Everything You Need to Know About DAICO
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With continuous growth and development in the world of cryptocurrencies, today, there are at least 1465 different currencies circulating around. Undoubtedly, competition in the crypto world is truly huge!
It seems like the way cryptocurrency start-ups raise their initial funds for development, is about to take a massive turn. This might mark the end of the traditional initial coin offerings with new and seemingly better alternatives on their way.
Creativity is perhaps the one aspect of blockchain technology which is not limited in any manner whatsoever. During the last year, 2017, blockchain technology saw rapid developments and a high number of initiatives with more than $6 billion raised through ICOs. To be specific, about 895 different ICOs were released in 2017.
In January 2018 alone, approximately $874.8 million was raised through ICOs. However, with newer development, it seems like the traditional method of initial coin offerings might end forever. In this scenario, DAICO, which is more like an improved version of the traditional ICOs seems like a better alternative for raising initial funds.
What is DAICO?
DAICO (combination of DAO and ICO) can be considered as an improved version of the traditional ICOs which cryptocurrency startups can use to raise their initial funds. It involves some key aspects that are taken from DAOs (Decentralized-Autonomous-Organization).
DAOs are companies that operate digitally and within the laws of the blockchain. Hence, they are fully transparent and have their financial auditing done by the public. This means that there’d be negligible to zero chances for corruption and a zero downtime.
The three key aspects of DAO incorporated in DAICO include:
- The entire dependency is not on a centralized team. The decision-making process is totally democratized and undergoes voting.
- The funding does not get released altogether. Instead, it is spread out over time according to a well-planned mechanism.
- The contributed money can get refunded. This decision is obviously that of the crowd. According to a voting system, the contributors can get their remaining money refunded in case the project’s implementation fails.
DAICO’s idea was thought of by Vitalik Buterin, the co-founder of Ethereum, in January 2018. The goal of DAICO is to add more security to the traditional ICOs.
All in all, it is highly likely that the start-ups adopting this method will easily build a greater level of trust among their user community. Furthermore, once a couple of start-ups employ this method, other start-ups will also kind of get forced to use it so as to remain within the competition. This could prevent scams, and allow investors to take a sigh of relief as they know that they can always get their money refunded in case the project does not work.
The benefits of DAICO
In comparison with the traditional ICOs, DAICO tends to have many different benefits. These benefits include:
- Investors get to have more control in their hands.
- The investors have a greater say and role to play in the initial development of the project. This is because in case they are not satisfied, they can always get their money refunded.
- The DAICO ICO reduces the chances of a scam significantly, where a development team disappears with the tokens invested by people after the ICO ends.
- The chances of 51% attacks get reduces significantly as the there is strict control over the number of funds that can get released from a smart contract.
- Usually, after an ICO, development teams get swayed away from their major purpose after raising a couple million dollars. This decreases the team’s overall efficiency. However, the DAICO model is designed in a way so as to keep the development team intact for the purpose of delivering their promised product.
Benefits for the crowd
As far as the benefits for the rest of the crowd goes, there is not a lot that can be concluded as of yet. This is because DAICO ICO is a totally new concept. Hence, one cannot really figure out all its implications before it is applied significantly in the real world. As of now, the only platform to have employed DAICO is Abyss. Its plan is set out to be released in March 2018.
Perhaps the most important benefit that the crowd could have from DAICO is that it totally rules out the possibility of scams. Moreover, since DAICO makes use of smart contracts to release the funds in fixed amounts over time, the project gets sustained for a longer period of time. This is somewhat beneficial for both the investors and cryptocurrency enthusiasts.
How does DAICO work?
DAICO makes use of smart contracts, in contribution mode. It follows a mechanism according to which investors are able to invest funds and get some network tokens in returns. After the funds are raised through crowd-sale, the contract will not allow someone to contribute more.
Once the investment period ends, the tap variable (which is a variable programmed beforehand) determines the amount per second that can be withdrawn by the developments, from the sale funds.
While in the very beginning, the limit is set as zero, contributors and investors can always vote on resolutions for an increase in the tap variable. This way, DAICO follows a rather simple approach that could have huge implications on the larger scale.
According to the current implementation of DAICO ICO by Abyss, its major characteristics seem to include the following:
- It allows the initiation of voting resolutions for an increase in tap that which only the development team can initiate.
- To prevent abuse and corruption, the tap can only be increased by a maximum percentage limit at once.
- The number of times a tap can increase is also limited, for example once or twice in every two weeks only.
- The tokens that investors have can only be used for voting. The tokens held by the development team cannot be used.
- Before a poll, the contributors and investors get informed quite in advance.
- Upon termination from the contributors, the money will get refunded to them by the smart contract while it will also destroy the value of the tokens held by the development team.
The Difference between ICO and DAICO
For both the ICO and the DAICO, the way through which funds are raised initially is quite similar. In the start, the contributors/investors invest with their Ethereum coins.
For either of the two, It is the developments team that decides the target and all the conditions of the fundraising campaigns as to whether it would be an uncapped or a capped sale, a Know-your-customer sale, along with the time at which the tokens will be open for trading.
After this initial token sale period, however, both ICO and DAICO ICO differ in their processes.
For ICOs, the development team decides their use of funds depending on whatever they deem suitable. This way, investors, and contributors have very little to no say in the way the project proceeds into its advanced development stages. This kind of breaks the concept of decentralization, as the company follows a centralized approach with less transparency and full control.
In comparison to ICOs, the DAICOs make use of ‘taps’ which gives a lot of control to the investors, for the funding that goes into the project’s development. Through the tap variable, the amount of funding from within the total sum along with the frequency of funding released to the development team at a time could be decided. An increase or a change in the tap variable itself is voted for by the investors through a planned poll initiated by the development team.
Apart from that, the investors can also vote to cancel the DAICO, which immediately returns all the remaining funds to the investors. This prevents scams, such as those in the traditional ICO schemes where a development team runs off with the funds raised after the ICO ends.
What potential challenges does DAICO need to overcome?
Just like all new schemes, the imperfections and negative implications get apparent with time after they have been applied on a large scale. As of yet, the uses and applications of DAICO are quite limited in the world of blockchain technology. This is primarily because it is new and is just making its way.
Nevertheless, there are a couple of challenges that the DAICO ICO faces. Despite these challenges though, the uses of DAICO are extremely promising. The biggest challenge that DA ICO needs to overcome is that of unguaranteed participation of investors. Say, for instance, a number of investors might choose to put all their trust in the project and hence avoid taking part in the voting polls. This would reduce the threshold of the majority and give a great level of control to a small number of investors, hence reducing decentralization.
Moreover, investors usually happen to react in emotional ways whenever the prices of crypto coins fall, even where a falling price does not always mean the inevitable doom of a cryptocurrency. This calls for investors to be quite educated and well-informed about all the reasons why the coin prices fall. This will allow them to take better decisions, rather than making judgments that are clouded by their emotions of panic.
Another challenge that it faces is that a large number of votes is owned by the project if it owns a large number of the total coins distributed. This could encourage manipulation by increasing the tap variable.
Currently, efforts and research are being put into DAICO to see how these challenges can be overcome in the future.
To sum it up
DAICO is an all-new method of raising funds and of using those funds for the development of blockchain startups. Through the use of smart contracts, DAICO offers its investors a greater level of control in the start-up’s development. This reduces a lot of problems such as scams and fraudulent activities that exist within ICOs.
While there are a number of challenges that DAICO currently faces, it looks extremely promising for the way it democratizes the entire development process and gives investors a greater role to play. All in all, it is a wonderful step towards increasing decentralization in the world of block-chain start-ups.
We hope to have provided you all the information related to DAICO that you were looking for. To learn more about cryptocurrencies and to stay updated with the hottest crypto news, feel free to check out the other sections of our website!