New fundraising standard for ICOs — DAICO?

In the last few years, the Crypto Industry has experienced a vast variety of ICO projects that came out with interesting concepts promising extraordinary results and MVP that would blow everyone’s minds. And a lot of us bought into their visions only to end up with useless tokens that have 20x-100x dropped in value since the ICO sale price. Recent market studies are showing that 80% of ICO fail miserably, only 9% of all ICOs get their tokens listed in exchanges and from those 9% only 10–15% have managed to create their MVP. It seems that a lot of companies try to solve challenging tasks that they are not competent in. The others don’t even try to solve anything and are creating ICO for money grab — straight scamming money out of naive investor wallets. Good example of such scams would be Bitconnect ponzi scheme & Bitair.io ICO.But now there is a new proposal that will change everything.To make investing space more trustable and ICO project owners more accountable in January of 2018 Vitalik Buterin (founder of Etherium) came up with entirely new crypto fundraising mechanism that has a potential to stop scammers and low quality ICOs from getting raised funds called DAICO [links].

What is DAICO and how is it different from ICO?

Let’s summarize main DAICO and ICO differences in 3 words: access to money. Let me explain.

ICO fundraising risks

In ICO fundraising event (token sale), once the soft-cap target is reached, all the gathered funds are released to ICO project owners/developers. That means that investors funds are frozen for undefined time and potential investment ROI is completely in the hands of project CEO competencies, developers abilities and trust that a project is actually not a scam.In the scenario where developers are not performing, project is not moving forward and the resources are being used irrationally, there is nothing that investor can do. The harsh truth is that ICO investors have no access to your invested money and if ICO tokens aren’t even listed on exchanges there is no way to even get a part of invested money back.But DAICO fundraising format is a countermeasure that reduces investor risks and gives investors a democratic group control over how DAICO funds are distributed and if they should close the smart contract and get their money out of the project.

How does DAICO reduce crypto investors risks?

DAICO is entirely new fundraising concept that proposes to use best parts of DAO and ICO worlds.

In this fundraising model, all funds to crypto project team are not released at once. To ensure that project is not ascam, developers actually have competencies to lead the project and give anopportunity for investors to cash out, there are 2 main smart contract mechanisms added to classical ICO model: 51% voting mechanism and TAP mechanism.What do these mechanisms do?

• That means that every decision on increasing fund access to the team must be met with the majority vote from investors (51% vote). (Audits accessible fund amount for project basically.)
• And the TAP mechanism defines how much funds can be accessible to the DAICO team. Investors are controlling TAP with votes.
• If the project is not viable any longer, can’t execute milestones or investors simply want to cash out of the project, with majority vote they can vote to close the project. If 51% majority vote is reached then at this point taken smart contract will be destroyed and all token holders will be funded back all remaining funds proportionally to their token holdings.

So, as you see, from the investors point of view, DAICO reduces risk 10x fold. (But remember, this investing, nor fundraising format does not guarantee the success of the project — just makes it harder for SCAM projects to “steal” money.)

What to consider before doing DAICO?

There are multiple things that you should be aware of and factor in your decision-making process before you choose to do DAICO:

• DAICO existence and token contract destruction is still vulnerable to 51% attack. Your competitors or third party “bad actor” (like big trader), can create an uncertainty from insight and potentially trigger the poll and and get the 51% of all the votes to shut down the project. (In this case, you can always redo DAICO, but it is just a pain in the….)
• Many people just HODL tokens (as that usually is) and are not active participants in crypto project community. In such case, when let’s say 40% of all token holders are passive and don’t take part in decision making polls, the decision to get executed just need 31% of support from all token holders;
• If DAICO project owners have high token holdings %, similar problem of vote manipulation in both directions become a more probable;
• Note that it is still unclear what role in DAICO crypto exchanges play. Currently, when listing your token in the exchange you are asked to deposit huge token amounts. (These tokens are needed to secure trading demand.) In DACIO that gives exchanges huge voting power and influence over DAICO crypto project.
• For the project founders, DAICO might be huge financial uncertainty. When scaling and solving new unplanned problems, there might be more resources necessary to manage project operations efficiently. So, in order to get these resources you would need to ask community to increase TAP (access to ETH). But there is no guarantee that you will get the extra money or get it on time.
• The one of biggest challenges for project founders is to communicate in the transparent way details of operations to investors. Currently, there are no standards for evaluating if MVP delay because of other additional feature were implemented or finally getting intent of purchase from potential customer (not purchase itself) after some artificial self-sustained deadline (DAICO roadmap) is exceeded, are measurements of progress forward (towards success) or stagnation (movement towards failure). General psychology of event perception might dramatically impact project fund release.

So, as you see, there are still many things to consider before adapting DAICO model. But if there are so much road bumps in the way, is there any real future for such ICO alternative?

Will DAICO be the future of ICO fundraising?

From other perspective, the EU plans to increase ICO regulation and we suspect that in near future ICO will be forbidden — some other mechanism will be demanded. WIll it be DAICO? Most probably some kind of evolution of DAICO. Format with a bundle of smart contracts that together will provide advanced controls that will protect both sides of the “partnership”.

Should you be doing DAICO instead of ICO?

Currently, there already is one project called Abyss (https://www.theabyss.com/) that has implemented this new fundraising model. We can learn from their performance and mistakes. (This project had their DAICO a few months ago, but it is yet too soon to evaluate. We need to see how community self-manage complex decision making, to see if and how this stagnate or propel projects development.)Should you be doing DAICO? Unless you want to be a guinea pig and operate in uncertainty, we wouldn’t advise you to pick DAICO model over ICO, at least not at this point in time. In time this model will mature and it will be smarter to switch (We do see the switch happening).BUT if you are choosing to do ICO or are in one at the moment, be aware that in a few months to a year time period time we predict, that ICOs might be obligated to implement control mechanisms that give some kind of regulation to their project and is concise with EU, US regulations.

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