Not sure what an honest Ponzi scheme is, but obviously not only would a contract for a Ponzi scheme be unenforceable, but Ponzi schemes are also criminal.

I'll give real world examples that go both ways:

1. Parking garage tickets: they include tiny little print saying the garage won't be liable for lost or stolen items from your car. Generally if your car is broken into those will be enforceable and the garage won't be liable.

2. Sky diving contract: include tiny little print that says if I die as a result of the companies negligence, they won't be liable and/or I waive my right to sue. Unenforceable, you can't waive negligence. (think about a skydiving school forgetting to pack a chute, someone dying, the family suing and losing, because of a defense that the deceased waived out negligence in the contract).

Lets look at a potential negligence claim against the creators of the DAO code.

1. By creating and soliciting investment for the DAO did its creators the investors a duty? If yes go on;

2. By creating code that allowed ~$40M of investors funds to be taken, was their a breach of that duty? if yes, go on

3. Did the substandard code result in damages to the investors? if yes go on

4. Can the investors prove monetary loss? if yes, you have a good civil claim for negligence against the creators of the DAO for the damages.

By a Honest Ponzi scheme I mean someone comes to you with a contract, and is not trying to be deceptive, is not trying to lie, doesn't have misleading marketing materials. He writes in Font size 36 : "This is a Ponzi scheme, it works the following way : [...]. You agree with all the risks involved when giving the money". This would work if this was Ponzi Scheme, or a Roulette game actually[.].

When you sign, there is a notarial act, and a video of you shaking hand and saying out loud that you understand this is a Ponzi scheme and you might end up loosing all your money, there is also some drug tests performed to make sure you are not under the influence of any drug, and some psychiatric evaluation to make sure you are not disabled in any way.

[.] Another thought slightly off topic: can I sue a Las Vegas casino because I put $100k on Red but the ball ended on Black and I lost everything? They even facilitate drugging me with C2H6O!

ponzi's are illegal, and not for being misleading, for having the financial structure of a "pyramid scheme". "disclosing" the structure makes it easier to prove that they fit what has been made illegal.

This is the first legal argument that I've read here that actually makes sense.

Ianal but having seen an egregious contract in action, I was told that the legality of a given contract depends very much on the kind of contract being signed and the kinds of people signing. The question is what sort of contract is "unconscionable".

For example, someone signing a standard residential lease wouldn't be expected to read fine print that says "after two years, rent doubles and I can kick you out and demand rent in advance". But someone signing a commercial real estate contract would be expected to read and abide just about anything, including something like that.

So I think how enforceable legal a contract that says "btw, there's a strong chance your money will wind-up with a stranger" depends on how well the investment literature really conveys that risk.

Also, I have the vague impression that the riskiest investments are reserved for high-net-worth-individuals (those with $2 million+ in non-real estate assets) because they can afford to lose more money.

>The question is what sort of contract is "unconscionable"

For those that don't know an unconscionable contract is a term of art, and basically means an otherwise lawful contract that the court will not enforce, because it is so unfair usually as a result of an unlevel playing field between the parties entering the contract. This is very good, and a legal theory I had not considered.

>So I think how legal a contract that says "btw, there's a strong chance your money will wind-up with a stranger" depends on how well the investment literature really conveys that risk.

Say for example the party who wrote the contract wrote it in a language they knew the majority of investors did not read because they could not read the language. Further, the contract drafter induced the majority of investors based on marketing materials in different language than the contract that the investors could read, but were ultimately were inconsistent with the underlying contract.

Another general rule of contract law where a promise, agreement or term is ambiguous, the court will enforce the meaning that works against the interests of the party who drafted to contract.

And what if it wasn't printed in very fine print, but was actually a main selling point?

I probably wouldn't have experimented with the DAO if I knew it wouldn't be ruled by its source code, like the terms clearly stated when I "invested" in it.

>And what if it wasn't printed in very fine print, but was actually a main selling point?

Fantastic legal point. For example, I once sued a car company on behalf a client based on the claims from the promotional materials which were inconsistent with the contract. Of course the car dealer defended on the four corners of the contract, but we prevailed because the court found the promotional material to be enforceable notwithstanding the contract. Now keep in mind that was a single judgment in a single case, it is not controlling precedent.

But it won't let you get money back out of a smart contract so good luck with that.

You can probably sue the creators for their claims but it won't change the situation and it just means the next DAO will be launched anonymously.

>But it won't let you get money back out of a smart contract so good luck with that.

Good luck getting money back from most any scam...Its not like Bernie Madoff used a smart contract and yet about $6B of the money is never coming back.

> and it just means the next DAO will be launched anonymously.

Fool me once, right? Sure people might fall for the anonymous DAO the next time, but people still fall for the Nigerian email scams too. Still from a practical point of view, do you think after losing ~$50M about ~1/3 investments the market/people are going to be lining up to put another $150 into a new DAO, only this time they won't even be convinced by the credentials/background of the creator?

Theoretically though, you could squeeze him enough (pre-death) to get most of it back. Either legally through civil court, or just with baseball bats if you were so inclined.

But with a smart contract it's gone.

> Fool me once, right?

No. Please never invest in a smart contract. Consider this your warning and walk away. They're not for you. Ditto everyone who doesn't plan on reading the contract.

> Still from a practical point of view, do you think after losing ~$50M about ~1/3 investments the market/people are going to be lining up to put another $150 into a new DAO

You think people aren't that dumb? Wishful thinking. Even with all the warnings in the world they'll run to "invest".

But I don't assume all future smart contracts are scams. Eventually one will do something useful, and simply enough that it can be verified.

> only this time they won't even be convinced by the credentials/background of the creator?

Oh, entirely.

The background of the creator is a negative. They'll claim they're honest so that they can leave an update backdoor in the script which they'll inevitably use to steal everything. Fact of nature.

But if they're anonymous there's no way we'd participate if they left an update hook, so they wouldn't, and it'd be much less likely to be a scam.

But that was not the proposal. The DAO proposed that you allow the code to have it's way with your money.