[2] As a DAO with token-based membership its decisions would be based on voting power.[1]
Takeover
editIn February 2022 a user amassed enough tokens to take over control of the DAO. The user then made a governance proposal which would allow it to issue new new tokens, which initially failed but succeeded on the second attempt[3]
The success of the proposal left the other members of the Build Finance DAO without any control of the governance of the DAO.[citation needed] The user then took a number of steps to liquidate the DAO's holdings and issued over 1 billion new BUILD tokens.[2] Their activities generated a gain of about 160 ETH, or about US$470,000, which were laundered through coin tumblers preventing identification of the user.[1][4]
Aftermath and Reaction
editAttempts to convince the user to return the funds were unsuccessful.[2]
The Build Finance hostile takeover has been cited as an example of the risks of majority-based voting on decentralized finance projects, and of the need to anticipate risks and attack vectors in designing DAOs.[5][4][6] One author suggested it highlights the need for quorum requirements.[7]
References
edit- ^ a b c Lee, Isabelle. "A crypto collective lost $470,000 after one individual amassed enough tokens to take control of the group's treasury". Markets Insider. Retrieved 2024-06-09.
- ^ a b c Jr, Edward Ongweso (2022-02-15). "Democratic DAO Suffers Coup, New Leader Steals Everything". Vice. Retrieved 2024-06-09.
- ^ "Combatting Illicit Activity Utilizing Financial Technologies and Cryptocurrencies: Phase II: A Focus on the Evolution of Digital Assets by Threat Actors and Organized Criminal Groups" (PDF). U.S. Department of Homeland Security. 2023.
- ^ a b "Decentralised Finance (DeFi): An Alternative Finance System?" (PDF). Morgan Stanley Reseach. Retrieved 2024-06-09.
- ^ van Vulpen, Paul; Siu, Jozef; Jansen, Slinger (2024-03-01). "Governance of decentralized autonomous organizations that produce open source software". Blockchain: Research and Applications. 5 (1): 100166. doi:10.1016/j.bcra.2023.100166. ISSN 2096-7209.
- ^ Kerckhoven, Sven Van; Chohan, Usman W. (2024-04-30). Decentralized Autonomous Organizations: Innovation and Vulnerability in the Digital Economy. Taylor & Francis. p. 93. ISBN 978-1-040-02611-3.
- ^ Lewis, Rhian (2023-04-03). Understanding Decentralized Finance: How DeFi Is Changing the Future of Money. Kogan Page Publishers. ISBN 978-1-3986-0938-9.