What is DAICO in Crypto and Blockchain?

The abbreviation DAICO is a combination of two prominent concepts within crypto. These are Decentralized Autonomous Organizations (DAOs) and Initial Coin Offering (ICOs). Ethereum founder, Vitalik Buterin, forwarded this idea in 2018, aiming to raise funds for crypto startups in a more transparent and accountable fashion.

An Initial Coin Offering (ICO) is a crowdfunding mechanism in cryptocurrency circles that works like a company IPO. The public purchases crypto tokens early, allowing the crypto platform to raise funds while the investors buy into the future of the token,

This crowdfunding model got incredibly popular. In early 2018, ICOs were at their peak, bringing in billions of dollars in investments.

A Decentralized Autonomous Organization (DAO) is the basic governance model of most cryptocurrencies. Individuals participate in community decision-making and blockchain governance through voting and proposals to improve the protocol. DAOs aim to create financial systems that don’t rely on an all-powerful centralized entity to function.

DAICO is a combination of the two concepts. 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.

Why DAICO?

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.

By late 2018, ICOs had become synonymous with fraud. This unfortunate tag was a burden the entire crypto community had to bear. A few nefarious actors were making life difficult for everyone. The proliferation of fraud became a stumbling block for many startups seeking to raise funds for their projects. Initial Exchange Offerings (IEOs) emerged, which were ICOs conducted by large crypto exchanges. The exchanges lent their credibility to the process, ensuring investors would not be swindled of their funds.

Therefore, investors have more power and control by locking ICO funds in a DAO and allowing investors to have a say in how the project pans out. 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.

Accordingly, automation has helped curb fraud in this sector. DAICOs and IEOs may be the silver lining for upcoming crypto startups seeking to raise funds.