From ICO to DAICO – Evolution of ICOs

The year was 2013, when the very first ICO went live, it went to raise a little over $500,000. Fast forward to 2017-18, the market is flooded with ICOs with new ones coming up every day. In 2017 alone, total amount raised by ICOs crossed the $1.25 Billion mark.

What is ICO?

ICO or Initial Coin Offering is a new age fundraising tool used by startups from all across the globe looking to venture into Blockchain space. In its purest essence, an ICO provides an opportunity to trade future crypto-currencies against crypto-currencies having current liquid value and in most cases against other digital assets and fiat currencies. The entire model is based on the speculation of new cryptocurrency gaining traction and/or global acceptance.

The main reason, this phenomenon became so successful is its ability to attract small investors, looking to invest little money and in the event the underlying project does well (even moderately), the investors end up reaping tremendous returns in the future.

By end of 2017, it became clear that the entire ICO landscape was changing, it was evolving. More and more ICOs started to fail. Unlike in the past when a simple white paper was enough to draw investors, ICOs now needed something more substantial. Along with individual amature investors, ICO market has now seen an influx in institutional investors. The rise of institutional investors into the market has shifter ICOs from public offering to mainly private sales. This shift in investment pattern has been significantly beneficial in rooting out Scams, Ponzi schemes and other such fraud offerings.

What is DAICO?

As part of its every evolving nature, final half of 2018 is witnessing the rise in DAICO concept. DAICO is a brain child of Ethereum Co-Founder “Vitalik Buterin” and is created by combining the concept of an ICO with some of the benefits of DAO (Decentralized Autonomous Organizations). The main aim behind the DAICO model is to empower the actual investors with control over the total funds accumulated and its usage. Traditional ICO model do not have this feature and the project team is essentially allowed to use the funds that they raised as they wish.

A DAICO incorporates 3 major elements from a DAO:

  • At no point is complete trust placed entirely on a centralize team. All decisions related to the funds from day one are decided by a democratic voting system involving all stakeholders.
  • Funds will never be released in a lump sum, the system will have an in-built mechanism implemented to spread it over time and upon achievement of preset goals or milestones.
  • A DAICO offers the opportunity to refund the contributed money despite of meeting the hard cap. All the contributors can vote for a complete refund of the remaining funds, if the team fails to implement the project.

Basically in DAICO, the contributors have much more say and influence in the development stage of the project. They have the power to shut down the project and get refunded. This completely mitigates the risk of scam ICOs where developers hold a token sale and then simply disappear with the funds accumulated once the ICO is finished.

Since this concept is still in its infancy, there exists some challenges. Some of the most obvious challenges are:

  • If developers end up holding a large percentage of distributed tokens, they potentially need to influence a small section of actual investors to sway votes in their favor.
  • Investors need to have a better understanding of the entire ecosystem. They need to understand why and when the price of the token changes in order to make the right decision when voting on increasing the tap amount of refunding the funds. Investors will need to make decisions based on facts as against fear.
  • Investors need to be active in all decision making processes rather then disengaging completely and putting all their trust in the DAICO concept itself.

Despite its challenges, DAICO is the future of ICOs and the way forward for the crypto-economy to regain some of its lost momentum and bring on-board better stability and security.

Studio Fintech, a venture of Systango Technologies is a world leader in fintech and blockchain development across a lot of offerings. We understand the dynamics of ICO services – the legalities involved, the marketing strategy required and etc. We have a strong portfolio in for fintech and blockchain development services. We are just a call away if you need us for creating world class ICO launch services.

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