In 2016, a $5M loss rocked a DAO due to a code vulnerability exploited by an anonymous developer, exposing a legal accountability void. The DAO, built on Ethereum, lacked a formal legal structure, complicating recourse. The hacker, shielded by blockchain anonymity, faced no criminal charges, as identifying them proved nearly impossible. The SEC later deemed DAO tokens securities, hinting at regulatory gaps. Unlike traditional entities, DAOs’ decentralized nature obscures liability, leaving investors vulnerable. The incident sparked debates on whether smart contract flaws are ethical breaches or valid exploits. Courts may view DAOs as general partnerships, holding members jointly liable, yet pursuing anonymous actors remains impractical. This case underscores the urgent need for robust governance and legal frameworks to address DeFi vulnerabilities.