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I can answer this question since I accidentally created a circular reference the other day. It starts syncing the recursive structure until it runs out of quota

• nessus42 13y ago
  > It starts syncing the recursive structure until it runs out of quota. I was curious about this myself, but I never tried it, as I feared that this was precisely the badness that would occur. Dropbox is so good in so many respects, I just can't understand how they could have made such an utterly terrible and wrong decision on this particular issue.