Can any DAO experts allay my fears that smaller investors won't get a raw deal?

[Inedible]

I'm currently investigating The DAO and it looks incredible. It seems like a great model to build businesses like-minded people can support based on their own beliefs and goals, however, I have some worries about the current offering from daohub.org.

I get that you can vote on whether or not a proposal goes through.
My understanding is that if you vote NO, you can withdraw your ETH before the proposal goes through.

This all leads to a perception that you have absolute control of your investment but I believe that's true up to a point.

We all know that in order to have more say in a DAO, all you need to do is buy more DAO - which is fair enough. If you have a larger stake, you should have a larger say and this is where my doubts begin.

What's to prevent the main stakeholders of The DAO from ensuring they have the majority share by buying up just enough DAO to maintain that position? You would only needed to have been an early adopter in ETH or you'd need a cash equivalent of around USD1.7M at TODAYS price (USD460) to do that. You'll need more and more ETH/cash before this is up but these amounts of money are tiny in the financial world.

With control of the DAO, you now have a huge amount of funds at your disposal. You've effectively doubled your money.

Now you can put in a proposal to pay for some big project that you control. You could effectively pay yourself a huge sum of money to build a product that will return 5% of any revenue.

You now have a lot of cash that built a project that you keep and you'll only pay 5% of any profit it makes. Now that sounds like a bargain to me.

To make matters worse, you can now sell your large stake (because all the funds have been extracted from it) and you're all done.

You can tell me that this will never happen but then I'll point you to the numerous examples of people getting conned by organisations that all claim to be reputable.

[Za1n]

From my understanding you will have to vote on the proposal, which not only includes the proposal itself but the code that will control the contract. So if you see provisions in the code allowing the types of things you mentioned to occur, you would obviously not want to vote for it.

You are right at some level you will have to give up some control, as with any investment. Even if the proposals and code are legitimate, the proposal or business plan may not work out. Their are 1000's of business that startup each year, with their owners investing possibly their life savings to get their business going, only to fail in within the first few years. These people certainly did not invest in a scam, as it was their own business, but nonetheless still lost their investment. The point is, no matter what is proposed there are still going to be risks.

With an entirely new concept such as the DAO there are not only going to be the same risks as with any other startup, but new risks due to the functioning of the DAO, its code, and its new and unproven concepts.

There is no guarantee of anything if that is the answer you are looking for, and as with any investment you need to be prepared to lose 100% of your funds.

What you get in exchange for your investment is that you are participating in the first of a totally new concept and way of financing a business. If, and that is a big if, it does take off and one of the first proposals becomes the next Facebook, Google, etc. you will be not only participating in history, but stand to make a substantial gain on your investment.

TLDR - Only invest with funds that you are prepared to lose.

[Inedible]

I have no qualms about an investment not working out.

I don't even have a problem testing out the new risks presented by a DAO but I'm just trying to work out whether I need to consider the risk that what appears like a fair deal isn't all it seems. I just don't want to need to factor in an additional risk - collusion.

The only issue I have is that someone with enough resources (say USD2M) could effectively double their money by buying enough DAO tokens to take control.

So you could say the curators would manage that by preventing that from happening and that's a very comforting control unless the curators themselves have something to gain from allowing that vote to go through.

I guess you could say that in this instance, it's a conflict of interest the current curators have.

[Za1n]

I have no qualms about an investment not working out.

I don't even have a problem testing out the new risks presented by a DAO but I'm just trying to work out whether I need to consider the risk that what appears like a fair deal isn't all it seems. I just don't want to need to factor in an additional risk - collusion.

The only issue I have is that someone with enough resources (say USD2M) could effectively double their money by buying enough DAO tokens to take control.

So you could say the curators would manage that by preventing that from happening and that's a very comforting control unless the curators themselves have something to gain from allowing that vote to go through.

I guess you could say that in this instance, it's a conflict of interest the current curators have.

Exactly! The curators and the 51% controller of funds could simply be one big colluding bunch, but at some point you need to trust someone. Keep asking questions! Legitimate questions such as these are good for the community and help others out, and possibly allow others to provide insights we do not have and share them as well. I think with honest community opinion and involvement we would be able to pick out and spot any outright fraud.