Book Sheds New Light on Ethereum’s $55 Million DAO Hack

If the biggest mystery in Bitcoin is Satoshi’s identity, Ethereum’s may be: Who was behind the DAO hack?  

Bloomberg News technology reporter Matthew Leising has devoted the better part of four years to answering that question. In his forthcoming book, “Out of the Ether: The Amazing Story of Ethereum and the $55 Million Heist That Almost Destroyed It All,” due out September 23, he lays out who he came to suspect.

The DAO hack was a June 2016 attack on the first Ethereum-based decentralized autonomous organization, which had raised $150 million in a crowdsale. An unknown attacker, or attackers, exploited a flaw in a smart contract and absconded with $50 million worth of ETH.

Out of the Ether cover. Image: Wiley

The DAO hack is a seminal moment in Ethereum history because it posed an existential threat to the network. Fallout from the hack led to the splitting of the network into the Ethereum Classic blockchain, where the illicit transactions remained in place, and the Ethereum blockchain, where they were essentially erased. 

Given the hack’s importance to the nascent currency, it makes sense that it provides the lens through which Leising can explain how Ethereum came to be the second-largest cryptocurrency.

“I just wanted to tell the big story of the early history, of course, because I’ve gotten to know a lot of the people,” Leising told Decrypt. “And they’re just a fascinating group of people.”

Building a better DAO

The book, then, is equal parts oral history and whodunnit, with Leising in the role of lead detective. Throughout the book, he follows a series of tips and clues that lead him to encrypted messages on the Ethereum blockchain, hastily drained exchange accounts, and, ultimately, a Japanese cryptocurrency broker with access to an exchange account involved in the heist. 

While in the book Leising describes the man’s explanations as a “dog-ate-my-homework excuse,” he told Decrypt, “I don’t have a smoking gun. I can’t say with any certainty that he did it. But he didn’t deny that that was his account.”

Instead, he said, he left it up to the reader to decide.

As ambiguous as that might feel, it’s actually not that important, just as learning the identity of Satoshi wouldn’t change that much for Bitcoin. It’s not even necessarily the top reason to read the book.

That reason would be the level of access Leising was able to secure, not just to talkative public figures like Vitalik Buterin and Joe Lubin, but to just about everyone involved in founding, accidentally endangering, or saving Ethereum.

“There’s a lot of people I spoke to, and everybody was really generous with me. Apart from a few people, like [eighth Ethereum co-founder] Jeff Wilcke and [former Ethereum Foundation Executive Director] Ming Chan, I spoke to everybody involved in the early days and in the Foundation and in [which coded The DAO].”

As for his attempt to find the Ether thief, Leising told Decrypt, “I sprinkled it throughout the book to keep people’s interest and try to explain in as easy a way as I could one of the craziest heists that’s ever happened.”

Which makes sense. After all, Leising said, “It just gets weirder and weirder and weirder the deeper you go. I tried to just bring people along and tell a good story.”

YFI surges more than 70x pushing governance limits

This is what radical community governance looks like.

yEarn Finance’s YFI token is one of the most interesting projects on Ethereum right now. In one week since it launched, it’s gone through a parabolic price increase, eye-popping returns for yield farmers, hundreds of millions deposited into the platform’s liquidity pools and —this is likely the most unique aspect— seven on-chain votes.

yEarn Finance is the first project on Ethereum, whose governance is entirely in the hands of token holders. While other teams like MakerDAO and Compound Finance give users the power to participate in major decisions via token-based voting, yEarn is different in that there is no foundation, early venture investors or management holding large stakes.

DeFi protocol Curve locks in more than $300 million on YFI hype

Earn It

YFI is distributed among those who supply liquidity for the yEarn platform and that’s the only primary market — there was no pre-sale or initial DEX offering. The system has worked out, with YFI up more than 70x in one week, climbing to almost $2,500, a record.

https3A2F2Fbucketeer e05bbc84 baa3 437e 9518 adb32be77984.s3.amazonaws.com2Fpublic2Fimages2Ff152cff2 34e2 4642 b247 f250d13265d1 555x357
Image source: CoinGecko

The “token for the people,” narrative coupled with yields of over 1,000% annually resulting from its program to incentivize liquidity (aka yield farming), have fostered an especially active community. Token holders have become so engaged in the platform, they’ve been proposing improvements and holding on-chain votes literally all week.

Proposal 0

Of the seven on-chain votes held so far, the first one, called Proposal 0, passed. This proposal was to decide whether YFI supply should be capped at its current total supply of 30,000 in perpetuity or if the protocol should retain the ability to mint additional tokens in the future. 61% of participants voted to allow for YFI minting beyond the 30,000 supply.

While 63% of token holders voted in Proposal 0, the next six on-chain votes didn’t meet the required 33% quorum, so they were declined.

https3A2F2Fbucketeer e05bbc84 baa3 437e 9518 adb32be77984.s3.amazonaws.com2Fpublic2Fimages2F32763170 2a3d 4adc 8cfa 46bdd8725169 933x597
Image source:

Ongoing Votes

There are six ongoing votes, with Proposal 10 attracting the most attention from token holders. Proposal 10 was made by Andrew Kang, an active crypto investor, who argues that only YFI token holders should be able to vote in yEarn’s governance. The current yEarn voting contract accepts BPT tokens, which are issued from depositing liquidity to yEarn’s Balancer Pool, of which YFI tokens represent just 2%. That means stablecoin holders’ are receiving a larger amount of voting shares than YFI holders.

“Governance should be dictated by those with the most vested long term interest of the protocol – YFI holders – irrespective of their portfolio composition,” Kang said in the proposal. “More importantly, the protocol is currently vulnerable to a hostile takeover of governance by stablecoin whales who could potentially pass a proposal to mint a large supply of YFI and disproportionately reward themselves (via favoring large stablecoin holders).”

The large majority of participants, or 99.6%, have voted in favor of the proposal. Still, with 21% of token voters participating, it’s below the quorum 22 hours before the vote ends.

DeFi Hero

yEarn’s governance left entirely in the hands of the community has elevated founder Andre Cronje to something close to a hero in the DeFi community. Cronje also gave up control over YFI issuance —which it solely held after launch to the concern of many— and put it in a multi-signature wallet, which requires 6 out of 9 participants to agree on changes. Cronje isn’t one of the signatories in the multisig.

It’s early to say whether this experiment works out. One question to look out for is whether YFI’s token holders’ interests will match the sustainability of yEarn platform, or will they privilege short term profits over long-term health.

[This story was written and edited by our friends at The Defiant, and also appeared in its daily email. The content platform focuses on decentralized finance and the open economy and is sharing stories we think will interest our readers. You can subscribe to it here.]