A Beginner’s Guide To DAICO

As the crypto scene comes up with newer terms everyday, it is only natural that even seasoned crypto enthusiasts might be left stumped from time to time. While we are sure you are well aware of how ICOs (Initial Coin Offerings) work and what the pros and cons of investing in ICOs are, you might not have a clear understanding of a new phenomenon that made an appearance in the crypto in the beginning of this year. This new entrant is DAICO. In this article, we discuss what DAICOs are, how they work and how we can benefit from such a model vis-a-vis ICOs.

Meaning of DAICOs

Simply put, DAICOs are essentially a new crypto fundraising model where the ICO model is enhanced by adding elements from DAOs or decentralized autonomous organizations. This idea was put forward by Ethereum’s founder Vitalik Buterin in January this year and was meant to tackle increasing concerns about ICO security. It was felt that bringing in investors during the early stages of product development would heighten security of the entire process. Moreover, it would also help democratize ICOs by allowing token holders to have a say in what they invest in. For example, if they are not satisfied with how well the developers have been working, they might just vote to have a refund of their contributions. With this democratic concept at its core, DAICO fundraisers are expected to promote greater extents of developer accountability as well as investor involvement.

Working of DAICOs

DAICO initially starts as a blockchain smart contract working in contribution mode. This contract then makes use of a mechanism whereby investors can transfer their funding to the project and receive tokens (specific to the network) in return. Unlike a normal token sale, once the period of crowd-selling is elapsed, in DAICOs no further contributions can be made by new investors. Once this stipulated period comes to an end, the tap variable in the contract becomes activated which can be programmed in such a way that it determines from beforehand how much of their funds can be withdrawn (from token sale funds) by contributors every second. At first, this limit remains at zero. Eventually, contributors can have a vote and determine what amount the tap will be set at.

Benefits of DAICOs versus ICOs

Since DAICOs are an improvement upon the ICO model, they naturally offer certain benefits that set them apart from ICOs.

Higher Degree of Control Lies With the Investors in DAICOs

Firstly, unlike in ICOs, DAICOs give a greater share of control to investors. Since they’re the ones supplying the funds for the project, it is only fair that they get to determine whether or not they are happy with how their contributions are being put to use. They have the option of withdrawing their funds if they are not satisfied with how their funding is being utilized.

Greater Security Offered By DAICOs

Recent times have seen multiple instances of scam ICOs, so much so that we saw even the recent SEC Enforcement Report dominated by discussion on ICO malpractice. DAICOs help reduce such risks as developers are forced to have a higher degree or accountability. Even the possibility of a 51% attack is kept at bay as the release of funds is strictly controlled by Smart Contracts. By reducing the amount of funds released at a time, the tap variable minimises the possibility of loss even if a 51% attack does indeed happen.

DAICOs Allow For Continual Motivation to Developers

In case of an ICO, once the entirety of the funds have been raised, developers may lose the motivation to continue with innovation and development. On the other hand, the DAICO model ensures that the slow and steady supply of funds ensures a continuity in motivation of developers as well.

Despite all these flaws, some questions remain with regard to DAICOs. Will contributors always be able to make educated choices and exercise their control intelligently? Will it possible to deter developers from controlling a majority of the tokens and influencing how the smart contract works altogether? These are questions that will be answered eventually. For now, DAICO remains an extremely new concept that requires a sufficient bit of ironing out. Till that is done, and while we still have ICOs coming up every now and then, one must be armed with the keys steps to analyzing ICOs so as to not fall prey to ICO scams.