Nouns DAO, a decentralized autonomous organization (DAO), suffered a devastating split that cost it $27 million in cryptocurrency out of its $50 million fund. It happened because of the tense dynamic between the DAO’s profit-driven traders and blockchain idealists. The Nouns DAO community, notable for paying $90,000 on the name rights for a rare frog, split, with a number of dissident investors “forking” from the main body.
A DAO functions in a similar way to a typical business, but it strives for greater decentralization and, ultimately, no centralized leadership. Anyone who buys an NFT from a DAO receives a vote in the group’s decisions, including how much money is distributed. However, because they are always changing, these organizations may have internal strife.
For Nouns DAO, disagreements emerged between those who thought that funds should go towards a better NFT trading value and those who thought that funds should be used for innovative, culture-populating enterprises. The decision to fork, or split, the network was the subject of a very contentious debate. Nevertheless, the fork was eventually put into practice because it was seen as an innovation for bettering general governance and decentralization.
The $27 million fork has drawn criticism from some since it was seen as a technique that attracted arbitrageurs who took advantage of the governance for gain rather than deterring 51% attacks. As a lesson for other DAO projects, this incident raises difficult questions regarding the viability of unrestrained decentralized governance.
Nouns DAO now has to deal with the difficulty of operating with a substantially smaller treasury as a result of recent occurrences. While some see the fork as showing the DAO structure’s shortcomings, others think it was an essential step in pushing the DAO design’s boundaries.