What is a DAICO and how is it better than traditional ICOs?
Early 2018 Vitalk founder of ethereum proposed a mix of the Dao and traditional ICOs, the DAICO. The word DAICO originates from decentralized autonomous organization and the initial coin offering. In mid-2016 the DAO raised over hundred 160 million USD, a bug in the source code made it possible that several hackers could send funds out of the system and stole millions resulting in the famous rollback of the ethereum chain.
However many still believe that raising funds with a DAO is better than the current ICO Model. The DAO used the wisdom of the crowd to determine which projects would get funded. The DAO also gave investors the power to terminate Blockchain projects if 51% of the users voted that there is no progress made. Later the SEC also moved in and declared the DAO a security and that was the end of that story.
The DAICO is a mix of the benefits of both DAO and ICO.
ICOs raised over $20 billion since 2016 although capital inflow into initial coin offerings is slow down still raise millions every month. New studies showed that only 8% of all ICO projects eventually move on to trading, however, most if not all of them failed to produce a viable product that utilizes their native token for the services described in their white paper.
There are many reasons for the failure rate of initial coin offerings, one of the main reasons are the unalignment between investors and the company. ICOs can raise millions in capital without any accountability in case they will scam or fail their project. DAICO can change this fundamental problem. DAICOs allow token holders to vote for termination of the smart contract and to be refunded if they are dissatisfied with the development process of the project
This means that in the DAICO model, investors cannot be scammed and developers can be held accountable for lack of development or for holding a legal exit scam. ICO open new projects and scam investor for their money, just announce bankruptcy six months or a year later.
How does the DAICO work?
In a DAICO investors can then proceeds to send ethereum or any other accepted cryptocurrency to the team. They will then receive their new native token at the end of the sale.
Here is where ICOs and DAICOS become different:
With an ICO the team now has full control over 100% of the funds to do what they please with. Most ICOs have proven already that they are not ready to handle funds of this size. ICOs going bankrupt only months later because they were too arrogant of confident to hedge any of the funds that were given to them happens on a weekly basis.
With DAICOs its different. Once the funds are sent to the ICO a smart contract will send a small percentage to the Team and the rest will be sent to a smart contract escrow wallet. Those funds will be held in the smart contract until the community of investors decides to release more funding to the team in a process called TAP.
A TAP allows investors that are holding tokens a certain degree of control over their contributions by giving every investor the ability to release more funds to the team or terminates the contract and get fully refunded.
If the team wants more capital they have to request a new TAP. The investors will be notified and a new vote will commence. The team will have to show their development progress and convince their contributions that they deserve more funding. Similar to how governments have to prove to citizens that it has been doing a decent job as governing the country.
What are the advantages of a DAICO?
DAICOs help to protect investors. They reduce and limit 51% attacks and make scams impossible, they motivate the development team to work harder and achieve preset milestones. They bring more transparency into this space as investors are required to be aware of the process needs in the projects that they have invested in, and this will also result in more educated investors.
Imagine employees would get their yearly salary the first day that they come into the office, without needing to provide any work and knowing that none of their actions will result in any consequences. Well, that’s EXACTLY what an ICO is.
DAICOs would be normal salary model, employees get paid every month if they provide the agreed-upon development and work.
Okay this sounds pretty cool however there are still several core issues that make it difficult for projects to move over to the DAICO model. So far, there has only been 1 DAICO in 2018. You can click on the link below to look at the voting results of the past 6 months and how a DAICO differs from ICOs in practice.
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