DAO token holders can withdraw ETC in exchange for ETH, millions of dollars of ETC may soon be dumped on the market

Ethereum Classic (ETC) has been able to gain a significant market share in terms of price and network computing power, which has indeed surprised many in the digital currency field. However, the immutability of the blockchain may soon face problems as new coins will enter the market from some people who do not have the best interests of the ETC blockchain at heart.

Over the next week, two things will happen. First, approximately 4.1 million ETC will become available for withdrawal on the morning of August 30th, from the so-called 'White Hat DAO', a child DAO created by a group of individuals dedicated to protecting DAO token holders from bad code that would have allowed an attacker to drain The DAO's ETH (and now ETC) holdings. For the first time since the Ethereum hard fork, DAO token holders who receive these funds will be able to sell ETC on the open market for ETH or other assets. The process that allows DAO token holders to withdraw their ETC has been taken over by Swiss cryptocurrency exchange Bity.

In addition to the white hat DAO withdrawals, the attacker who siphoned off The DAO’s ETH holdings also ended up taking full control of the funds on the ETC chain on September 2. According to Bity legal manager Alexis Roussel, The DAO attacker was able to access a child DAO that held 5% of the total ETC supply.

Problems with White Hat DAOs

Although DAO token holders will soon be able to access some of their ETC holdings, the white hat group initially controlled approximately 7.2 million ETC. The group's plan is to convert the recovered ETC into ETH, which the white hat group believes is in the best interest of DAO token holders. There are clear reasons for this action, including the threat of replay attacks against the ETH chain, the lack of block explorers and other necessary tools on the ETC chain, and potential hashrate or speculator-based attacks against the ETC chain.

Some people believe that this attempt to convert the ETC of the white hat DAO into ETH is equivalent to an attack on ETC.

About 14% of the ETC controlled by the white hat group has been converted into ETH and other currencies, but Poloniex and Kraken froze their accounts before allowing the white hat group to continue the plan. Bity representatives have contacted Kraken and Poloniex on multiple occasions, but the two exchanges have not responded to why the accounts were frozen.

Roussel also said that Bity is a regular customer of Kraken and that they have responded to Bity’s inquiries in the past. Kraken CEO Jesse Powell did not respond to Bitcoin Magazine’s emails, but Powell recently commented on the issue via Reddit. His comments suggest that the reason for freezing these accounts may be that they are investigating the actions of white hat groups.

Powell said:

“Unfortunately, we are not the only ones who believe that additional investigation of this ‘white hat’ group is warranted. We are currently seeking approval from other interested parties to release these funds into the extraction contract.”

Powell said in another comment:

“If we don’t talk about what’s going on, you’re probably going to have to guess what’s going on. I wish I could tell you more. Our goal is to get these coins back to the right owners. The earlier actions by the white hat group attracted a lot of attention, which complicated the issue.”

Currently, 28% of White Hat DAO funds are controlled by Poloniex and 16% by Kraken.

Impact on ETC prices

When the initially available white hat DAO funds are combined with The DAO attacker, the result is that nearly 10% of the total ETC supply will be available for sale for the first time by September 2. This could have a significant impact on ETC price and market capitalization.

Tone Vays, Head of Research at Brave New Coin, said:

“I can’t speculate what the attackers will do, but it’s possible that the price will drop due to supply and demand.”

When asked what DAO token holders would do after they were able to access their ETC for the first time, Roussel said, “I don’t know.”

ETC project spokesperson Arvicco said:

“The market is a mechanism for allocating scarce resources in the most efficient way possible. If a ‘massive dump’ were to occur as many fear (or hope) it would, it would simply be a redistribution of ETC from those who don’t understand ETC’s value proposition to those who do.”

Arvicco also said:

"I don't think there's a very high chance of a large-scale dump."

The price of ETC showed a downward trend in August.