18 May 2016

This Is Either a Scam, or This Will Become a Scam

The latest thing in crowd funding is something called a decentralized autonomous organization (DAO) and my nose tells me that this is, or is going to be, a new way for people to have their money stolen:
We’ve flagged cryptocurrency enthusiasts’ distinctly mystic beliefs in spontaneously emergent headless organisms before.

Now something called the “Decentralised Autonomous Organisation” — The DAO, not to be mistaken with Tao — project has begun to attract actual column inches in mainstream publications, albeit in keeping with the new style of journalism… i.e. devoid of critical evaluation and taking all claims at face value.

The DAO is currently raising Ether tokens (the pre-mined currency of the Ethereum blockchain, itself funded via a bitcoin capital raising) — $110m at mark-to-market rates today — in exchange for DAO, a token which “grants its holder voting and ownership rights.” As Techcrunch put it, holders of DAO “can use their tokens to vote on big governance issues (akin to traditional shareholders) but also on minute details of how The DAO spends its resources. In this way, token holders have total control over The DAO’s assets and its actions.”

The DAO explicitly states its tokens are not a form of equity — even if to the average bystander everything about the DAO token looks, smells and feels like common equity. (Perhaps the feeling is that if you dazzle them with “tokens” instead of stocks, those pesky unlicensed stock solicitation rules won’t apply? We’re not sure regulators will see it that way.)

We won’t go on about how the world has had 100 years (or more) of feedback with respect to what happens when you remove the professional executive/management function from corporate identity, or transfer all day-to-day decision making to amateur committees. Any cursory review of modern history (or a quick read of Animal Farm) will flag up the problems: indecision paralysis; wasted time and resources on voting and bureaucracy; entirely non-diplomatic means of grabbing power just to get things done; uninformed decision making; exploitation of the ignorant; tragedies of the commons scenarios and last but not least: a lack of skin-in-the-game accountability for poor decision making leading to post-facto due diligence processes with dire consequences for capital, human resources and environments.

We won’t even mention that $110m raised in illiquid tokens based on mark-t0-market valuations is akin to a paper profit only, and might create a helluva Ether currency collapse if it’s actually spent on resources in the real-world…
I don't know if this is a scam now, but I do know that it it isn't, it will be, and it will be sooner than later, because this is what happens when people set up a business based on self delusion.


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