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

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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.[1] The ventures funded by the DAO would adopt the BUILD token, helping popularize it.[2] As a DAO with token-based membership its decisions would be based on voting power.[1]

## Takeover

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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.[3]

The success of the proposal left the other members of the Build Finance DAO without any control of the governance of the DAO.[4] The user then took a number of steps to liquidate the DAO's holdings and issued over 1 billion new BUILD tokens.[2] 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.[1][5]

## Aftermath

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Attempts to convince the user to return the funds were unsuccessful.[2]

The Build Finance hostile takeover has been described as a rare example of a "rug pull" which was not initiated by insiders,[4] 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.[6][5][4] One author suggested it highlights a need for quorum requirements.[7]

## References

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1. ^ a b c Lee, Isabelle. "A crypto collective lost $470,000 after one individual amassed enough tokens to take control of the group's treasury". Markets Insider. Retrieved 2024-06-09.
2. ^ a b c Jr, Edward Ongweso (2022-02-15). "Democratic DAO Suffers Coup, New Leader Steals Everything". Vice. Retrieved 2024-06-09.
3. ^ "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" (PDF). U.S. Department of Homeland Security. 2023.
4. ^ a b c Kerckhoven, Sven Van; Chohan, Usman W. (2024-04-30). Decentralized Autonomous Organizations: Innovation and Vulnerability in the Digital Economy. Taylor & Francis. p. 93\. ISBN 978-1-040-02611-3.
5. ^ a b "Decentralised Finance (DeFi): An Alternative Finance System?" (PDF). Morgan Stanley Research. Retrieved 2024-06-09.
6. ^ van Vulpen, Paul; Siu, Jozef; Jansen, Slinger (2024-03-01). "Governance of decentralized autonomous organizations that produce open source software". Blockchain: Research and Applications. 5 (1): 100166. doi:10.1016/j.bcra.2023.100166. ISSN 2096-7209.
7. ^ Lewis, Rhian (2023-04-03). Understanding Decentralized Finance: How DeFi Is Changing the Future of Money. Kogan Page Publishers. ISBN 978-1-3986-0938-9.