1. What is DAICO?
DAICO stands for Decentralized Autonomous Initial Coin Offering, a decentralized autonomous public token offering. Like an ICO, the project team sells tokens for cryptocurrency. Subsequently, the tokens can be used within the project itself, as well as sold or exchanged on exchanges.
2. So that was in the ICO, wasn’t it?
Not really. DAICO is a new fundraising model. Vitalik Buterin, the creator of the Ethereum blockchain, proposed this model by combining the advantages of decentralized autonomous organizations (DAOs) with a classic ICO. The idea to create DAICO was a response to the problems and challenges faced by both developers and contributors. This model makes the process of fundraising and spending as transparent and secure as possible.
3. How does DAICO work?
DAICO is based on a smart contract that governs all deposit solicitation and handling. From DAO, the concept takes extended control from token holders. For example, after the public sale of tokens is completed, the contract temporarily blocks their free sale to avoid manipulation by the project team, and also determines how much money developers can receive each month. On the other hand, as in a classic ICO, the development team works on the project, not everyone who wants to, unlike a traditional DAO.
4. What advantages does DAICO have over an ICO?
DAICO gives token holders control over the spending of the collected funds and a guarantee of the safety of their own investments. Payments to developers are not made in a lump sum, but gradually, for example, once a month. If they need more than the amount specified in the smart contract, the issue is put to a vote. And the token holders can either approve or not. If the token holders are unhappy with the progress of the project, they can vote to return the remaining funds in the smart contract. Moreover, this kind of synergy between DAO and ICO reduces the risk of a 51% attack.
DAICO has two collection goals – Soft Cap and Hard Cap. Hard Cap defines the final goal, the largest desired result. Soft Cap – the minimum required amount of funds for the development. If it is not achieved within the specified period, the contract is closed and automatically returns all collected funds to the depositors. If the Hard Cap is reached, the sale of tokens stops. The important point is that developers do not have access to funds during the public sale.
5. How can the contributors manage the development of the project?
It’s not project management. It’s control over the amount of money that can be allocated to the project team over and above the set budget. That is, the developer can ask for an increase in the monthly payout, and the decision is left to the token holders to vote for or against. Second, as mentioned above, the developer cannot take and abscond with the money. The contract precludes that. Funds can’t be written off in a single moment. Token holders can initiate a refund of the remaining funds if they feel that the developers are not doing well.
6. What are the risks and drawbacks of DAICO?
Decentralized management has its own peculiarities. No one can guarantee that all 100% of token holders will actively vote, which reduces the decentralized governance.
Not all token holders have an understanding of the development process and are often unable to properly assess the situation. This can lead to emotional decisions that can harm the project if developers do not have adequate protection against them.
7. What should I consider before investing in DAICO?
As with traditional ICOs, you should prepare carefully and research all available information before buying tokens. The more of the following items a project has, the more reliable it is:
- The developers provide the agreements, the rules of sale, and detail all the procedures and steps in conducting a DAICO;
- the smart contract is freely available on GitHub for review;
- the contract has been audited, and by reputable audit companies, and it is better if there were several of them; the texts of the reports should also be available for review;
- a well-written and concise whitepaper with a detailed description of the product and a plan for its development;
- the presence of a finished product prototype;
- the registration data of the company conducting the DAICO are indicated;
- the crowdsale procedure meets the requirements of the regulators of the countries where the tokens are sold;
- The project team has the appropriate competencies and experience.
8. What are some examples of DAICO projects?
At this point, the DAICO model has not yet become a common industry standard, but already some projects have announced or already started to adapt DAICO. The Abyss team, which announced the world’s first DAICO, is now holding a token sale, and has already raised more than $10 million. YouToken, using the DAICO model, successfully completed its first round of fundraising. According to forecasts, more and more projects will use the DAICO model instead of an ICO in the near future.