In an exciting new development, Ethereum Network creator Vitalik Buterin, has proposed a new decentralized funding method called “DAICO”. This new endeavor combines elements from Decentralized Autonomous Organizations (DAOs) which works to mitigate some of the inherent risk when it comes to the well known ICO model.

A “DAOICO” brings in elements of the Decentralized Autonomous Organization to ICO, including the utilization of smart contracts, and through this, reduce some of the costs of using Ethereum while also getting to the core of what funders want to see – developer results.
A concern for all funders of an ICO is the resources they give being used in an inappropriate manner, creating personal gains for ICO founders rather than development of the proposed project. As we’ve written about at IBC here, there is a need for further due diligence in the ICO community. DAICO’s are one way to help with this.

Here is how it works. A DAICO contract is laid out by the development team that wants to raise funds for their proposed project. The contract will start off in ‘contribution mode’. In this mode, anyone can contribute ETH to the project (or contract) which they will then receive tokens for. This could be any kind of sale the team chooses and deems best for their tokens and product idea.Once contribution mode ends of closes, the token pool is set, and can no longer be contributed to. So from then on out, the tokens are traded.

Once this the token pool is set, the “contract has one major state variable: tap (units: wei / sec), initialized to zero,” according to Vitalik. The tap sets the amount per second that the centralized development team can take out of the contract, thereby allowing funders a overview and measure of control over when and how much of the funds are spent.

Token holders are able to vote on when and how much to raise this tap, and while the dev team can lower it, they cannot unilaterally raise it. The two resolutions that token holders can vote on include, as previously mentioned, raising the tap, and also self-destructing the contract. This entails putting the contract into withdraw mode, which would result in the remaining ETH to be withdrawn by token holders, proportionally to what they contributed.

This gives the contract a built in element of recourse, something often lacking in ICOs and certainly affecting people’s view of them. DAICOs provide the next step in managing risk and holding development teams accountable for their proposal.

IBC hopes to help this next step in ICO development mature further, utilizing our legal and technical expertise. If this is something you’re interested in, do reach out to discuss this further.

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