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. The ventures funded by the DAO would adopt the BUILD token, helping popularize it.{{Cite web |last=Jr |first=Edward Ongweso |date=2022-02-15 |title=Democratic DAO Suffers Coup, New Leader Steals Everything |url=https://www.vice.com/en/article/democratic-dao-suffers-coup-new-leader-steals-everything/ |access-date=2024-06-09 |website=Vice |language=en}} As a DAO with token-based membership its decisions would be based on voting power.{{Cite web |last=Lee |first=Isabelle |title=A crypto collective lost $470,000 after one individual amassed enough tokens to take control of the group's treasury |url=https://markets.businessinsider.com/news/currencies/build-finance-dao-treasury-discord-crypto-build-token-metric-2022-2 |access-date=2024-06-09 |website=Markets Insider |language=en-US}}
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.{{Cite web |date=2023 |title=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 |url=https://www.dhs.gov/sites/default/files/2023-09/08.%20Combatting%20Illicit%20Activity%20Phase%202_508_0.pdf |website=U.S. Department of Homeland Security}}
The success of the proposal left the other members of the Build Finance DAO without any control of the governance of the DAO. The user then took a number of steps to liquidate the DAO's holdings and issued over 1 billion new BUILD tokens. 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.{{Cite web |title=Decentralised Finance (DeFi): An Alternative Finance System? |url=https://advisor.morganstanley.com/brian.cumberland/documents/field/b/br/brian-cumberland/MSEU20211117638089.pdf |access-date=2024-06-09 |website=Morgan Stanley Research}}
Aftermath
Attempts to convince the user to return the funds were unsuccessful.
The Build Finance hostile takeover has been described as a rare example of a "rug pull" which was not initiated by insiders, 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.{{Cite journal |last1=van Vulpen |first1=Paul |last2=Siu |first2=Jozef |last3=Jansen |first3=Slinger |date=2024-03-01 |title=Governance of decentralized autonomous organizations that produce open source software |url=https://www.sciencedirect.com/science/article/pii/S2096720923000416 |journal=Blockchain: Research and Applications |volume=5 |issue=1 |pages=100166 |doi=10.1016/j.bcra.2023.100166 |issn=2096-7209}}{{Cite book |last1=Kerckhoven |first1=Sven Van |url=https://books.google.com/books?id=d1YIEQAAQBAJ&dq=%22build+finance+DAO%22&pg=PA139 |title=Decentralized Autonomous Organizations: Innovation and Vulnerability in the Digital Economy |last2=Chohan |first2=Usman W. |date=2024-04-30 |publisher=Taylor & Francis |isbn=978-1-040-02611-3 |pages=93 |language=en}} One author suggested it highlights a need for quorum requirements.{{Cite book |last=Lewis |first=Rhian |url=https://books.google.com/books?id=-9yzEAAAQBAJ&dq=%22build+finance+DAO%22&pg=PA146 |title=Understanding Decentralized Finance: How DeFi Is Changing the Future of Money |date=2023-04-03 |publisher=Kogan Page Publishers |isbn=978-1-3986-0938-9 |language=en}}