1. Campbell R. Harvey Duke University and NBER
Innovation and Cryptoventures
The DAO
Campbell R. Harvey
Duke University and NBER
January 25, 2018

2. Campbell R. Harvey 2018

3. Background Decentralized Autonomous Organization
Purpose: Venture Capital Fund for blockchain based investment 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
Campbell R. Harvey 2018

4. Background Decentralized Autonomous Organization
Launched April 30, 2016 on Ethereum block 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
Campbell R. Harvey 2018

5. Background
June 2, 2016
Campbell R. Harvey 2018

6. Background
June 16, 2016
Campbell R. Harvey 2018

7. 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
Campbell R. Harvey 2018

8. Background
June 17, 2016
Campbell R. Harvey 2018

9. 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 had value,. However, this value was not close to the value of Ether but rather similar 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.
Campbell R. Harvey 2018

10. 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 there was time for the core-team to decide a course of action.
Campbell R. Harvey 2018

11. Is it a Security? Decentralized Autonomous Organization
July 26, 2016 The SEC rules that DAO tokens were “securities” subject to federal securities laws.
…issuers of distributed ledger or blockchain technology-based securities must register offers and sales of such securities unless a valid exemption applies. Those participating in unregistered offerings also may be liable for violations of the securities laws. Additionally, securities exchanges providing for trading in these securities must register unless they are exempt. The purpose of the registration provisions of the federal securities laws is to ensure that investors are sold investments that include all the proper disclosures and are subject to regulatory scrutiny for investors' protection.
Campbell R. Harvey 2018