<s>
The	B-Protocol
DAO	I-Protocol
was	O
a	O
digital	O
decentralized	B-Operating_System
autonomous	I-Operating_System
organization	I-Operating_System
and	O
a	O
form	O
of	O
investor-directed	O
venture	O
capital	O
fund	O
.	O
</s>
<s>
After	O
launching	O
in	O
April	O
2016	O
via	O
a	O
token	B-Application
sale	I-Application
,	O
it	O
became	O
one	O
of	O
the	O
largest	O
crowdfunding	O
campaigns	O
in	O
history	O
.	O
</s>
<s>
The	B-Protocol
DAO	I-Protocol
had	O
an	O
objective	O
to	O
provide	O
a	O
new	O
decentralized	O
business	O
model	O
for	O
organizing	O
both	O
commercial	O
and	O
non-profit	O
enterprises	O
.	O
</s>
<s>
It	O
was	O
instantiated	O
on	O
the	O
Ethereum	B-Application
blockchain	B-Application
and	O
had	O
no	O
conventional	O
management	O
structure	O
or	O
board	O
of	O
directors	O
.	O
</s>
<s>
The	O
code	O
of	O
the	B-Protocol
DAO	I-Protocol
is	O
open-source	B-Application
.	O
</s>
<s>
In	O
June	O
2016	O
,	O
users	O
exploited	O
a	O
vulnerability	O
in	O
The	B-Protocol
DAO	I-Protocol
code	O
to	O
enable	O
them	O
to	O
siphon	O
off	O
one-third	O
of	O
The	B-Protocol
DAO	I-Protocol
's	O
funds	O
to	O
a	O
subsidiary	O
account	O
.	O
</s>
<s>
The	O
Ethereum	B-Application
community	O
controversially	O
decided	O
to	O
hard-fork	O
the	O
Ethereum	B-Application
blockchain	B-Application
to	O
restore	O
approximately	O
all	O
funds	O
to	O
the	O
original	O
contract	O
.	O
</s>
<s>
This	O
split	O
the	O
Ethereum	B-Application
blockchain	B-Application
into	O
two	O
branches	O
,	O
each	O
with	O
its	O
own	O
cryptocurrency	O
,	O
where	O
the	O
original	O
unforked	O
blockchain	B-Application
continued	O
as	O
Ethereum	B-Protocol
Classic	I-Protocol
.	O
</s>
<s>
By	O
September	O
2016	O
,	O
the	O
value	O
token	O
of	O
The	B-Protocol
DAO	I-Protocol
,	O
known	O
by	O
the	O
moniker	O
DAO	O
,	O
was	O
delisted	O
from	O
major	O
cryptocurrency	O
exchanges	O
(	O
such	O
as	O
Poloniex	O
and	O
Kraken	O
)	O
and	O
had	O
,	O
in	O
effect	O
,	O
become	O
defunct	O
.	O
</s>
<s>
The	O
open	B-Application
source	I-Application
computer	O
code	O
behind	O
the	O
organization	O
was	O
written	O
principally	O
by	O
Christoph	O
Jentzsch	O
,	O
and	O
released	O
publicly	O
on	O
GitHub	B-Application
,	O
where	O
other	O
contributors	O
added	O
to	O
and	O
modified	O
the	O
code	O
.	O
</s>
<s>
The	B-Protocol
DAO	I-Protocol
was	O
launched	O
on	O
30	O
April	O
2016	O
at	O
01:42:58	O
AM	O
+UTC	O
on	O
Ethereum	B-Application
Block	O
1428757	O
,	O
with	O
a	O
website	O
and	O
a	O
28-day	O
crowdsale	O
to	O
fund	O
the	O
organization	O
.	O
</s>
<s>
The	O
token	B-Application
sale	I-Application
had	O
raised	O
more	O
than	O
by	O
10	O
May	O
2016	O
,	O
and	O
more	O
than	O
-worth	O
of	O
Ether	B-Application
(	O
ETH	B-Application
)	O
—	O
the	O
digital	O
value	O
token	O
of	O
the	O
Ethereum	B-Application
network	O
—	O
by	O
12	O
May	O
,	O
and	O
over	O
by	O
15	O
May	O
2016	O
.	O
</s>
<s>
On	O
17	O
May	O
2016	O
,	O
the	O
largest	O
investor	O
in	O
the	B-Protocol
DAO	I-Protocol
held	O
less	O
than	O
4%	O
of	O
all	O
DAO	O
tokens	O
and	O
the	O
top	O
100	O
holders	O
held	O
just	O
over	O
46%	O
of	O
all	O
DAO	O
tokens	O
.	O
</s>
<s>
The	O
fund	O
's	O
Ether	B-Application
value	O
was	O
more	O
than	O
,	O
from	O
more	O
than	O
11,000	O
investors	O
.	O
</s>
<s>
As	O
of	O
May	O
2016	O
,	O
The	B-Protocol
DAO	I-Protocol
had	O
attracted	O
nearly	O
14%	O
of	O
all	O
Ether	B-Application
tokens	O
issued	O
to	O
date	O
.	O
</s>
<s>
On	O
28	O
May	O
2016	O
the	B-Protocol
DAO	I-Protocol
tokens	O
became	O
tradable	O
on	O
various	O
cryptocurrency	O
exchanges	O
.	O
</s>
<s>
A	O
paper	O
published	O
in	O
May	O
2016	O
noted	O
a	O
number	O
of	O
security	O
vulnerabilities	O
associated	O
with	O
The	B-Protocol
DAO	I-Protocol
and	O
recommended	O
that	O
investors	O
in	O
The	B-Protocol
DAO	I-Protocol
hold	O
off	O
from	O
directing	O
The	B-Protocol
DAO	I-Protocol
to	O
invest	O
in	O
projects	O
until	O
the	O
problems	O
had	O
been	O
resolved	O
.	O
</s>
<s>
An	O
Ethereum	B-Application
developer	O
on	O
GitHub	B-Application
pointed	O
out	O
a	O
flaw	O
relating	O
to	O
"	O
recursive	O
calls	O
"	O
.	O
</s>
<s>
On	O
June	O
9	O
it	O
was	O
blogged	O
about	O
by	O
Peter	O
Vessenes	O
,	O
founder	O
of	O
the	O
Blockchain	B-Application
Foundation	O
.	O
</s>
<s>
By	O
June	O
14	O
,	O
fixes	O
had	O
been	O
proposed	O
and	O
were	O
awaiting	O
approval	O
by	O
members	O
of	O
The	B-Protocol
DAO	I-Protocol
.	O
</s>
<s>
On	O
June	O
16	O
,	O
further	O
attention	O
was	O
called	O
to	O
recursive	O
call	O
vulnerabilities	O
by	O
bloggers	O
affiliated	O
with	O
the	O
Initiative	O
for	O
CryptoCurrencies	O
&	O
Contracts	B-Application
(	O
IC3	O
)	O
.	O
</s>
<s>
On	O
June	O
17	O
,	O
2016	O
,	O
the	B-Protocol
DAO	I-Protocol
was	O
subjected	O
to	O
an	O
attack	O
exploiting	O
a	O
combination	O
of	O
vulnerabilities	O
,	O
including	O
the	O
one	O
concerning	O
recursive	O
calls	O
,	O
that	O
resulted	O
in	O
the	O
transfer	O
of	O
3.6	O
million	O
Ether	B-Application
-	O
around	O
a	O
third	O
of	O
the	O
11.5	O
million	O
Ether	B-Application
that	O
had	O
been	O
committed	O
to	O
The	B-Protocol
DAO	I-Protocol
-	O
valued	O
at	O
the	O
time	O
at	O
around	O
$50M	O
.	O
</s>
<s>
The	O
funds	O
were	O
moved	O
into	O
an	O
account	O
subject	O
to	O
a	O
28-day	O
holding	O
period	O
under	O
the	O
terms	O
of	O
the	O
Ethereum	B-Application
smart	B-Application
contract	I-Application
so	O
were	O
not	O
actually	O
gone	O
.	O
</s>
<s>
Members	O
of	O
The	B-Protocol
DAO	I-Protocol
and	O
the	O
Ethereum	B-Application
community	O
debated	O
what	O
to	O
do	O
next	O
,	O
with	O
some	O
calling	O
the	O
attack	O
a	O
valid	O
but	O
unethical	O
maneuver	O
,	O
others	O
calling	O
for	O
the	O
Ether	B-Application
to	O
be	O
re-appropriated	O
,	O
and	O
some	O
calling	O
for	O
The	B-Protocol
DAO	I-Protocol
to	O
be	O
shut	O
down	O
.	O
</s>
<s>
Eventually	O
on	O
July	O
20	O
,	O
2016	O
,	O
the	O
Ethereum	B-Application
network	O
was	O
hard	O
forked	O
to	O
move	O
the	O
funds	O
in	O
The	B-Protocol
DAO	I-Protocol
to	O
a	O
recovery	O
address	O
where	O
they	O
could	O
be	O
exchanged	O
back	O
to	O
Ethereum	B-Application
by	O
their	O
original	O
owners	O
.	O
</s>
<s>
However	O
,	O
some	O
continued	O
to	O
use	O
the	O
original	O
unforked	O
Ethereum	B-Application
blockchain	B-Application
,	O
now	O
called	O
Ethereum	B-Protocol
Classic	I-Protocol
.	O
</s>
<s>
The	B-Protocol
DAO	I-Protocol
was	O
a	O
decentralized	B-Operating_System
autonomous	I-Operating_System
organization	I-Operating_System
that	O
exists	O
as	O
a	O
set	O
of	O
contracts	B-Application
that	O
resides	O
on	O
the	O
Ethereum	B-Application
blockchain	B-Application
;	O
</s>
<s>
The	O
original	O
theory	O
underlying	O
the	B-Protocol
DAO	I-Protocol
was	O
that	O
by	O
removing	O
delegated	O
power	O
from	O
directors	O
and	O
placing	O
it	O
directly	O
in	O
the	O
hands	O
of	O
owners	O
,	O
the	B-Protocol
DAO	I-Protocol
removed	O
the	O
ability	O
of	O
directors	O
and	O
fund	O
managers	O
to	O
misdirect	O
and	O
waste	O
investor	O
funds	O
.	O
</s>
<s>
As	O
a	O
blockchain-enabled	O
organization	O
,	O
The	B-Protocol
DAO	I-Protocol
claimed	O
to	O
be	O
completely	O
transparent	O
:	O
everything	O
was	O
done	O
by	O
the	O
code	O
,	O
which	O
anyone	O
could	O
see	O
and	O
audit	O
.	O
</s>
<s>
However	O
,	O
the	O
complexity	O
of	O
the	O
code	O
base	O
and	O
the	O
rapid	O
deployment	O
of	O
the	B-Protocol
DAO	I-Protocol
meant	O
that	O
the	O
intended	O
behavior	O
of	O
the	O
organization	O
and	O
its	O
actual	O
behavior	O
differed	O
in	O
serious	O
ways	O
that	O
were	O
n't	O
apparent	O
until	O
after	O
the	O
attack	O
occurred	O
.	O
</s>
<s>
The	B-Protocol
DAO	I-Protocol
was	O
intended	O
to	O
operate	O
as	O
"	O
a	O
hub	O
that	O
disperses	O
funds	O
(	O
currently	O
in	O
Ether	B-Application
,	O
the	O
Ethereum	B-Application
value	O
token	O
)	O
to	O
projects	O
"	O
.	O
</s>
<s>
The	B-Protocol
DAO	I-Protocol
did	O
not	O
hold	O
the	O
money	O
of	O
investors	O
;	O
instead	O
,	O
the	O
investors	O
owned	O
DAO	O
tokens	O
that	O
gave	O
them	O
rights	O
to	O
vote	O
on	O
potential	O
projects	O
.	O
</s>
<s>
The	B-Protocol
DAO	I-Protocol
's	O
reliance	O
on	O
Ether	B-Application
allowed	O
people	O
to	O
send	O
their	O
money	O
to	O
it	O
from	O
anywhere	O
in	O
the	O
world	O
without	O
providing	O
any	O
identifying	O
information	O
.	O
</s>
<s>
In	O
order	O
to	O
provide	O
an	O
interface	O
with	O
real-world	O
legal	O
structures	O
,	O
the	O
founders	O
of	O
The	B-Protocol
DAO	I-Protocol
established	O
a	O
Swiss-based	O
company	O
,	O
DAO	O
.	O
</s>
<s>
Link	O
,	O
registered	O
as	O
a	O
Société	O
à	O
responsabilité	O
limitée	O
(	O
SARL	O
)	O
in	O
Switzerland	B-Protocol
,	O
apparently	O
co-founded	O
by	O
Slock.it	O
and	O
Neuchatel-based	O
digital	O
currency	O
exchange	O
Bity	O
SA	O
.	O
</s>
<s>
Link	O
was	O
in	O
Switzerland	B-Protocol
because	O
Swiss	B-Protocol
law	O
allowed	O
it	O
to	O
"	O
take	O
money	O
from	O
an	O
unknown	O
source	O
as	O
long	O
as	O
you	O
know	O
where	O
it	O
's	O
going.	O
"	O
</s>
<s>
In	O
May	O
2016	O
,	O
TechCrunch	O
described	O
The	B-Protocol
DAO	I-Protocol
as	O
"	O
a	O
paradigm	O
shift	O
in	O
the	O
very	O
idea	O
of	O
economic	O
organization	O
.	O
</s>
<s>
In	O
May	O
2016	O
,	O
the	O
plan	O
called	O
for	O
The	B-Protocol
DAO	I-Protocol
to	O
invest	O
Ether	B-Application
into	O
ventures	O
.	O
</s>
<s>
The	O
organizers	O
promoted	O
the	B-Protocol
DAO	I-Protocol
as	O
providing	O
investors	O
with	O
a	O
return	O
on	O
their	O
investment	O
via	O
those	O
"	O
clear	O
payment	O
terms	O
"	O
and	O
they	O
warned	O
investors	O
that	O
there	O
was	O
a	O
"	O
significant	O
risk	O
"	O
that	O
the	O
ventures	O
funded	O
by	O
them	O
may	O
fail	O
.	O
</s>
<s>
Risks	O
included	O
unknown	O
attack	O
vectors	O
and	O
programming	B-Error_Name
errors	I-Error_Name
.	O
</s>
<s>
Additional	O
risks	O
included	O
the	O
lack	O
of	O
precedence	O
in	O
regulatory	O
and	O
corporate	O
law	O
;	O
it	O
was	O
unknown	O
how	O
governments	O
and	O
their	O
regulatory	O
agencies	O
would	O
treat	O
The	B-Protocol
DAO	I-Protocol
and	O
the	O
contracts	B-Application
it	O
made	O
.	O
</s>
<s>
There	O
was	O
also	O
a	O
risk	O
that	O
there	O
would	O
be	O
no	O
corporate	O
veil	O
protecting	O
investors	O
from	O
individual	O
legal	O
and	O
financial	O
liability	O
for	O
actions	O
taken	O
by	O
The	B-Protocol
DAO	I-Protocol
and	O
by	O
contractors	O
in	O
which	O
they	O
have	O
invested	O
.	O
</s>
<s>
It	O
was	O
unclear	O
if	O
the	B-Protocol
DAO	I-Protocol
was	O
selling	O
securities	O
,	O
and	O
if	O
it	O
was	O
,	O
what	O
type	O
of	O
securities	O
those	O
might	O
be	O
.	O
</s>
<s>
Additionally	O
,	O
to	O
function	O
in	O
the	O
real	O
world	O
,	O
contractors	O
would	O
likely	O
need	O
to	O
convert	O
the	O
invested	O
Ether	B-Application
into	O
real-world	O
currencies	O
.	O
</s>
<s>
In	O
May	O
2016	O
,	O
attorney	O
Andrew	O
Hinkes	O
said	O
that	O
those	O
sales	O
of	O
Ether	B-Application
would	O
be	O
likely	O
to	O
depress	O
the	O
value	O
of	O
Ether	B-Application
.	O
</s>
<s>
The	O
code	O
behind	O
the	B-Protocol
DAO	I-Protocol
had	O
several	O
safeguards	O
that	O
aimed	O
to	O
prevent	O
its	O
creators	O
or	O
anyone	O
else	O
from	O
mechanically	O
gaming	O
the	O
voting	O
of	O
shareholders	O
to	O
win	O
investments	O
.	O
</s>
<s>
Slock.it	O
(	O
a	O
German	O
Blockchain	B-Application
venture	O
)	O
,	O
and	O
Mobotiq	O
(	O
a	O
French	O
electric	O
vehicle	O
start-up	O
)	O
were	O
listed	O
as	O
seeking	O
potential	O
funding	O
on	O
the	O
daohub.org	O
website	O
during	O
the	O
May	O
"	O
creation	O
period	O
"	O
.	O
</s>
<s>
On	O
25	O
July	O
2017	O
,	O
the	O
U.S.	O
Securities	O
and	O
Exchange	O
Commission	O
published	O
a	O
report	O
on	O
initial	B-Application
coin	I-Application
offerings	I-Application
(	O
ICOs	O
)	O
and	O
The	B-Protocol
DAO	I-Protocol
,	O
examining	O
"	O
whether	O
The	B-Protocol
DAO	I-Protocol
and	O
associated	O
entities	O
and	O
individuals	O
violated	O
federal	O
securities	O
laws	O
with	O
unregistered	O
offers	O
and	O
sales	O
of	O
DAO	O
Tokens	O
in	O
exchange	O
for	O
'	O
Ether	B-Application
,	O
'	O
a	O
virtual	O
currency.	O
"	O
</s>
<s>
The	O
SEC	O
concluded	O
that	O
DAO	O
tokens	O
sold	O
on	O
the	O
Ethereum	B-Application
blockchain	B-Application
were	O
securities	O
and	O
therefore	O
possible	O
violations	O
of	O
U.S.	O
securities	O
laws	O
.	O
</s>
