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ICO’s better investments with DAO? DAICO!

Innovation has been in catch up mode since the arrival of the blockchain technology and 2017 was unprecedented in the number of ICOs and funds raised, which exceeded $6bn in 2017, with a total of 895 ICOs launched through the year.

ICO market

The incentive to evolve the existing initial coin offering platform has certainly been significant when considering the Chinese government’s decision to ban initial coin offerings and fraudulent activity plaguing the ICO market. So it comes as a little surprise that a new decentralized fundraising platform is about to go live.

Vitalik Buterin, co-founder of Ethereum and Bitcoin Magazine, is looking to deliver a more democratic method of controlling Initial Coin Offerings, which is carried out on Buterin’s Ethereum platform, through the rollout of DAICO.

What is DAICO?

DAICO, encapsulates all of the original characteristics of the ICO’s fundraising process, whilst incorporating a Decentralized Autonomous Organization (DAO) protocol, giving investors greater control over the use of funds by companies and development teams through the lifetime of the project or company in question.

This way of developing a company in combination with major financial injections is expected to minimise fraud, whilst specifying contribution and resolution rules and is expected to eliminate voting attacks that plague the ICO market. If implemented right it could be of huge value for the team. Both by maintaining a clear roadmap focus and welcoming feedback from the involved community of investors.

Check out Abyss Platform. The first switched from ICO to DAICO.

The Difference between ICO and DAICO

DAO ICO The initial part of the DAICO fundraising process is similar to both the Initial Coin Offering and Decentralized Autonomous Initial Coin Offering platform. Start-up companies and projects are able to raise funds, with investors buying project of company tokens with invested Ethereum coins. Like ICOs, DAICOs can structure their crowdraise however they like, including implementing strict KYC standards. After the crowdsale, the tokens can be listed and traded on any exchange.

In an ICO, it ultimately is in the hands of the project or company to use the funds with no oversight or control given to the investors. The principal of decentralization is flawed here, with a project or company’s funding essentially centralized in a decentralized world. This is reversed in DAICOS. In addition the DAICO differs by deleting damaging kinds of 51% attacks, (A) sending funds to some other 3rd party chosen by the attacker, and (B) lowering the tap to keep funds stuck in the contract indefinitely are simply not possible with the DIACO platform.

How does a DAICO work?

Under the DAICO model, a development team publishes a DAICO contract that begins in “contribution mode.” The contract would outline the methods for contributing Ether to the project and the particulars of the token sale. The DAICO contract will have a mechanism where contributors can send funds to the project in exchange for network specific tokens. When the crowdsale period ends, the contract will prohibit anyone from contributing any further, i.e., normal token sale.

There is one variable that comes into effect after the “contribution period” has ended called the “tap” variable (units: wei / sec). This tap in the contract can be programmed to predetermine the amount (per second) that developers can withdraw from the token sale funds. Initially, the limit will be set to zero, but contributors can then vote on a resolution to increase the tap.



The DAICO model allows token holders to vote on raising the tap or putting a contract into “withdraw mode.” Using this process, token holders can choose by quorum the rate of funding for the development team.

There is also a mechanism by which the token holders can vote on resolutions during the development period. There are two types of resolutions:

  • Raising the tap
  • Permanently self-destructing the contract (or, more precisely, putting the contract into withdraw mode where all remaining ETH can be proportionately withdrawn by the token holders)
    Either resolution can pass by some kind of majority vote with a quorum (eg. yes – no – absent / 6 > 0). Note that lowering the tap by vote is not possible; the owner can voluntarily lower the tap, but they cannot unilaterally raise it.

The intention is that the voters start off by giving the development team a reasonable and not-too-high monthly budget, and raise it over time as the team demonstrates its ability to competently execute with its existing budget. If the voters are very unhappy with the development team’s progress, they can always vote to shut the DAICO down entirely and get their money back.

Where investors are satisfied with the progress, voters are likely to loosen the purse strings to give the development team greater flexibility to progress the company or project. On the flip side, investors can also bring an end to the project or development with a simple majority vote, which results in the remaining Ethereum coins being returned to the investor.

In this way, the DAICO model is a lot more like the measures put in place by more traditional fundraising models.

Check out Abyss Platform. The first switched from ICO to DAICO.

What are some of the potential challenges with DAICO’s?

If developers hold a large chunk of the distributed tokens, they potentially only have to influence a small percentage of contributors to sway their vote and get more funds released from the Smart Contract.

Contributors’ education is also crucial. They need to understand why the price of a specific token is rising or falling to make the right decision when voting on increasing the tap amount, or returning the funds. The best decision is one based on the facts relating to the project itself, not on emotions connected to the price of a particular token.

Finally, contributors can also completely disengage by putting all their trust in the DAICO concept itself and therefore feel it’s not necessary for them to actually partake in votes and resolutions, reducing the majority threshold and weakening the security of the mechanism.

DAICO Conclusion & Future

While some may argue that start-ups require an element of freedom and that not all investors have the know-how to be fully involved in the funding requirements of a development, the avoidance of fraudulent and irresponsible behavior is an appealing one and will likely see DAICO well received. The DAICO will reduce investor exposure to attacks, bribe attacks and other vulnerabilities including fraudulent activity. A good development for many like politicians, but it might be a hick up for others like the criminals. Let’s see what the future will bring.

It will be interesting to see whether Buterin takes it one step further, with the introduction of Source-Level Decentralized Autonomous Initial Coin Offerings, where the allocation of voting rights could be based upon the number of tokens held by investor, or simply by reputation, which comes from the consistency in quality of an investor’s contribution.

For now, Abyss Platform is the first switching from ICO to DAICO to hit the market, with the start of the DAICO scheduled for 7th March 2018. The Abyss team believes that DAICO will provide tangible solutions to ever-changing security needs, while also delivering transparency.


Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading. Important: Never invest (trade with) money you can’t afford to comfortably lose. Add your own research and due diligence before placing a trade.
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