DAO Maker Hack Victims Still Awaiting Payment After 3 Years
The DAO Maker crypto fundraising platform, not to be confused with the MakerDAO stablecoin protocol, is trying to raise hundreds of thousands of dollars in 2024 to support new Web3 projects. The losses suffered in the attack, although the development team promised to rehabilitate all victims.
Victims also hold DAO Maker responsible for these losses, as the hack is said to be the result of negligent private key compromise by developers.
DAO Maker was first used in August 2021 and nearly 7 million users' funds were stolen. The development team later admitted that the exploit was done through private key hacking. At the time, it agreed to partially compensate investors by airdropping 500 USD Coin (USDC) per person. The rest of the compensation was to be paid through the IOU token “USDR”. This token can be redeemed for the DAO for the protocol's native coin within a year.
But the victims of the hack told Cointelegraph that the USDR ransoms were never approved and they still have not been compensated for the remaining losses. In addition, decentralized finance (DeFi) researcher SOMA Analytics reported that the DAO Maker used its high token offering to validate the vote by forcing it to cancel its support payment plan in a proposal it filed with its governing body. According to the researcher, the proposal was scrapped after it was approved and was allegedly an attempt to remove evidence of the group's failure to return victims' money.
DAO Maker in Prague is completely separate and has nothing to do with the similarly named MakerDAO stablecoin protocol.
DAO Maker will be hacked and compensated
DAO Maker is a crowdfunding platform for technology startups, specifically focused on raising funds for Web3 protocols run by decentralized autonomous organizations (DAOs). According to the official website, the protocol has “over 75,000 retail users” signed on in 2020 and “200,000+ KYCed users”.
According to CoinMarketCap's description of DAO Maker, the project offers various systems for investors to participate in new token offerings. One is called “Strong Holder Offering (SHO)”, in which investors buy DAO tokens and use it to allocate “DAO Power” to a specific coin offering. The more DAO power you allocate, the more likely you are to win a participation slot for a particular offering.
If they win the lottery, “their allocation is automatically backed by their USD Coin (USDC) balance” and the investor is allowed to use these funds to purchase coins in the giveaway, according to CoinMarketCap. The statement cites official DAO Maker documentation that has since been taken offline.
Related: What is a crypto startup, and how does it work?
In the year The hacked SHO contract in 2021 exploited these USDC funds and $7 million was stolen. In the year In a Medium post on August 12, 2021, the DAO developer team admitted that the hack was caused by “malicious use of one of our wallets using administrator privileges.”
In the year On August 17, in a separate medium post, the group announced a plan to compensate investors. The announcement was also shared on the team's official Telegram channel. The group said it would immediately drop 500 USDC to every investor affected by the hack. On September 8, 2021, the remaining losses will be covered by the “IOU token” called USDR. One year later, on August 8, 2022, each USDR token can be redeemed for $1 in DAO tokens at a 1:1 ratio and 10% interest. “Each USDR token is equivalent to 1.1% of the value of the DAO, 1 year after it's air,” the announcement said.
As an example of how the redemption process works, the scheme assumes a user who lost $1,000 to the hack. This person will receive 500 USDR tokens on September 8, 2021. […] After 1 year, $550 worth of DAO tokens can be redeemed,” DAO Maker explained.
Both Medium posts were later deleted, but archived versions are still available on the Wayback Machine.
Victims say USDR ransoms are never allowed
DAO Maker investors told Cointelegraph that the project's promise to return every dollar at $1.10 was never honored by DAO Maker, a decentralized autonomous organization, or by its development team.
An investor who uses the username “Red Drake” on Telegram and asked not to be identified said he lost $2,000 as a result of the hack, according to Cointelegraph. They said they put $2,000 in stablecoins into a “pre-deposit” contract. But in the year When the August 2021 hack occurs, this contract is broken and you lose everything. Red Drake said they received 500 USDT after the compensation plan was announced and later received 1,500 USDR. However, the USDR was never allowed to redeem it for the DAO as promised.
According to Red Drake, they have finally discovered that there is a liquid pool for USDR and they can sell into this pool to cash out early. However, the tokens were “not in a 1:1 ratio with USDT. Instead, the tokens were being sold at “something like 80%” of the fair value. Because of this, Red Drake did not sell their USDR into the pool, and these tokens are still sitting in their wallets today.
This USDR is now worthless, he said, because there is currently no way to exchange it into other cryptocurrencies. The existing pool of liquidity was later closed, leaving holders with no way to access funds. Red Drake acknowledged that they could use the tokens to power the DAO in the DAO Maker platform, but said the tokens “don't have that much value because those allocations [don’t] Guarantee me I'll find something.
Telegram user ZizzTelecom told a similar story, saying he received $500 in compensation for the hack. Months later, the token was trading between $0.60 and $0.80 per coin. At such a steep discount, they decided to buy about 10,000 coins, expecting to be able to redeem the DAO at $10,000 when the tokens were redeemable.
But the tokens were never redeemed and are now worthless on the secondary market.
“The DAO creator team decided to deceive everyone,” Zztelecom said. “Trade has stopped. […] In the end, each USDR = 1 DAO Power and with their help we can participate in sales, but we cannot send to other wallets because DAO Power will be lost, he said.
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DAO maker coverage claims
In addition to claims from victims, DeFi researcher SOMA Analytics claims to have evidence that the group tried to cover up the abandonment of USDR's redemption process. The researcher published his work on the Notion Workplace and is not affiliated with the nutritional supplement blog of the same name.
According to SOMA, the DAO Maker team came up with an idea to abandon the redemption process to the USDR. This idea is said to have been forwarded by DAO Maker – but has since been deleted from the screenshot. The DAO team used its own tokens to outvote multiple token holders to ensure that the vote would go the way it wanted. He allegedly distributed tokens to new wallets in an attempt to hide his role in the approval of the proposal.
Between October 3 and October 5 [2022]A unique USDR proposal has surfaced on DAO Maker's public discord from a user named @Dante.eth.” said the researcher. SOMA said that this proposal was later withdrawn, but was overturned by other community members.
According to this version of the transcript, the anonymous user Dante.eth argued that the return of USDR “would have a huge impact on the price of $DAO for everyone and the value of the token may never recover.” As a result, the user is asked to vote which gives three options for the redemption process. The original proposal to exchange USDR for the DAO at a 1:1 rate was not one of the listed options.
Option 1 was for the decentralized independent organization to algorithmically sell DAO tokens and sell USDC to USDR at a 1:1 ratio. This would allow holders to be fully compensated, but with stablecoins instead of DAO tokens. Option 2 was to distribute DAO tokens from the venture product partnership to USDR holders once a year. Option 3 was to redeem the USDR at only 50% of its value.
A 50% (option 3) redemption option at fair value was passed, with 61.72% tokens used to vote for it. However, the researcher found that these 61.72% votes were cast by only six wallet accounts. Most of the accounts voted for option 1, but these small owners reportedly did not have enough marks to surpass the six whalers who voted for 50% fur.
The victims of the hacker admitted that the USDR token would allow them access to DAO Power, giving them a greater opportunity to participate in the token offerings they are interested in.
However, despite the DAO voting for a 50% redemption, SOMA Analytics says even this compensation has never been shared by the group. “As far as I remember, there was no claims portal, and people were getting nothing,” he said in his message. Instead, according to their report, the group is said to have decided to make USDR irredeemable and its holders to access the power of The DAO instead. The power of the DAO that can be obtained from the tokens is not transferred, making the token essentially worthless in the secondary market today.
According to SOMA Analytics, the six wallets that voted for the 50% haircut “were created 10 days before the vote, received a large amount of DAO in the same two days (probably money hidden by CX) and only voted for option 3.” In their opinion, this It is also pointed out that the wallets were created by some people or group like the protocol development team, who went to the trouble of creating new wallets just to participate in the voting, and whoever voted for the idea did not want to be identified.
Cointelegraph is unable to independently verify which wallets voted for the proposal, when it was created and funded, as the proposal was withdrawn.
Cointelegraph reached out to the DAO Maker team for comment, but did not receive a response by the time of publication.
DAO Maker continues to provide fundraising services for Web 3 startups. According to CoinMarketCap, the DAO token has a market cap of $153 million, making it one of the top 400 cryptocurrencies.
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