Ethereum’s $150M DAO Opens as Researchers Call for a Halt

Discussion around the issues outlined in the report have already begun (before the report was published) in the DAO forums. It&#x27;s not unexpected that there will be problems. This has never been done before. But the fact that this report exists, the problems are being discussed, and there are already talks of proposals for resolving some of the issues is a good sign that the DAO is working as intended... The community discovers problems, the community fixes problems.<p>Compare this to a traditional investment fund where you hand over your money to a private organization with opaque investment strategies, business operations, and technology. If I invest in a Vanguard or Fidelity fund, they only report back what is required of them by regulators. They take little to no input from investors, and may be running their business on decades old technology filled with flaws and bugs.<p>I view the DAO as an open source investment fund in the same spirit as &quot;The Cathedral and The Bazaar&quot;. It&#x27;s not perfect, it&#x27;s messy, some people are more influential than others, there&#x27;s a lot of noise, and it could collapse on itself at any time. But everyone gets to participate (for better or worse). Lots of eyeballs are constantly watching, and plenty of concerns will be voiced.<p>I know the HN crowd is a skeptical one, but try to keep an open mind. This could grow into something great. And if it doesn&#x27;t... hey, it&#x27;s not your money, so don&#x27;t sweat it.

I have to say that as far as flawed systems of incentives go, the one outlined in the article seems pretty tame. I feel like it is something people don&#x27;t understand in general and something that is often manipulated, but simply not paying attention roughly amounting to an implicit &#x27;yes&#x27; doesn&#x27;t strike me as a fatal flaw.<p>That being said I think ethereum is very interesting but enormously risky (even more so than some other crypto-currencies). I think experiments like this are fantastic, but starting with 150 million is not. It would be much better in my opinion if it started with 1000 dollars and tried to grow from there gradually.<p>As far as incentives go, 150 million is a huge incentive to play fast, loose, and dirty by any means necessary to get balance into keys you control and cash out. From what I&#x27;ve seen of kickstarter, the internet is WAY less skeptical than they should be and it seems everyone needs to learn the lessons of their grandparents on how not to lose money to false promises.

DAO&#x27;s claim of being &quot;jurisdictionless&quot; -- and thus not subject to any state or federal laws governing the rights and duties of business organizations, fiduciaries and beneficiaries or creditors and debtors -- then its equity owners (i.e., those who spent Ether in exchange for proportional ownership tokens) wouldn&#x27;t enjoy the investor liability limitations and other protections provided by those laws.<p>As a result those equity owners could be on the hook for claims and judgments against the DAO for sums in excess of the value of the Ether they&#x27;ve paid in or the tokens they&#x27;ve received.

Does the governance structure of the DAO support permanently shutting itself down? What system of checks and balances exists to govern its behavior if things get really bad?

This ultimately ends with Vitalik receiving a subpoena from the feds on behalf of a U.S. based investor who loses and gets pissed. Then he either complies and builds a backdoor for Ethereum, or he gets banned from the U.S. has trouble going back to Russia because they want the same thing. So he will ultimately become like the Bobby Fischer of crypto in effort to not give government backdoor access to Ethereum. Will it work? Tune in next week!

The no vote bias looks like a serious flaw in the DAO. As the authors say, it is safe for an informed investor to split than to vote &quot;no&quot; on a proposal (for reference, users who split are still entitled to the proceeds of any proposal they funded so far). So passive investors would either be in danger of an attack from a bad proposal, or would find a way to automatically split if the investor wasn&#x27;t available, defeating the purpose of the DAO.<p>Put another way, the stock market rewards passive investors with exactly the same rewards as active investors (which has its own problems - shareholder control over management is notoriously lax), but the DAO goes to the opposite extreme.<p>I personally think that calling for a moratorium is presumptuous - I&#x27;m certainly glad there was no moratorium of the stock market when it was introduced because some economists identified some real flaws. But it is a well researched critique.

I would be interested to know how much the creators of the DAO have studied the history of democracy.

Could ethereum be used to create verifiable transparency in investment funds? Something that would prevent fraud, such as the Bernie Madoff ponzie scheme, from occurring.

So the same people behind the DAO are behind Slock? That is, the people behind the exchange are also pushing the first offering?<p>Uh oh.

<a href="https:&#x2F;&#x2F;boards.4chan.org&#x2F;biz&#x2F;thread&#x2F;1271161&#x2F;wtf" rel="nofollow">https:&#x2F;&#x2F;boards.4chan.org&#x2F;biz&#x2F;thread&#x2F;1271161&#x2F;wtf</a><p>Transcript: <a href="http:&#x2F;&#x2F;pastebin.com&#x2F;raw&#x2F;ATJSADgr" rel="nofollow">http:&#x2F;&#x2F;pastebin.com&#x2F;raw&#x2F;ATJSADgr</a><p>One could argue that the thread consists of nothing but trolling, and that no one could possibly be so stupid as to invest their entire life savings, take out loans, and attempt to use credit cards to buy coins. Unfortunately, I&#x27;ve seen it happen.<p>The conversations on that thread are almost exactly the same as they were several years ago. &quot;Hold. Things will get better, you simply must hold.&quot; &quot;But I lost half my life savings...&quot;

Wake me up when the DAO does something interesting

I read the article as saying &quot;passive investors might get screwed&quot;. So this discussion should be healthy for the DAO if it gets these passive folks to become more active. Creating the future will require some work.

What advantages does the DAO offer over a regular fund for investors?<p>It looks like you get less regulartion and legal weight if things go wrong...am I missing something?

Slock has responded to this by creating a proposal to fix these security issues: <a href="https:&#x2F;&#x2F;blog.slock.it&#x2F;slock-it-security-proposal-1-is-now-verified-we-look-forward-to-you-guys-being-able-to-vote-on-it-d20b3a2e7d9c#.4ng99aiix" rel="nofollow">https:&#x2F;&#x2F;blog.slock.it&#x2F;slock-it-security-proposal-1-is-now-ve...</a>

I spent a few days in the DAO chat room discussing a potential proposal.<p>The general consensus among the developers was that the DAO isn&#x27;t ready for a real business, and any business owner intending to use the DAO would face real potential risks for loss of funds or worse.<p>Still, it&#x27;s a really interesting idea. Wish it was ready for prime-time.

I bet you an Ether it&#x27;s also highly vulnerable to polarized voting.

&gt;“In general what you really want in any kind of a voting-governed structure like the DAO is you want the voters to vote their true preferences. You want them voting in line with what they want to see happen,” says Sirer. In other words, if a token-holder thinks that the proposal will yeild[sic] profits and increase the net worth of the DAO, he should vote yes. If not, he should vote no. But that’s not what we’re likely to see, according to the analysis.<p>Sorry, but I had to stop reading there. The sentences do not logically follow each other. The other words used by the author are not equivalent to what Sure was quoted as saying. In fact, the author&#x27;s assertion removes all autonomy from a token holder and reduces them to a revenue maximizing rubber stamp.<p>Edit: if you can&#x27;t deal (or even read), pls downmod

I love the idea of a corporation ran completely by rules and regulations. But the blockchain sours it for me. I just do not believe that operates in any way like a currency must.