Decentralized Autonomous Initial Coin Offering (DAICO), its loophole and Implementation

January 2018, Vitalik Buterin — the co-founder of Ethereum, suggested a new policy for Initial Coin offerings which is poised at making investors involved in the initial project development. This policy combines the Decentralized Autonomous Organization (DAO) with Initial Coin Offering to make Decentralized Autonomous Initial Coin Offering (DAICO). It is believed that the DAICO will be an antidote to the failures of the ICO model which had led to the increase of fakes or scams.

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Initial Coin Offering (ICO)

The innovation of Initial Coin Offering was first introduced by Ethereum. Ethereum came into the blockchain scene to serve as a better implementation of proof of work which was introduced by bitcoin some ten years ago. Through Ethereum, smart contracts can be built to collect funds from investors who agree to the terms as included in the smart contract. Smart contracts are binding agreements between parties which are enforced without third parties, just programming. Smart contracts were built to allow investors reclaim their funds if an ICO was a failure. But through unscrupulous fellows, over times the weaknesses of an ICO through smart contracts became known.

The shortcomings of ICO

  • The Smart contract was developed by the project management team, it is easy to program it to only receive funds and not to return funds in case of failures.
  • Many failed ICOs take time to refund investors and some never did since they had the autonomy.
  • Since the project team can claim funds contributed by the investors at any time without any restriction, this allows scam ICO to collect funds and simply run away.
  • Project founders seem to lose motivation after they collect funds through ICO. And since there are no restrictions to the withdrawal of funds, it is easy for them to run away with funds they collected.

DAICO, a correction?

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Vitalik suggested the TAP policy which allows the investors to vote according to the number of stakes (tokens) held, to determine how much funds is released to the project team per seconds. This will keep the project team in check as any changes to the TAP policy can only be effected through community votes. The community will have to reach consensus if any changes will be made to any policy implemented (such as voting for a refund if the majority of the community loses faith in the project team or its project).

The Loophole

Chrisjan Pauw in an article, ‘What is a DAICO, Explained’, made some striking notes on what could be the loopholes of DAICO. Since major decisions are made through voting according to the numbers of tokens held by investors, then the project team could easily possess the most percentage and look for a way to influence the decisions of a lesser percentage of the community to turn the decisions of the team in their favor.

DAICO implementation

Few months after the suggestion of Vitalik, there came ICOVO with an implementation of DAICO, making it the first project in the world to run DAICO.

ICOVO is a platform that wishes to bring back the lost value of ICOs by helping to secure investors through different means… It will also help to verify not just investors but the project team through a KYC method that cannot be falsified. Source

ICOVO’s Solution

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Sure ICOVO knew the probable shortcoming of implementing DAICO, so they planned to do something about it. ICOVO made a restriction to the number of tokens that could be owned by a single investor thus preventing superpowers in community decisions.

What do you think?

Do you think DAICO, or implementations like ICOVO could heal the crippled ICO policy? Don’t you think project teams could possibly present themselves as multiple investors thus swaying or bypassing the restrictions ICOVO put in place? Be sure to leave me your comments.

Thanks for reading.

Article Sources and Links

Explanation of DAICOs– Vitalik Buterin

Ethereum

What is a DAICO, Explained– Chrisjan Pauw

Review of ICOVO– Ayobami99

ICOVO Whitepaper

About the Author

I am Ayobami Abiola, the owner of Cryptstocksreviews. I like to dive into the innovations that exist on the blockchain technology (the wonders of the blockchain) especially startups, for the purpose of enlightening my readers. Any of the articles written by me should in no case be seen as a financial advice- only for information and education purposes.

Be sure to reach out to me and give your suggestions through the comment section below.

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