A Decentralized Autonomous Initial Coin Offerings (DAICO) is a crypto funding implementation first forwarded by Vitalik Buterin of Ethereum, whose objective is to raise funds for potential startups, distribute the project’s tokens, all while keeping investors’ funds secure in a trustless environment while concurrently offering protection against fraud.
DAICO demonstrates how fast the blockchain and crypto funding solutions are evolving. This crowdfunding model combines the automation and lack of third-party intervention of decentralized autonomous organizations (DAOs) and the effectiveness and popularity of initial coin offerings (ICOs). In essence, DAICOs introduce a form of governance to crowdfunding, allowing investors to vote for fund reimbursement if certain conditions aren’t met.
Because of governance, investors can trust and have more control over the work of projects since they are free to cast votes and cut-off funding if certain conditions are not met as earlier specified.
Although ICOs were a revolutionary innovation that democratized funding access, many scammers took advantage of ICOs to fleece investors. Furthermore, even most projects which received millions of dollars in funding didn’t actualize their objectives, causing massive losses. Scammers successfully executed their schemes because, in pure ICO models, there were no laws or in-built mechanisms (safety nets) for enforcing refunds. Investors had to rely on the team’s ethics.
However, by locking ICO funds in a DAO and allowing investors to have a say in how the project pans out, investors have more power and control. Most importantly, even if the soft cap is reached, funds wouldn’t be released almost immediately after the ICO is complete. Instead, funds are released gradually at a rate (called a tap variable) voted on by investors. If project developers prove incapable of completing the project on time, the DAO can vote for all funds to be reimbursed to investors.