Description

When users join a specific tier of a DAO, they pay a designated tier price to receive a minted MembershipToken.

This fee accumulates, and Project Owners can withdraw the collected amount through the OWP website's front-end interface which is gonna be done through MembershipERC1155::callExternalContract() function.

After withdrawing the invested funds, Project Owners have no incentive to share any newly generated business profits with DAO members; they can choose to withhold profits entirely. In this scenario, Project Owners effectively receive the initial fees paid by DAO members without any obligation to distribute subsequent profits.

A malicious Project Owner could exploit this setup by creating a DAO linked to a project, investing in marketing to attract Investors, and then collecting tier fees payed by DAO members. Once they have withdrawn the accumulated fees, they could disregard the DAO members, keeping all future profits for themselves and ignoring any obligation to share earnings. This lack of enforced profit-sharing leaves DAO members vulnerable to being excluded from potential returns on their initial investment.

Impact

The absence of an incentive or mechanism to motivate the project owners for profit distribution after claiming tier prices payed DAO Members, risks damaging the platform’s reputation and undermines the DAO’s purpose as a community-driven, profit-sharing model. This will Result in DAO members investments being taken advantage of and possibly stolen, leaving them with no return on their investment.

Recommended Mitigation

A mechanism should be implemented to incentivize projects to distribute newly earned profits among DAO members.

• One approach could be to limit the Project Owner’s access to only a portion of the tier fees paid by DAO members as an initial step.

• Additionally, when creating a DAO, Project Owners(DAO Creator) should lock a certain amount of funds within the DAO. This locked amount would act as collateral, ensuring that if Project Owners decide not to share profits among DAO members, these reserved funds can be used to compensate DAO members investments.