Besides the obvious fact that the owner of the company that created it had no experience in Finance Software Development, previously working in marketing/PR.
The public appearance of the Slockit team who made it was purely marketing. Everything they output lacks any real details or substance and when anyone ever talked about this they would react badly. Often with really arrogant or accusatory outbursts.
Their main concept is basically a smart lock that uses a raspberry pi and Ethereum to unlock doors based on money sent to a smart contract. Lets ignore that this concept does not require Ethereum and that changing a variable in a contract from a 1 to a 0 and having a raspberry pi short poll that and open a lock is not revolutionary or interesting. And lets ignore the massive security holes, from both regulations on doors and the fact that the contract could be gamed if the items in the house value more than the cost to open the door since interaction is anonymous.
The point that makes them reek of being a scam is their plan to fund this idea.
They seem to take credit for the entire distributed autonomous organization concept despite several already existing. They put out a white paper called "The DAO model" basically suggesting a DAO should only function as a investment group but in a way it had limited control and limited recourse if something went wrong. Then they had the audacity to name their DAO "The DAO".
The contract allowed for a group of people to pool their money into a single contract then elect a custodian, or rather a company to take those funds and use them, profit not arbitrarily taken by the company is given back to the DAO to reward investors.
To avoid legal responsibility they did not release this contract themselves, they made it open source and said that someone else would have to start it and begin the process of funding it, despite them making the marketing material including the website.
It was released, they marketed it and the idea was that they would become the first custodian of the money, taking whatever number of millions without selling a single share in the company and being able to dictate how much they give back. If they failed there would be literally no repercussion. The fact that anyone thought this was a good arrangement is absurd.
Many people including myself asked why there was not an upper limit on investments, their answer was that since you could split off from the original DAO. There did not need to be an upper limit so no one could buy 51% and steal the rest. This "feature" was the vector for the attack on the DAO.
The code was an embarrassment, with many common mistakes made by amateur programmers who have no experience working with money. For example, they incremented after doing the call function to transfer money.
When people did report issues to them, they ignored them and then made claims they did not affect them.
The ETH Foundation then used their own resources to promote the DAO. Both project founders and others were made "curators" who would vet the code of incoming proposals (one left quite quickly). Many of the ETH Foundation members invested in the DAO.
The first generation of this code, 1.0, with no prior testing was released and funded with 150,000,000 dollars.
Nothing in this explanation of terms or in any other document or communication may modify or add any additional obligations or guarantees beyond those set forth in The DAO’s code. Any and all explanatory terms or descriptions are merely offered for educational purposes and do not supercede or modify the express terms of The DAO’s code set forth on the blockchain; to the extent you believe there to be any conflict or discrepancy between the descriptions offered here and the functionality of The DAO’s code at 0xbb9bc244d798123fde783fcc1c72d3bb8c189413, The DAO’s code controls and sets forth all terms of The DAO Creation.
This was an interesting read, so first and foremost thanks -- I'm glad you took the time to spell it out.
Firstly I'm a bit confused. I interpreted your initial comment as saying that it was a bad idea for the Ethereum protocol developer to hold $115k DAO tokens, but now I get the sense that you were saying the DAO, as a whole, was a bad idea. Could you just clarify which it is?
Secondly, I get the sense that you're making two types of claims: a) claims of incompetence on the part of the DAO/ETH team (which seems to be the general consensus) and b) claims of fraudulent malevolence.
As a layman, I'm interested in getting a better picture of the latter. Couldn't this "just" be a case of shoddy craftsmanship and absence of due diligence on the part of investors? I apologize, but I don't see the scam per se. Please be aware that I'm only superficially familiar with smart-contract technology.
My point was that anyone would look at theDAO concept and invest 115,000 is a mind boggling to me. Its not a good arrangement for the investors.
The developer who works on the protocol should have known better and also read the code.
I also personally think that anyone working on the protocol should not be holding securities that the non profit foundation they work for is promoting. And they should then not be using those non profit funds to change the fundamental principals that were advertised to raise the funds.
As someone who took part in the initial Ether offering I was curious about the DAO hype and thankfully saw right through the bubble of naive idealism and saw the fact that slockit was behind it as being very dubious. I used the hype to sell some ether in the run to the DAO. The benefits while cool sounding were wishful thinking and the perception that DAO tokens were risk free yet built on a very risky first generation of an open language led to stupid amounts of money going into it, making it probably one of the best targets for a hack in a while.
