The DAO was a digital decentralized autonomous organization and a form of investor-oriented venture capital fund.
The goal of the DAO was to create a new decentralized business model for the arrangement of both commercial and non-profit enterprises.
The DAO had an open-source code. Blockchain transactions, protected timestamp and distributed database technologies enabled the DAO to arrange a safe register for accounting contracts, acts and records that record the right of ownership (or the right of vote) of a certain part of the organization.
The DAO computer code was written by Christoph Jentzsch.
The DAO was stateless and not associated with any particular state. This is why the issues of fund regulation as well as its legal status were controversial.
On June 17, 2016 the DAO was subjected to an attack provoked by the vulnerability in one of the smart contracts, thus allowing the users to gain control over one third of company`s funds. The stolen Ether had a value of about U.S. $50 million at the time of the attack.
On July 20, 2016, the Ethereum community made a decision to hard fork the Ethereum blockchain and create a new blockchain to restore virtually all funds to the original contract. It resulted in a fork in Ethereum, where the original unforked blockchain was maintained as Ethereum Classic what led to breaking Ethereum into two separate active block chains, each with its own crypto currency.
The DAO was ejected from trading on major exchanges such as Poloniex and Kraken at the end of 2016.
The DAO was a digital decentralized autonomous organization existing as in the form of contracts between users of Ethereum block chain. It didn`t have a physical address, nor people acting as formal management. The initial theory underlying the DAO was that by removing delegated power from directors and placing it directly in the hands of owners the DAO removed the ability of directors and fund managers to misdirect and waste investor funds. As a blockchain organization, the DAO claimed to be completely transparent: all transactions were done by using the code, which anyone could see and audit. However, the complexity of the code base and the rapid deployment of the DAO meant that the intended behavior of the organization and its actual behavior were quite different that couldn`t but provoke the attack.
The DAO was intended to operate as a “hub” that divides funds among projects. Investors could vote on proposals submitted by “contractors” and a group of volunteers called “curators” were checking the identity of people who submitted proposals and making sure the projects were not illegal. The profits from the investments would then flow back to the parties concerned.
The DAO did not hold the money of investors. Instead, the investors owned DAO tokens that gave them the right to vote on potential projects. Anyone could withdraw their funds until they voted for the first time.
The DAO’s reliance on Ethereum allowed people sending their money to different projects from any part of the world with no need for providing any identifying information.
In order to provide an interface with actual legal structures, the DAO founders established a Swiss company, DAO.Link, and digital currency exchange that were based in Neuchatel. According to Jentzsch, DAO.Link is based in Switzerland as Swiss law allows it to “take money from an unknown source”.
In May 2016, TechCrunch described the DAO as “a paradigm shift in the very idea of economic organization. It offers complete transparency, total shareholder control, unprecedented flexibility, and autonomous governance”.
On July 25, 2017, the U. S. Stock and Exchange Commission issued a report on ICO and the DAO in an attempt to examine whether the DAO and associated entities and individuals violated federal securities laws with unregistered offers and sales of DAO Tokens in exchange for “a virtual currency”. The SEC made a conclusion that DAO tokens sold on the Ethereum blockchain were securities and therefore transactions involving their usage violated U.S. securities laws.