Finance:Build Finance DAO
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
Build 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
In 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 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.[4] 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][5]
Aftermath
Attempts to convince the user to return the funds were unsuccessful.[2]
The Build Finance hostile takeover has been described as a rare example of a "rug pull" which was not initiated by insiders,[4] and an illustration of the risks of majority-based voting on decentralized finance projects, and of the need to anticipate risks and attack vectors in designing DAOs.[6][5][4] One author suggested it highlights a need for quorum requirements.[7]
References
- ↑ 1.0 1.1 1.2 Lee, Isabelle. "A crypto collective lost $470,000 after one individual amassed enough tokens to take control of the group's treasury" (in en-US). https://markets.businessinsider.com/news/currencies/build-finance-dao-treasury-discord-crypto-build-token-metric-2022-2.
- ↑ 2.0 2.1 2.2 Jr, Edward Ongweso (2022-02-15). "Democratic DAO Suffers Coup, New Leader Steals Everything" (in en). https://www.vice.com/en/article/democratic-dao-suffers-coup-new-leader-steals-everything/.
- ↑ "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". 2023. https://www.dhs.gov/sites/default/files/2023-09/08.%20Combatting%20Illicit%20Activity%20Phase%202_508_0.pdf.
- ↑ 4.0 4.1 4.2 Kerckhoven, Sven Van; Chohan, Usman W. (2024-04-30) (in en). Decentralized Autonomous Organizations: Innovation and Vulnerability in the Digital Economy. Taylor & Francis. p. 93. ISBN 978-1-040-02611-3. https://books.google.com/books?id=d1YIEQAAQBAJ&dq=%22build+finance+DAO%22&pg=PA139.
- ↑ 5.0 5.1 "Decentralised Finance (DeFi): An Alternative Finance System?". https://advisor.morganstanley.com/brian.cumberland/documents/field/b/br/brian-cumberland/MSEU20211117638089.pdf.
- ↑ 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). doi:10.1016/j.bcra.2023.100166. ISSN 2096-7209. https://www.sciencedirect.com/science/article/pii/S2096720923000416.
- ↑ Lewis, Rhian (2023-04-03) (in en). Understanding Decentralized Finance: How DeFi Is Changing the Future of Money. Kogan Page Publishers. ISBN 978-1-3986-0938-9. https://books.google.com/books?id=-9yzEAAAQBAJ&dq=%22build+finance+DAO%22&pg=PA146.
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