What are the risks of the crazy THE DAO?

In the world of blockchain, not only is knowledge not enough, but even logical thinking abilities are often challenged.

In the world of fiat currency, you only need to know how to make money and spend it. However, if you want to invest in Bitcoin, you have to understand the meaning of decentralization and the blockchain consensus mechanism.

However, this is not the end. After finally understanding Bitcoin, the world's best currency, two-tokens with asset issuance functions, represented by NXT and BTS, once again made a dazzling appearance. Unfortunately, the good times did not last long. Due to centralization, trust, or the character of core personnel, the sand was washed away by the waves, leaving only the residue.

Ethereum suddenly emerged and became a new miracle. Its market value once exceeded one-fifth of Bitcoin in half a year, but most people still don’t understand what Ethereum does.

After finally understanding that Ethereum is a "Turing-complete blockchain operating system", THE DAO is crowdfunding like crazy again. In 15 days, it raised 100,000,000 US dollars. Yes, 100 million US dollars.

However, the magic does not end there. Few people know how the 100 million US dollars will be used, how it will make profits, and how it will operate.

Here are two:

Explaining DAOs to non-technical people in 10 points

I guarantee that you still don't understand it, let alone non-technical people. Technical people who can truly understand it, please stand up and tell me 12345 why this thing is worth 100 million US dollars.

There is a translation from coindesk on Babbitt:

The DAO: Crowdfunding exceeds $50 million, but no one knows who its initiator is

If you are not mentally prepared enough, you will probably collapse after reading this article: We don’t even know who holds the private key, but someone in the world has thrown 100 million US dollars into it. Is this crazy?

So, what exactly is THE DAO?

You must still be confused when I say it is a decentralized autonomous organization. To put it bluntly, it is a virtual management agency similar to that with government decision-making functions. The only difference is that real government agencies manage administration, while DAO manages crowdfunded funds by voting. Since this fund is used to invest and support development projects on Ethereum, it can be considered a venture capital fund.

The question is, as a venture capital fund with distributed management, is it worth such crazy crowdfunding?

Let’s first understand the reasons for this crowdfunding madness:

1. The historical inertia of huge profits from crowdfunding:

1. Ethereum crowdfunding has achieved great success. The crowdfunding price was 3 yuan per coin. After listing, it rose to 102 yuan, with a maximum profit of 30 times. 2. Augur crowdfunding is also very popular. Although it has not been listed yet, it is expected to get several times the profit after listing. 3. DGD crowdfunding was completed very quickly. The cost was 17 yuan. After listing, the price on Yunbi reached 120 yuan at most, which is also a multiple profit.

As a result, many people believe that crowdfunding = huge profits, and are only afraid of missing out, not the results. They start participating in crowdfunding without even distinguishing between funds and projects.

2. Sharp packaging:

The management team of THE DAO brought in the young genius Vitalik Buterin, just like a commercial blockbuster, first decided on the star lineup, so the box office expectations became extremely high; technical packaging: various formulas, various possibilities, various awesome concepts, various incomprehensible high-end...

What should I do if I don't understand? I'll just listen to you!

3. Stir-fried hazy:

This trick is not new. From the stock market to futures, hype about unclear things gives room for imagination. It is precisely because you really don't understand that expectations can be infinitely magnified. Thus, a large group of people who are stupid enough to not see clearly feel that the opportunity cannot be missed and start this amazing crowdfunding behavior.

That’s enough. The above reasons are enough to stage a crowdfunding drama. The success of crowdfunding is beyond doubt. So, what are the results after completing the crowdfunding?

Here is my judgment after the crowdfunding of THE DAO:

It is inevitable that THE DAO will break even, but I cannot guess to what extent. The reasons leading to the break are as follows:

1. Once listed, since the concept has been hyped for a period of time, the ideal becomes a bare reality, and profit expectations become sensitive. It is difficult for a new fund to have dazzling performance in the early stage, because performance needs someone to pay for it! Without performance support, costs are increasing (think of the history of Ethereum almost running out of money), and the net value shrinkage is almost inevitable;

2. The opportunity for huge profits is gone. No one has the patience to wait for the returns in a few years. Liquidity is always the first choice for speculative funds. It feels that there is no room for growth. It is almost foreseeable that a small loss will be made first. This is the second reason for the break-even.

3. The complex management mechanism makes it difficult for most people to handle it. Management becomes the power of a small group of people. An apparently decentralized organization may become a place for a few influential members to indulge in pleasure, which will cause users to abandon it.

4. Investment is a highly technical matter. Managing investment in a decentralized way, even with complex and sophisticated formulas, cannot replace human nature and human heart. Let collective wisdom manage investment. Don’t you know the idiom called “a mob”? Why not let 100 people jointly manage and make decisions in Buffett’s fund?

in conclusion

 If you can avoid participating, try not to participate. This may be a huge pitfall!

If you participate, don't think about huge profits, just run away when you make money!

Even if you lose money, don’t blame others. Just treat it as paying tuition fee. Independent thinking is very important!