Nouns DAO Loses $27 Million to Rogue Traders Exploiting Governance Loopholes

Nouns DAO lost over $27 million in crypto to a subset of dissenting investors who split off into their own fork. This was the culmination of months of infighting between two factions with opposing views.
The "fork" was designed as an escape hatch for dissenters and a defense against attackers. But savvy traders exploited it for profit instead of using it for its intended decentralization purposes.
The traders gradually bought up Nouns NFTs below their treasury value, anticipating they could later quit and redeem them at a higher price. This activist investing strategy levied steep costs on Nouns DAO.
The episode reveals potential downsides of decentralized governance if profit-driven actors can game the governance systems. It serves as a cautionary tale for other DAOs navigating internal dissent.
Observers say more nuanced DAO governance structures are needed to balance diverse interests without compromising long-term vision. This example shows the wisdom of the crowd is not always correct.

coindesk.com

Relevant topic timeline:

8/22/2023

Privacy Mixer Tornado Cash Is an Entity, Judge Says

A federal judge ruled that Tornado Cash, a cryptocurrency mixer, was properly designated by the U.S. Treasury Department, marking the second case where the existence of a decentralized autonomous organization (DAO) was used to justify regulatory enforcement action against a crypto entity.

9/6/2023

AI to reinvent DAOs while tokenized models will become valuable: VC firm

Artificial intelligence could bring true autonomy to decentralized autonomous organizations (DAOs) and tokenized AI models may become valuable assets on the blockchain, according to Vance Spencer, the co-founder of Framework Ventures. He also highlighted the potential of blockchain technology in decentralized computing marketplaces and auditing AI-provided information.

9/9/2023

NounsDAO Faces Split as Some Seek Higher Price; FTX Details Celebrity Deals; Politicians Embrace Crypto

NounsDAO is facing a treasury split as NFT holders seek to sell their tokens directly to the project's ether tokens for a better price, highlighting the challenges faced by DAOs when investors lose faith.

10/1/2023

Buterin Warns of DAOs Gaining Too Much Control Over ETH Staking, Urges Using Multiple Providers

Ethereum co-founder Vitalik Buterin proposes a solution to prevent decentralized autonomous organizations (DAOs) from exerting a monopoly over node operators in liquidity staking pools, citing the potential risks of malicious actors and the need for multiple providers to avoid systemic risk.

10/6/2023

Crypto Activists Score $2.5M Bounty After Campaigning FloorDAO to Split

FloorDAO, a finance-focused crypto group, has forked into two separate entities to distance itself from activist investors who had obtained a significant stake in the project, resulting in the creation of a splinter group called FloorkDAO and a rise in the value of FLOOR tokens. This incident highlights the growing trend of activist investors targeting DAOs to acquire governance tokens and influence decision-making through token accumulation.

10/7/2023

MakerDAO Proposes Backing Stablecoin with Uranium, Sparking Concerns Over Volatility and Regulation

Maker, a decentralized autonomous organization (DAO), is considering a proposal to add tokenized uranium as collateral to its protocol, aiming to democratize ownership and provide stability to a commodity that is growing in importance. The proposal has sparked both interest and skepticism within the crypto community.

Topics

Posted 9/21/2023, 9:22:00 PM