- TheDAO crisis ETH that was not claimed in 2016 is being used as a security fund worth approximately $220 million Ethereum.
- Approximately 69,420 ETH will be staked to entail approximately $8 million worth of security grants on an annual basis, over the long-term.
- The focus of funding will be on Ethereum mainnet, L2s, smart contracts, and user protection, with the governance being run by DAO.
It was almost ten years after the most embarrassing security breach of Ethereum that the assets of TheDAO were being repurposed to fortify the network. It is now transforming into one of the biggest special purpose security funding initiatives in the history of Ethereum that previously was a systemic risk.
Table of Contents
From the 2016 TheDAO Hack to a $220M Security War Chest
TheDAO collapse of 2016 put Ethereum in crisis. A greedy intruder emptied approximately 4.5% of total ETH in the market at the moment, obligating the community to a high-stakes vote that resulted in a hard fork and the emergence of Ethereum Classic. The episode also restructured the culture of Ethereum governance and solidified its opinion on security.
Since then, tens of thousands of ETH linked to TheDAO have been idle. Numerous holders never got their money back, and some of the funds were left in limbo because of errors made when the recovery was chaotic. The dormant assets have now substantially increased in terms of value.
Ethereum contributor Griff Green, who was one of the curators of TheDAO early on, reports that the time to do so has arrived. Decades of not spending the money have led them to value the money to a level where they can make it meaningful in the security posture of Ethereum.
How the Fund Is Being Financed
The security fund draws on a number of different pools made when TheDAO recovered:
- Curator Multisig balance: Approximately 4,600 ETH, primarily consisting of DAO tokens, and worth approximately $13.5 million. A large number of these tokens were simply lost without being recaptured in the wrong contracts.
- ExtraBalance pool: In the case of TheDAO crowdsale, the latest participants spent up to 1.5 ETH per 100 DAO tokens. Any sum over the initial 1 ETH price was recorded as ExtraBalance when refunds were done post hard fork. Approximately, 70,500 ETH of this type is unclaimed.
These assets are not confiscated or expropriated money. These are the remnants of a decade-long healing process that has not been resolved completely due to loss of some of the participants, losing keys or even not following up.
Staking 69,420 ETH for Ongoing Security Funding
Some 69,420 ETH will be staked out of the ExtraBalance pool. That value will produce nearly $8 million of staking rewards annually at the existing network parameters.
The fund uses yield to fund security initiatives on a continuous basis rather than use the principal. This system transforms a single windfall into an ongoing stream of funds, eliminating the need to rely on donations or crisis appeals when weaknesses arise.
Distribution of Grants
Funding will be made possible by the ways of DAO-native mechanisms which include:
- Quadratic funding, which places more emphasis on the projects with numerous small donors as compared to those with a small group of large donors.
- Retroactive funding, which compensates the teams after quantifiable security work has already been provided.
- Ranked-choice voting for RFPs, where the proposals are rated and ranked in terms of community preference.
Eligibility criteria will be determined by the Ethereum Foundation per round of funding, and operational assistance provided by Giveth, an organization very related to public goods funding and DAO tooling.
The next rounds of funding can also incorporate external operators who are chosen using open application processes which introduce competition and minimize the risk of capture.
