Caution: The DAO Can Turn into a Naturally-Arising Ponzi

The 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.

The differnce is that in TheDao the money is protected by a smart contract. It's auditable by anyone and securely locked - literally no single person or entity owns keys to the lock.

In case of Paycoin, and many other similar scenarios, you had to trust the company.

That'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...

The fact that people are even able to write about a decentralized financial entity with emergent behavior in the first place says something, too.

Yet, if you had invested in bitcoin 5 years ago you would have outperformed Berkshire Hathaway's lifetime performance. In my opinion if you are young, it makes sense to make these kind of bets, and it doesn't necessarily mean that you are misinformed. Cryptocurrencies are certainly onto something, and it's still not clear which one(s) is(are) going to win, so by buying them you are not only making an investment but also voting with your money. I do believe that the DAO will crash and burn, but the truth is that among the people that bought DAO tokens, I don't know anybody that invested a significant amount of their savings. Furthermore most of the people used the Ether they bought at 100th the current price when it first launched. Last but not least, as an economist, the DAO is a fascinating experiment, but I do hope that nobody loses their life savings because of it, which brings me back to your initial comment that raises a good point.

With your reasoning you should prohibit lotteries.

Anyone writing about arbitrage in the tone of "free money found!" can and should be discounted.

Arbitrage doesn't create value, so its profit is always taken out of someone else's hide. Always, always, always. If you think you've found it, you need to explain why the people you're fleecing haven't seen the same thing you have, and why they won't act to interrupt you as soon as you start the process.

The people seeing an easy profit for the DAO have failed at both of those tasks, apparently failing to understand that they would be engaging in illiquid currency speculation and moreover that they would be doing so publicly, open to price manipulation.

Outside of this guy (https://www.bloomberg.com/view/articles/2015-02-27/arbitrage...), people claiming open-ended 'arbitrage' really aren't suited to investment.

the more FUD (like your post) that comes out about ethereum, the stronger my urge to invest in learning Rust, in order to use Parity[0]. I've been downvoted every time I buck the trend, and I've experienced financial gains almost proportional to my downvotes. I'm still living off the profits I made after the last bitcoin debasement (check my post history to see when). Bought back in at $400/BTC, and _really_ enjoying the profits I'm currently looking at.

0. https://ethcore.io/parity.html

The early investors got in very far UNDER the current "market" value.

You're forgetting the 48-day asymmetry.

Actually any company buying back its own stocks is doing the same, and it tends to work out well for investors.

You would need to submit a proposal. Here is a good overview on that.

https://blog.slock.it/how-to-create-gorgeous-proposals-81eb3...

good for you. you obviously have a different use case for your assets than others. as is your right and theirs.

Why should a doctor care when he sees someone eating buckets of fried food while smoking a cigarette?

> Why would you care what anyone does with their money?

Really?

Two fairly obvious reasons I can think of in ten seconds: sympathy for other people, and the desire to not see the entire sector tarred as a giant scam. I suspect there are other valid reasons.

Because if this becomes big enough, and enough grandmas lose their nests, my tax dollars will be used to prop up others' dumb decisions.

We detached this subthread from https://news.ycombinator.com/item?id=11898693 and marked it off-topic.

Because in the real world, distribution of capital has a little thing called "opportunity costs".

A bunch of people are allocating large amounts of capital to shams when they could have been making productive use of it, this both gives rewards, social power, and encourages scammers/fraudsters, but also forgoes investment in otherwise productive activities that could benefit us all.

In addition, there are very real concerns about government involvement, as well as the social consequences when mom/pop/sister/brother/anyone we care about loses their money to such...

I could go on...

Strangely true. Simultaneously, a reductio argument. Quod libet, I infer: Fish, bananas, old pajamas, mutton, beef and trout.

Is 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").

Or, 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.