It was only a matter of time before 1980s-style hostile corporate takeovers went on-chain. And yesterday, Build Finance became one of the first decentralized autonomous organizations (DAO) to fall victim to the phenomenon.
“The Build Finance DAO has been the target of a hostile governance takeover in which a malicious actor has put forward and succeeded with a proposal to take control of the Build token contract,” wrote the project’s Twitter account yesterday.
Build Finance billed itself as a venture-style project built atop Ethereum, seeking to incentivize the rise of new crypto projects through its BUILD token by overseeing funding, hiring processes, or managing a project’s progress.
One example of the DAO’s labors was its launch of Metric Exchange, a decentralized exchange (DEX) aggregator.
Now, though, Build Finance is under new management.
Like traditional corporations in the meat space, decentralized autonomous organizations (DAOs) are subject to the whims of their stakeholders (or, in this case, tokenholders). These tokenholders can use their token holdings to make proposals for how the organization should pursue internal projects, how its treasury should be spent, and so on. Other tokenholders can then vote on whether these proposals should be executed or not.
In the case of Build Finance, one particular individual was able to pass a proposal that handed over the Build token contract, a type of smart contract that gives the owner free rein to create or destroy as many tokens as they want. They also took control of the project’s minting keys, governance contract, and treasury, according to Build Finance.
Whether the takeover was truly hostile, though, is up for debate.
"By definition, a hostile takeover happens when a company takes control of another company’s management against the wishes of said company’s current management,” Nathan Van der Heyden, the head of growth at DAO-voting platform Snapshot Labs, told Decrypt via Telegram. “However, in DAOs, the management doesn’t lie in the hands of the founding team but is rather decentralized amongst all tokenholders.”
This individual was able to pass such an advantageous proposal because they enjoyed an outsized number of tokens, which are used to vote on these sorts of things, and there was reportedly very little attention made around the proposal.
“Interestingly enough, blockchain architecture allows us to follow play-by-play how the takeover took place, and we can see the 'attacker' deployed considerable capital in the takeover,” said Heyden.
The Build Finance team indicated that the lack of attention around the proposal was because the individual “took extra steps to stop evidence of their activities by way of disabling the gitbooks and the proposal bot.” The Build team has not yet responded to Decrypt's requests at press time.
With the proposal passed, and total control over the project, the individual went to work minting and selling tons of BUILD tokens. The individual was also able to pillage Build Finance's treasury and sell 130,000 METRIC tokens, the native token for the Metric Exchange, amounting to just over $40,000.
‘Difficult to see a future’: Build Finance
The DAO reported that though it is in contact with the individual, “there seems to be no appetite for dialogue, much less any reparations.”
It also added that “it is difficult to see a future for BUILD with only its brand recognition and IP assets, and no liquid treasury.” Metric Exchange, however, will continue operating despite its connection to Build Finance.
Still, according to Heyden, not all is lost.
“The current BUILD team even has the option to easily fork their own code, and recreate BuildFinance from scratch if that’s what their community decides, a luxury that is unavailable in traditional finance,” he said.
Whether Build Finance goes this route remains to be seen, however.
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