‘Raider’ investors are looting DAOs — Nouns and Aragon share lessons learned

Governance in decentralized autonomous organizations is hard. Especially so with decentralized onchain token voting.

Ethereum creator Vitalik Buterin famously rejects it due to the difficulties of what is essentially an unbridled democracy.

Politics, money and misaligned incentives mean tokenholders are often out for their own benefit rather than the good of the DAO.

One danger of this sort of governance is that any party that amasses enough voting tokens can essentially do whatever they like — whether it’s to anoint themselves king, sell the assets or completely change the mission.

Core team members who’ve been there from the beginning see outsiders who gain control of projects as “DAO raiders” engaged in a hostile takeover to strip the DAO for parts. But the “raiders” might see themselves as hacktivist investors out to reshape the DAO’s mission.

Raiders vs. Nouns and Aragon

In 2023, DAO raiders — or hacktivist investors — took control of Nouns DAO and Aragon DAO by playing the arbitrage governance game for profit. They bought up loads of tokens — with the attached voting rights — and were able to do what they liked. 

The arbitrage opportunity happened because Nouns NFTs and Aragon tokens could be bought for below their book value, or net asset value, relative to their proportional share of the DAO’s treasury.

Somewhat ironically, the Nouns raiders then proposed to eliminate the arbitrage opportunity by spending down the Nouns treasury, thus lowering the book value of each Noun.

These raids and governance threats led to the extraction of $27 million from Nouns and leadership spills at Aragon. Today, Nouns is bouncing back, albeit with a smaller treasury. A smaller product-focused Aragon lives on in the form of a new nonprofit with the leftover funds from the liquidation.

“We want to believe we are all friends, but there are always people that want to attack a group —any group —…

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