At the Ethereum Community Conference 5 in Paris, Hilary Kivitz — a Web3 adviser and former partner at a16z Crypto — explored decentralized autonomous organizations (DAOs) and the countermeasures they could employ against hostile takeovers.
Kivitz discussed protective concepts in traditional finance that could potentially be applied within DAOs to help combat the increasing risk of hostile takeovers.
Kivitz argued that there are risks within DAO governance, including vote-buying allowing attackers to exploit it. According to Kivitz, this can allow exploiters to raid DAO treasuries and take their locked assets. She also shed light on empty voting, explaining:
“The mechanics are that the exporter would borrow the token, execute on the vote and repay the loan on the token.”
Kivitz noted that traditional finance toolkits used to combat these risks could also be applied within the context of Web3. One of the solutions she presented is “poison pills,” a mechanism in traditional finance that can raise the cost of acquisition and create other disincentives for hostile takeover attempts.
Kivitz said these poison pills could be embedded into the smart contracts and governance documents so they couldn’t be removed through a vote. This could “create massive dilution for the exploiter,” she said.
In addition to poison pills, Kivitz also talked about voting cutbacks, which involve limiting how much voting power a holder can have, no matter how much they own within the network. This ensures that voting is fair for other holders with lower ownership.
In February, the Marshall Islands began to officially acknowledge DAOs as legal entities, allowing collectively owned and managed blockchain projects to be registered and established in the country.
Earlier in July, crypto author Alex Tapscott told Cointelegraph that developments in DAOs are one of the major things investors should watch out for during the crypto winter. Tapscott said that DAOs could potentially supplement corporations as a method for resource organization.