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Caution: The DAO Can Turn into a Naturally-Arising Ponzi
- csomar 10y ago> The reason why The DAO tokens are cheaper than 1.0 ether is because of this uncertainty. That's a wrong way to look at it. The price of a DAO will equal to 1 ether minus the costs of shorting 1 ether.
- JumpCrisscross 10y agoYou're forgetting the 48-day asymmetry.
- exstudent2 10y agoThere really is a ocean of ink being spilled by old school "experts" attacking The DAO and crypto currencies in general. It's difficult to understand their intense motivation to stop people from experimenting until you realize that crypto currencies disrupt their ability to gatekeep monetary decisions and make their current roles unnecessary. As someone tangentially interested in the space, I've bought on every wave of negative press and have done quite well. Sure it's high risk but if you don't invest your life savings, it can be great fun, financially rewarding and technical interesting. Hardcore naysayers have a vested interest in depressing these experiments and their commentary should be viewed as such.
- freshhawk 10y agoIs it really difficult to understand the motivation? Because the obvious one makes perfect sense: they are aware of the huge number of historical examples of pyramid and ponzi schemes that look exactly like a lot of behaviour on display around the DAO. People naturally fall for these, humans love them, so the only protection is for good actors to go on the offensive. I also find the DAO interesting and am watching the experiment, but I'm pretty pessimistic given how even obviously predatory schemes get embraced by the community and attempts to out them get responses similar to yours ("Excuse me, but since there is no possible way anything is wrong with anything DAO related you are either misinformed or part of an anti-DAO conspiracy").
- matt4077 10y agoOr, possibly, they: - Have enough faith in humanity to regard the possibility of collective democratic power having influence on currencies as a feature - Are kinda noticing that life isn't actually quite a tragedy currently in most western democracies and therefore see no need for revolutionary change. - Consider risk an essential factor in every investment, and fear it may be too high for the class of investors attracted to cryptocurrencies - Have been convinced by actually quite serious flaws in this DAO thing, not from ideology, but game theory - Are irritated by crypto currency advocates who go for conspiracy theories instead of arguing on the merits. - Are wary of crypto advocates who argue with political arguments but clearly have a financial interest in the currency's rise.
- EdHominem 10y agoFor those with Faith, you've got your wise democratic currencies. But some people buy gold, presumably with those same democracies in mind ... are you against them doing that too? As for the DAO, yeah I imagine it's got bugs. Hopefully less, and more transparently, than our existing contracts. But even if it fails horribly, other smart-contracts will stand on their own. Do the market a favor and short the DAO (and fund an attack on it, if you can). That'll establish a demand for security and make you a pretty penny if you're right. Even if you are right though, what would it mean? If Kickstarter got hacked or phished would that disprove all p2p funding sites forever?
- EdHominem 10y ago> Do the market a favor and short the DAO (and fund an attack on it, if you can). Enjoy your well-deserved prize.
- deleted 10y ago[deleted]
- slg 10y agoThe fact that an article like this has to be written should say enough about these type of cryptocurrencies and the people who "invest" in them. If you don't understand the time value of money, the value of liquidity, or how bubbles work, you probably shouldn't be in charge of your own investments.
- exstudent2 10y agoThat's a pretty condecending opinion to take while Bitcoin reaches its multi year high and Eth and DAO are at all time highs. Maybe it's people who don't understand disruption and technology who shouldn't be in charge of their investments? Not really though since no one should concern themselves with anyone else's investments...
- frank_jaeger 10y agoAll time highs are kind of a sign of a bubble, and say nothing about the liquidity of any investments or the time value of the return you can expect from them.
- exstudent2 10y agoBy all means don't invest then. It's pretty presumptuous to think people who see things differently need to be "educated" though (as the OP is attempting to do).
- TylerE 10y agoI think it's a natural pushback to the over-the-top evangelicalism of the crypto-cultists.
- aianus 10y agoFYI it's fairly easy and cheap to short BTC now if you really believe this.
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- exstudent2 10y agoWhy would you care what anyone does with their money? It screams vested (but hidden) interest.
- TylerE 10y agoWhy should a doctor care when he sees someone eating buckets of fried food while smoking a cigarette?
- exstudent2 10y agoThey shouldn't? Free will and all... Also, if these "experts" are wrong and crypto currencies continue to do well then they've actually harmed people instead of helped. Are they willing to take that responsibility?
- powera 10y ago"Why would you care what anyone does with their money? It screams vested (but hidden) interest." You sound like a shill who has a vested interest in people not getting good advice about what to do with their money, honestly. EDIT to all the downvoters: he's literally attacking people for giving sound financial advice, and claims that giving good (read: likely to not cause people to lose money) advice is inherently biased. I accuse him of being a shill, or at least arguing in bad faith, a second time.
- aianus 10y ago> good (read: likely to not cause people to lose money) advice That's not what good advice is. If I offer you 7:1 odds on $100,000 to guess a die roll, the only question running through your mind is "can I afford to lose $100,000 without impacting my lifestyle" or "do I know any rich people that would stake me for this". If the answer is yes, it's a far better bet than any mutual fund or bond or savings account or whatever you would consider a sound investment, even though you lose $100,000 the vast majority of the time. Similarly for dropping an appropriately small amount of money (relative to your net worth) in cryptos. The odds are low that they'll take over any significant fraction of commerce but the rewards would be enormous.
- reddytowns 10y agoThe author is confusing a ponzi scheme with a bubble. A ponzi scheme implies deception (get a fantastic interest rate which is clandestinely being supplied by your own invested funds). Since The DAO is completely open in the way it works, that would be impossible by itself. The author actually talking about the creation of a bubble. However, usually, bubbles are created in things where the potential profit is unclear. Otherwise it's hard to justify. Who would buy The DAO at a greater price then its book value in ether, if they simply expect to extract the same amount of ether out of it after 48 days? So, such a move by The DAO will probably not create a bubble or "a ponzi" or whatever. It simply is an investment choice with likely no far reaching implications, as far as I can tell.
- TylerE 10y agoThe early investors got in very far UNDER the current "market" value.
- rtkwe 10y agoThat's not a ponzi scheme, that's how investments in general work especially with startups and VC, the defining part of a ponzi scheme is that later investors funds are used to pay the returns of earlier investors.
- powera 10y agoIsn't this exactly what Enron did? Use some sleight of hand to hide the fact that you're using company assets to speculate on the performance of company assets? Obviously doing that turned out very poorly for Enron.
- DennisP 10y agoActually any company buying back its own stocks is doing the same, and it tends to work out well for investors.
- TheCoelacanth 10y agoIsn't a stock buyback more or less equivalent to paying a dividend? I.e. a way of returning a portion of company assets to the company's investors.
- DennisP 10y agoYes. Seems to me it's the same if TheDAO does it.
- dreamdu5t 10y agoFor anyone who wasn't already aware, there are many intentional and open Ponzi dapps running out there. Source: http://dapps.ethercasts.com/ http://dapps.ethercasts.com/ (search for "Ponzi")
- DennisP 10y agoThe guaranteed 1 ETH payout only lasts until TheDAO funds its first project, after which the payout is only the investor's percentage of TheDAO tokens times TheDAO's remaining ETH. So the potential for a "natural ponzi" won't be around for long. There are a fair number of people who've decided to hold ETH long-term regardless of short-term price action, and for those people, a risk-free way to increase ETH holdings is more attractive. But in this case it's not entirely risk-free, since people have described various attacks on TheDAO, including at least one that could prevent people from extracting the ETH. The attacks can be prevented with code updates, but not until people vote to adopt the updates.
- Animats 10y ago"This points out a fundamental problem with programmable financial assets: there are so many degrees of freedom that it's difficult to compare asset prices and perform arbitrage. In fact, I would not be surprised if the developers purposefully made their contracts complex to discourage such comparisons. Additional complexity also makes it difficult for the investors to figure out what exactly they are buying. Why should someone who wants to exit a crowd-funding vehicle follow a weird software engineering pattern that is tantamount to buying a timelocked asset? What exactly happens to the reward tokens of The DAO through splits? Why is this stuff so needlessly complicated?" This sounds all too much like Paycoin. Paycoin was a competitor to Bitcoin, but it was much more complicated. There was a claimed guarantee that the price of Paycoin would not fall below $20. (The current price of Paycoin is $0.01212923.) There was a connection to a Bitcoin mining operation, GAW miners. There was BanxShares, which was some kind of derivative based on Paycoin and backed by a porno site.[1] There were ZenCloud and PayBase. There was a Paycoin Foundation. There was supposedly a reserve in US dollars backing Paycoin.[2] There was a "Hybrid Flex Blockchain" to provide faster confirmations. The result was a disaster.[3] There's a long history of complicated Ponzi-like things. Sergei Mavrodi did it twice, once in the 1990s with "MMM" in Russia, [4], and again, after doing jail time, as Bitcoin-based "MMM Global" in the 2010s.[5] MMM was a combination lending network, pyramid scheme with a downline, and Ponzi. It collapsed both times, of course. Warren Buffett on overly complex finance: [6] [1] https://bitcointalk.org/index.php?topic=813191.0 https://bitcointalk.org/index.php?topic=813191.0 [2] http://web.archive.org/web/20150214110136/https://paycoin.com/ http://web.archive.org/web/20150214110136/https://paycoin.co... [3] https://bitcoinmagazine.com/articles/death-paycoin-employee-video-reveals-internal-chaos-1429396603 https://bitcoinmagazine.com/articles/death-paycoin-employee-... [4] https://en.wikipedia.org/wiki/MMM_%28Ponzi_scheme_company%29 https://en.wikipedia.org/wiki/MMM_%28Ponzi_scheme_company%29 [5] http://www.fin24.com/Money/Investments/alleged-sa-ponzi-scheme-mmms-global-pyramid-collapses-20160412 http://www.fin24.com/Money/Investments/alleged-sa-ponzi-sche... [6] http://www.buffettsecrets.com/understanding-the-company.htm http://www.buffettsecrets.com/understanding-the-company.htm
- rahimnathwani 10y agoThe Warren Buffet article you linked isn't relevant to your main point. The article is not about overly-complex finance. It's about overly-complex companies. If you're buying a security (e.g. A particular class of convertible debt of a company) then there are two things that you need to analyse: the issuer (the company), and the properties (rights, payoffs, optionality) in the security itself. I believe that Buffet et al shy away from complicated companies (as they're too hard to understand) but look for securities that are mispriced, which are sometimes of the more complex variety, rather than just straight equity.
- deleted 10y ago[deleted]
- kordless 10y agoThe DAO can also turn into a AI intelligence that decides we're boring and unsophisticated. The logical conclusion is to raise prices on us and then seize our funds when they stop us for traffic violations through hyperspace.
- wildchild 10y agoAt current rate DAO is a homeless $200M which will be quickly acquired by all kind of scammers in crypto space.
- zkhalique 10y agoHow does a startup even apply to be funded by the DAO?
- jarsin 10y agoYou would need to submit a proposal. Here is a good overview on that. https://blog.slock.it/how-to-create-gorgeous-proposals-81eb3f606226#.qb32ehgy5 https://blog.slock.it/how-to-create-gorgeous-proposals-81eb3...
- homero 10y agoI can't see how people are so gullible that they exchange their bitcoin. My bitcoin are held safely offline and they'll never be exchanged to alts nor fiat.
- monatron 10y agogood for you. you obviously have a different use case for your assets than others. as is your right and theirs.
- imtringued 10y agoIt's somewhat amusing that a lot of etherum "dApps" boil down to ponzi schemes or gambling.
- aminorex 10y ago"Turn into" requires starting in some other state. I haven't seen a strong argument for that, and the inductive priors on this issue are profoundly prejudicial.
- chx 10y agoLOL all of these crypto"currencies" are a Ponzi scheme already, did someone wake up?
- nivertech 10y agoShort ETH/USD Long DAO Split DAO Wait 48 days Convert ETH to USD Cover ETH/USD
- bunnymancer 10y agoI spent way too much time trying to figure out how a data access object would turn into a ponzi...