Raising money from Main St. investors has come a long way from the days of Initial Public Offerings. From IPOs to Kickstarters to ICOs… and now, it seems, we might be switching to DAICO.
In the cryptocurrency world we’re most used to Initial Coin Offerings and different variations such as the Initial Loan Procurement offered by Blockhive. But a new project, The Abyss (a gaming platform), is the first to trial a new funding concept called the Decentralized Autonomous Organization Initial Coin Offering.
To be able to understand the potential improvements that DAICO’s bring to the table, it is important to understand the current state of funding through ICO’s.
The ICO Model
The financial phenomenon of ICO’s redefined cryptocurrency ventures by giving them the ability to go directly to the markets and raise funds without regulatory restrictions. Cryptocurrency projects issue tokens that may or may not have value tied to the actual operation of the issuer; these tokens are purchased by investors and held or traded. The tokens issued in ICO’s can vary in nature and can serve as utility tokens, or tokens that act as security (giving the token holder interest in the issuing company).
Yet, as with any other revolutionary concept, the overall function of the ICO does have some room for improvement. Issues include the ambiguity in the nature of the token, the lack of regulation, and concerns engendered by projects in which the founders perpetrate a PlexCoin-style ‘Exit Scam’, running for the hills with the money – leaving minimal recourse for a return of investor funds.
These concerns and critiques are shared by many in the regulatory and crypto community, including the man who has been integral to the creation of the concept of ICO’s himself, Vitalik Buterin.
Vitalik Buterin, co-founder of Ethereum and the current head honcho behind the Ethereum network, suggests that ICOs have the potential to evolve into something more, specifically, by the usage of the decentralized autonomous organization (DAO) model.
He calls the initial concept DAICO, and hopes that the decentralization of an ICO could take the methodology to an increased level of effectiveness.
The DAICO Model
Simply put, the DAICO will use the most integral concepts from an ICO and a DAO, merging them together to leverage the most relevant features of each of these methodologies.
For instance, it will take the ICO’s single-project approach along with its preventability of a 51 percent attack, and have it combined with DAO’s crowd wisdom, eradication of control by a centralized team, and the ability to spread the release of funds over time rather than having them available to the ICO’s issuer all at once.
By allowing these functions and using them together, Buterin explains that DAICOs will provide user protection in a manner that has not been provided before, as a DAO mechanism will ensure that funds are not being misspent by the ICO’s issuer but are used for the intention for which they were invested.
Describing Buterin’s concept in simpler words, a DAICO will start with a smart contract by its executors, that can set whether it is a capped contribution or a Dutch auction among many other options, including additional know your customer (KYC) requirements.
After these settings are configured, the executors then present their DAICO to the public to fund, setting it in “contribution mode”. The contribution mode will work like a regular funding period, where investors would be able to pay in Ether in order to get their ICO tokens.
Once the contribution period has passed or the required amount is met, it will allow all investors the ability to set the “tap” for the collected funds. This tap will refer to the amount per second that is available to the executor to develop the promised project. This functionality will ensure that the funds are not misused and only spent where they are needed.
In case the investors change their mind about the effectiveness of the team behind the project, they can either raise the tap together to provide more funds to the team, or in the worst case scenarios, choose to “self-destruct” the ICO by voting on it, which will allow all unused funds to be refunded to their respective investors.
By allowing these functionalities, Buterin aims to put a stop to the way that bad actors are using ICOs to their advantage with practically no authority to really govern their offerings, which can cause unsuspecting investors to be duped.
Who’s Switching To DAICO First?
Ever since Buterin expressed the idea last month, various discussions have been held on its execution. Since it is considered as a natural evolution of the way the community is currently handling ICOs, and since a majority of Ethereum developers agree upon it and want to put it to execution as soon as possible, work is in progress for this mechanism to come to life.
The most recent reports came from gaming startup named The Abyss, which is currently working on deploying the first DAICO, taking Buterin’s concepts into consideration and building upon them to improve them further.
For instance, the team behind The Abyss is working towards establishing a “quorum” for the number of votes that would be needed to put a decision into action, and they are also working to enhance the self-destruct or refund mechanism that Buterin explained last month by allowing several people to serve as the overseeing body of the DAICO, which would be able to allow a refund vote to go through and take investors’ opinion on it, depending upon the circumstances.
The DAICO for The Abyss is going to target $60 million, which is no small amount to play with. Therefore, it will be interesting to see how this high stakes experiment turns out to be for the company, and if it provides revolutionary functions to redefine the ICO crowdfunding model.