5 ms·

ERCFund: An open-end fund smart contract for the Ethereum blockchain

45 points by ScJa 9y ago

patrickaljord 9y ago
I hope it will work better than the DAO. https://en.wikipedia.org/wiki/The_DAO_(organization)#History https://en.wikipedia.org/wiki/The_DAO_(organization)#History
- admax88q 9y ago
  Don't worry, if it doesn't than the network will just fork to return all investors money. Because "the code is the contract" except when it's not.
  - Karunamon 9y ago
    Snarky but true. Why would anyone ever get involved in a popular smart contract when the network devs have shown they’ll play god with the block chain when it doesn’t come out their way? It’s definitely given me pause...
amluto 9y ago
I'm not an Ethereum expert by any stretch of the imagination, but I do know a bit about funds. This fund appears to suffer from an exploitable race condition. Suppose the owner of the fund changes the price by more than ~6% in a single transaction. Then anyone who has the power to race with the owner can buy at hte old price and sell at the new price or vice versa. Instant arbitrage! This looks like it can probably by mitigated by changing the price in tiny steps and waiting for confirmations (slow and expensive) or by withdrawing the entire Ether balance of the fund, waiting for confirmation, changing the price, waiting for confirmation, and re-adding the balance (slow, expensive, and very very annoying). Also, I would be amazed if this fund were not deemed a regulated security, in which case, if the operator is going to comply with securities laws, I see no benefit to using a smart contract at all. Also, 3% fees for each transaction? Yikes!
- ScJa 9y ago
  Hey, thanks for the feedback. Your points are definitely valid and are something that I have given some thought in the past. It seems really difficult to prevent arbitrage while still keeping the gas cost for price update low. This is one of the reasons why I defaulted at a 3% fee (which is ofc changeable as preferred), this could encourage share-holders to trade their tokens with potential buyers instead of minting/burning them. Another option could be to split the price into a "purchase-price" and a "withdraw-price" which are apart from each other to some degree. The idea by dynamically minting tokens for me was mainly to reduce the chance for a premium. Many funds in the past, like the TaaS.fund and ICONOMI have had huge premiums of 30%+, which is not ideal for either party. It will would defnitely be considered a security in the US I believe, but it was not my goal to setup a fund structure to avoid taxation. By being on the blockchain it is potentially possible to use it cross-borders.
  - snissn 9y ago
    Why not have a fixed fee price per transaction? Also sorry if I'm not fully understanding things
    - ScJa 9y ago
      No worries, we are all still new in this field. It is another approach but I think it would hurt smaller investors and still enable people will large sums to do arbitrage. Let's say the fee is 10$, if someone wanted to invest only 100$ they might think twice about it. While if the price of the fund is 1% too cheap, a big fish could simply buy shares for 100.000$ and make 990$ profit by just buying them.
    - thisisit 9y ago
      There is an inherent issue with market making on a blockchain. Here's my understanding of it, maybe amluto and ScJa can correct me if I am wrong. Let's say X coin is worth 1 ETH now. As we are using a decenteralized market this price is stored in the blockchain. Now, an hour later someone wants to buy X coin at 1.2 ETH. This information needs to be updated in the blockchain. But then the update has to go through confirmation etc. So till the time price is fixed, this intent is stored in the blockchain mempool. There are two issues here. The price intent is public now. And a miner can selectively delay including this price change in a block. So, if someone is able to read the intent he/she can race with the fund owner and buy the coin at 1 ETH. Once the price change happens they can now sell the coins back to the contract at 1.2 ETH.
aaron-lebo 9y ago
I half expect to wake up some morning and find out that someone has figured out the killer app (mass market) for Eth or the blockchain in general, but stuff like this also makes me wonder if it can go on indefinitely, without producing any real value other than investing in itself with money hungry crowds and hopefuls (especially those invested) propping it up. It's been years since Eth launched and this and Cryptokitties are about it. Currently investing in a range of different cryptocurrencies requires a lot of technical knowledge. This has spawned the need for easy way to invest while reducing entry barriers. Ex. Is a lack of funding something that's really limiting what's possible there? You'd figure with the millions thrown at projects that don't have anything to show (Eth at the beginning, even), that if there was really some problem searching for a solution, someone would have hit it. I suppose that could seem luddite-ish.
- ScJa 9y ago
  I don't think it is a lack of funding from project from the ICO side. There are great funds out there which had success after an ICO (like C20, ICONOMI). The quoted comment is addressing traditional investors who possible already manage funds with "real-world" assets and would like to invest at least partly in cryptocurrency as well. I am hoping that these smart contracts might make it easier for them to join and consequently increase adaption of cryptocurrency investments overall.
- simias 9y ago
  Your comment got me curious to see what ICOs look like nowadays so I went looking for a list of active ICOs. I'm not sure how trustworthy it is but I ended up here: https://iconow.net/ico-listing-active-icos/ https://iconow.net/ico-listing-active-icos/ If I can trust the various websites linked it seems that it's still relatively easy to get millions of dollars worth of "investment" by making a fancy website and a rather vague whitepaper (no previous experience or proof of concept required). The "red lantern" one at the top of the list who claims to be about "sexual education" is pretty transparently a prostitution app whose ICO currently nears $1 million. Looks like it's still the wild west over there.
thisisit 9y ago
My first reaction was that this looks cool. A friend has been looking for an open ended fund/ICO on the ethereum blockchain. But, reading through this has left me confused as to what am I looking at? I can be wrong but my understanding is that this is meant to serve as a framework for anyone who wants to start an open-ended fund. If that is the case - what kind of audits have been done on the code?
- ScJa 9y ago
  Hey, sorry to hear that my descriptions are not clear enough. It should indeed serve as a framework for potential investors to reduce the entry barrier of the crypto-sector. It is not my goal to monetize this software in any way. There are no audits done on it, it is a project I mainly programmed on my own with some feedback of other developers. By publishing it on Github my intention is to collect feedback and maybe achieve some sort of "community-auditing". But don't get me wrong I would suggest for anyone wanting to use this suite of smart contracts to get a professional audit done if large sums are involved.

45 points by ScJa 9y ago

I hope it will work better than the DAO. https://en.wikipedia.org/wiki/The_DAO_(organization)#History https://en.wikipedia.org/wiki/The_DAO_(organization)#History

admax88q 9y ago
Don't worry, if it doesn't than the network will just fork to return all investors money. Because "the code is the contract" except when it's not.
- Karunamon 9y ago
  Snarky but true. Why would anyone ever get involved in a popular smart contract when the network devs have shown they’ll play god with the block chain when it doesn’t come out their way? It’s definitely given me pause...

amluto 9y ago

I'm not an Ethereum expert by any stretch of the imagination, but I do know a bit about funds. This fund appears to suffer from an exploitable race condition. Suppose the owner of the fund changes the price by more than ~6% in a single transaction. Then anyone who has the power to race with the owner can buy at hte old price and sell at the new price or vice versa. Instant arbitrage! This looks like it can probably by mitigated by changing the price in tiny steps and waiting for confirmations (slow and expensive) or by withdrawing the entire Ether balance of the fund, waiting for confirmation, changing the price, waiting for confirmation, and re-adding the balance (slow, expensive, and very very annoying). Also, I would be amazed if this fund were not deemed a regulated security, in which case, if the operator is going to comply with securities laws, I see no benefit to using a smart contract at all. Also, 3% fees for each transaction? Yikes!

ScJa 9y ago
Hey, thanks for the feedback. Your points are definitely valid and are something that I have given some thought in the past. It seems really difficult to prevent arbitrage while still keeping the gas cost for price update low. This is one of the reasons why I defaulted at a 3% fee (which is ofc changeable as preferred), this could encourage share-holders to trade their tokens with potential buyers instead of minting/burning them. Another option could be to split the price into a "purchase-price" and a "withdraw-price" which are apart from each other to some degree. The idea by dynamically minting tokens for me was mainly to reduce the chance for a premium. Many funds in the past, like the TaaS.fund and ICONOMI have had huge premiums of 30%+, which is not ideal for either party. It will would defnitely be considered a security in the US I believe, but it was not my goal to setup a fund structure to avoid taxation. By being on the blockchain it is potentially possible to use it cross-borders.
- snissn 9y ago
  Why not have a fixed fee price per transaction? Also sorry if I'm not fully understanding things
  - ScJa 9y ago
    No worries, we are all still new in this field. It is another approach but I think it would hurt smaller investors and still enable people will large sums to do arbitrage. Let's say the fee is 10$, if someone wanted to invest only 100$ they might think twice about it. While if the price of the fund is 1% too cheap, a big fish could simply buy shares for 100.000$ and make 990$ profit by just buying them.
  - thisisit 9y ago
    There is an inherent issue with market making on a blockchain. Here's my understanding of it, maybe amluto and ScJa can correct me if I am wrong. Let's say X coin is worth 1 ETH now. As we are using a decenteralized market this price is stored in the blockchain. Now, an hour later someone wants to buy X coin at 1.2 ETH. This information needs to be updated in the blockchain. But then the update has to go through confirmation etc. So till the time price is fixed, this intent is stored in the blockchain mempool. There are two issues here. The price intent is public now. And a miner can selectively delay including this price change in a block. So, if someone is able to read the intent he/she can race with the fund owner and buy the coin at 1 ETH. Once the price change happens they can now sell the coins back to the contract at 1.2 ETH.

aaron-lebo 9y ago

I half expect to wake up some morning and find out that someone has figured out the killer app (mass market) for Eth or the blockchain in general, but stuff like this also makes me wonder if it can go on indefinitely, without producing any real value other than investing in itself with money hungry crowds and hopefuls (especially those invested) propping it up. It's been years since Eth launched and this and Cryptokitties are about it. Currently investing in a range of different cryptocurrencies requires a lot of technical knowledge. This has spawned the need for easy way to invest while reducing entry barriers. Ex. Is a lack of funding something that's really limiting what's possible there? You'd figure with the millions thrown at projects that don't have anything to show (Eth at the beginning, even), that if there was really some problem searching for a solution, someone would have hit it. I suppose that could seem luddite-ish.

ScJa 9y ago
I don't think it is a lack of funding from project from the ICO side. There are great funds out there which had success after an ICO (like C20, ICONOMI). The quoted comment is addressing traditional investors who possible already manage funds with "real-world" assets and would like to invest at least partly in cryptocurrency as well. I am hoping that these smart contracts might make it easier for them to join and consequently increase adaption of cryptocurrency investments overall.
simias 9y ago
Your comment got me curious to see what ICOs look like nowadays so I went looking for a list of active ICOs. I'm not sure how trustworthy it is but I ended up here: https://iconow.net/ico-listing-active-icos/ https://iconow.net/ico-listing-active-icos/ If I can trust the various websites linked it seems that it's still relatively easy to get millions of dollars worth of "investment" by making a fancy website and a rather vague whitepaper (no previous experience or proof of concept required). The "red lantern" one at the top of the list who claims to be about "sexual education" is pretty transparently a prostitution app whose ICO currently nears $1 million. Looks like it's still the wild west over there.

thisisit 9y ago

My first reaction was that this looks cool. A friend has been looking for an open ended fund/ICO on the ethereum blockchain. But, reading through this has left me confused as to what am I looking at? I can be wrong but my understanding is that this is meant to serve as a framework for anyone who wants to start an open-ended fund. If that is the case - what kind of audits have been done on the code?

ScJa 9y ago
Hey, sorry to hear that my descriptions are not clear enough. It should indeed serve as a framework for potential investors to reduce the entry barrier of the crypto-sector. It is not my goal to monetize this software in any way. There are no audits done on it, it is a project I mainly programmed on my own with some feedback of other developers. By publishing it on Github my intention is to collect feedback and maybe achieve some sort of "community-auditing". But don't get me wrong I would suggest for anyone wanting to use this suite of smart contracts to get a professional audit done if large sums are involved.