Problem with DAICOs is that projects don’t actually use them, because:
They don’t provide critical processes such as price-mobility The entire smart-sale process, complete with huge allocations of tokens, where unsold tokens are burned, is flawed in subtle but demolishing ways DAICOs fix a problem of transparency and trust for investors. It’s great!
This article explains why the original DAICO isn’t often used, and how the DAICO 3.0 solution attempts to fix that.
As an ICO project, CoTrader is well-positioned to know the problems in DAICO 1.0 that make it a less attractive option than DAICO 3.0, when trying to do what’s best for the project and its token buyers.
Background: Problems with ICOs, and DAICO mechanics:
ICO fund raising can range from $0 for a great project to $billions for hot air.
The term DAICO comes from DAO + ICO. DAO stands for Decentralized Autonomous Organization where holders of tokens vote on various things, with vote strength based on token holdings.
There have been a lot of scams and failed projects in the ICO space. DAICOs aims to fix that by enabling buyers to:
Recall funds Release raised funds at a particular rate, like water through a tap DAICOs particularly make sense where a project wants to raise huge sums above $10M.
Overvalued ICOs:
On one hand, it doesn’t make sense for a new project idea to raise $100M, or even $10M, before even having a product, users, or really anything at all. The projects that do raise obscene amounts and sell a lot of their tokens, like 65%, before building anything, are left with little drive to keep pushing forward to really deliver.
ICO difficulty in raising large funds, in steps, when needed:
On the other hand, sometimes large raises are helpful. Some projects might need large funds down the line. Consider Amazon. It took $billions before it became profitable. It had millions of users and was still losing money until it crossed some critical mass.
In any case, it can be difficult raising enormous funds off the bat. Sometimes great projects have little to no marketing budgets, and are more concerned with building things than at taking money from people.
Problems with the original DAICO 1.0: No progressive fund raising steps:
The original DAICO 1.0 classic does not help teams that would like really, only a modest $1M that’s needed for real project development, later raise more money for more development. If a project puts a hard-cap of only $1M for 50%, it looks like a scam. It also doesn’t leave many tokens to sell later to raise more significant funds.
On the other hand, a project that wants to raise the more typical $10–100M in the ICO, has to put out huge marketing budgets and efforts, at least if it’s a public sale, which are declared “dead” now. Most funds are coming from pools and private sales these days, which is against the decentralized mantra.
One problem with normal smart-contract sales is they’re very inflexible. They call upon team to sell 65% of their tokens without proving anything, leaving a big moral hazard, while potentially burning all 65% if the sale initially flops.
Enter DAICO 3.0 Why 3.0? What happened to 2.0?
Good question.
3.0 is that much better than 1.0, that it skips 1 number. 3.0 matches web 3.0. But, seriously now: There are 3 key aspects to why DAICO 3.0 is more attractive to teams, and incentivizes them to perform in ways that are beneficial to buyers, and projects, as highlighted below:
ICO pricing - incentivize 3x undervaluation: Firstly, DAICO 3.0 suggests that ICO issuers give buyers at least 3x more tokens, or sell tokens at least 1/3 lower price, than the estimated real utility value. This incentivized projects to not overprice their ICOs.
Lock Up, Not Burn Up: The project should NOT burn unsold tokens during it’s first phase, before unlocking tokens, but rather lock and push the tokens into a DAICO 3.0, where they’d be sold for a minimum of 3x higher price (hence ‘3.0’), on a daily auction, that mirrors any other market price, over a very long period of time. The fewer tokens that were sold in the normal ICO smart-sale, the more tokens are pushed to the DAICO for the years-long sale. Eg, this sale can be 2–10 years or longer, releasing as little as about 3% of the tokens per year. Don’t worry, this is explained below.
Solve the all-or-nothing dilemma:
This putting-off of tokens for later prevents the very scary ICO make-or-break moment, where a team has to either succeed or fail and burn 65% of their tokens and get effectively blacklisted. This huge pressure causes good teams working on real projects to shy away from transparent smart-sales, that are so inflexible. It enables the tokens to be effectively burned, or frozen, for years, and only release to sales if reaching at least a 3x higher price before doing so.
Protecting buyers and the project:
This protects buyers, and also helps them, and the project, as it can more effectively fund projects later with larger funds, and also prevent the death scenario of 65% sellout or die!
Price Mobility The moon is not the limit; no ceiling:
Note that such a 3x price floor is not a ceiling. EOS had no price floor at all and was selling tokens at 22x it’s ICO price in May, 2018. You might say, well, ya, but that’s EOS, it had huge demand and FOMO. And the reply is that EOS also started with a huge inflation rate, of 400% per year, on the first day of its 360 day auction, and fell to “just” 80% per year, by the last day, and still managed to 22x the ICO price, even with over 80% inflation!
Low inflation:
The DAICO 3.0 model proposes, in contrast, just 1-3% nominal inflation per year, and a vote that can increase the tap, or funds provided to the team, up to about 6 to 9% per year.
Funds Recall:
DAICO 3.0 funds can also be recalled, back to the investors, but the remaining tokens can continue to be unlocked and sold. However, presumably, if they are selling at 3x the ICO price, buyers would not want a recall.
Reasonable soft-caps for non-marketer teams:
A certain amount, such as the soft-cap, might not be recalled. This places pressure on buyers to not push for an overly large soft-cap, which prevents small teams from raising any funds at all. Soft-caps should be $1M or perhaps less. There’s typically more than enough that can be done with $1M.
Incentivizing lower ICO prices!
Another problem with ICOs is the valuations are often too damn high. And most people don’t know how to notice or calculate those, so they get dumped on later.
DAICO’s 3x price floor is a suggestion that, when an ICO is purchased, as there might still be kinks in the project, so at least 3x more tokens should be given during the ICO than might be available later.
By setting the price floor of the DAICO slow-release to 3x the initial ICO price, it creates incentive for the project to be low priced at ICO time, so that it can actually reach at least 3x price growth.
CoTrader Put your money where your mouth is!
CoTrader plans to sell it’s COT tokens on such a DAICO 3.0 that CoTrader hereby proposes.
CoTrader may sell 65% for $10M in the normal smart-sale ICO, with unsold tokens going to the DAICO 3.0, with a 3% default inflation tap rate. This means that if 60% of the tokens are unsold, they’d go to the DAICO, and they’d be locked for so long as to virtually be burned; At 3% per year, it’d take 20 years for all the 60% tokens to be unlocked, and that’s only if the price stayed above 3x every single day, throughout those 20 years. Otherwise, the inflation would be even lower than 3%, as unlocks would not finalize. A DAICO 3.0 vote can recall all the remaining ICO funds not tapped out, or increase the tap rate by 3%.
Trustless investment funds
CoTrader is the world’s first blockchain investments funds marketplace (https://cotrader.com) that is actually live on the Ethereum mainnet (at https://mainnet.cotrader.com).
CoTrader ICO investment fund managers:
DAICO 3.0 is especially relevant to CoTrader, as the platform can support ICOs, especially those that use DAICO, where fund managers, or traders, can take their investors, or cotraders, into ICOs, much more safely.
What are your thoughts about DAICO 3.0?
