Explanation of DAICOs

Well, the thing I think is the most valuable is avoiding over-regulation, the market may be punishing risky investments but it may force the government to take action, specially if the number of risky investors are too high, and when this happens governments tend to overregulate.

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That’s a good point that I hadn’t considered.

For entrepreneurs, ICOs provide a refreshing model for capital formation that reduces exposure to activist investors. In practice, most people probably agree, we need to strike a balance between stakeholder and team control to reduce Lambo ICOs and exit scams which has leads us to fixate on lowering team control. It’s easy to forget; investors can be just as greedy as entrepreneurs and developers. Giving the power to someone else does not solve the problem. Blockchains work by diluting power and inhibiting its concentration.

The critical issues with ICOs are 1) teams are raising irresponsible amounts of capital without delivering a product or demonstrating competency and 2) tokens are listed before products are available. The visceral response seems to be a desire to move control away from the teams, but DAICOs open the door to activist investors that plague the legacy system and force companies into short-term (quarterly) thinking. The key problem is not investor control but rather a premature listing of tokens which incentivizes short-term investing, creating bubble thinking and fueling investor greed.

DAICOs will only extend the phenomenon and, in extreme cases, will incentives investors to liquidate the company if the price of ETH outpaces the ICO token. Innovation is hard, and it takes time to run experiments and refine products.

Instead of giving control to the investors, we need to change the incentive system to reward long-term thinking and investment strategies. ICO teams should plan to conduct more fundraiser rounds and delay token tradability until after the company matures. This solves the Lambo ICO problem and delays the liquidity point for investors which encourages more responsible and long-term investing. Investors need to know they are funding innovation and it will be a long time before they can access the asset. They should seriously consider if it is worth locking up valuable ETH to support an unproven idea.


The core issue that I see here is a practical one: devs need to pay their service providers, partners, employees in fiat. Even if they don’t need to pay them in fiat, then the ETH payment will still reflect the corresponding value in fiat. E.g. a developer might be fine getting their salary in ETH but if the USD/ETH rate crashes 95% then they’d probably not like the terms anymore simply because they can’t pay their bills. IMO, ETH is not going to be a practical unit of account in the mid to long-term future. Hence people running a responsible business are cashing out large amounts of ETH to manage their liquidity. This is not going to work in the proposed model and does require some form of stable token. Even globally “stable” token might still fluctuate a lot relative to the most relevant unit of account, e.g. to CHF for a Swiss-based team. Hence I’m still interested in central bank issued tokens for some applications (hedging).


I really like the idea, but I think this is only applicable for companies that can rightly be described as DAO’s. Many companies using ICO’s have large portions of their infrastructure and business model off-chain, thus rendering any take over merely a ‘burn it all down’ attack which reduces even the value of their own coins down to nothing. I really like this idea for governance for truly decentralized projects (e.g. Ethereum) in which the network can subsist without the founders or off-chain components. If you imagine a true DAO, then this could be used very well to incentive developers or even the founders who are doing marketing and/ or contributing to the bulk of the progress/ research to the network.

What if the team itself raises the tap value by vote manipulation (e.g. P + epsilon)?

The scheme does not have infinite security; as I mention, if both the vote mechanism and the developer are corrupted, then DAICOs do not solve the problem. But this is much less likely than just one of the two having an issue.

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It is though more common for founders to be screwed by the VCs then the other way around, http://www.businessinsider.com/this-22-year-veteran-of-startups-says-employees-are-getting-screwed-by-vcs-and-ceos-2014-3, I know the link is old but not much has changed :), so is not the question for the investor to know how serious the founder is to create and sustain the startup he is announcing to the ICO investors ? And for the founder to have stable founding without getting screwed ?

As then for the investor it comes down to Due Diligence as any serious founder will be very “Open Kimono” about who he is and why you should trust him and his team, and of course be interested in his product.

Then I believe in the concept of rounds, as from day one and 6 months you can only do so much, and there are certain milestones to hit, then there is a second round, and still the proof is in the pudding, do or don’t get funded.

Anyway just my two cents

We are working on a similar project with some additional options/functionalities: https://incremint.io/. Have been having great feedback from the community on the need for the escrow mechanism.

Wouldn’t this be even more effective if matched with the Gitcoin project whereas voting could be done either on weekly sprints or even on open development tasks and funds are allocated accordingly?

I tried to write my thoughts here: https://medium.com/@martin.maurer/seed-ico-keeps-greed-at-bay-10c4b4fbd2bc

and we started to work on it here: https://github.com/empea-careercriminal/super-octo-engine/blob/master/SeedIco.sol

while thinking about a better way to organize funding for our upcoming projects.

The concept is very similar to the DAICO, but aims at making any project you start with it a “purpose driven” one while giving investors some freedom to chose if they really want to see the project succeed or if they are in mainly to sell their tokens with benefit.

Hi guys. Here is the final version of my article “Designing the “fair token distribution model” pt.1 — ICO Approaches Analysis” -

Thanks for participation!

DAICO and Iterative Investment - different proposal to tackle the same problem

I think the most distant from reality phrase is “51% attack maliciously self-destructs - honest developer can just make another DAICO”. Looks like DAICO model enthusiasts does not take in to account how much it costs to run the ICO/DAICO or “honest developer explaining mailiciuos attack and asking for investors to comeback” campaign and how impatient the investors are.

If there is an actual 51% attack on the DAICO, then this will be highly obvious to the community. Furthermore, the users need to take an active step to withdraw their funds, so it would be easy to spread the message to join the new DAICO. I agree it’s not perfect, but it’s still a large improvement on what came before.

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I’ve thought about this a ton and tried to simulate alternative scenarios to test the validity of my conclusions. The value of a DAO is difficult to overstate, its immensely needed to reduce fraud, and several other types of developed inefficiencies in the way we organize and govern to create and coordinate value.

Having said that, I find it difficult to identify perfectly fitting use cases or scenarios where an ICO is both needed AND legal/fair at the same time.

Needing and ICO - if your idea/vision is strong enough, you should be able to secure capital easily with securitized instruments such as shares, or convertible debt. Investors are often clamoring around good ideas.

Legality/fairness of an ICO - Lets leave legality aside, because it differs across sovereign lines. But from an investor perspective, I find it very difficult to reason why an investor would want a coin, over a share.

So while a DAICO is way better that the Lambo ICOs. I’d question whether vb and the referent leaders here should take a stand on whether ICOs are needed/legal/fair or not in the first place.


I think you cannot ignore the “legal” part of things. If free trade of securities was legal all around the world then then I think we would see it being used much more broadly rather than VC. However, in a lot of jurisdictions, the free trade of securities is not legal (the US being a prime example of this).

I would like to propose that there exists some set of projects where the following are true:

  1. The project idea is sound, it has a good team, etc. All the makings for a successful business.
  2. The project does not want to waste money on regulatory compliance (an incredibly expensive thing for those who haven’t tried it) or the project cannot achieve regulatory compliance because it is working in an area that has been regulated out of existence (e.g., prediction markets).

For such projects, an ICO is a way to work around the regulatory questions (though, some question if doing so is itself illegal) while still having access to capital for funding development. Now, one way these projects have figured out how to dodge regulatory compliance is with the “utility token” thing. While most (all?) of them would be better off selling a security, that would put them into a bucket that more obviously is subject to regulatory constraints, so they create a utility token, jam it into their project (sometimes ruining the project in the act) and sell that so they can raise capital for their project.

That being said, the vast majority of ICOs aren’t in this boat and instead are trying to acquire capital despite the fact that VCs wouldn’t give it to them for one reason or another.

Thinking about DAICOs and voting in polls, we are trying to figure out what would be the best way for a voting system to work.
The system should try to ensure the votes are legitimate as well as allow token holders to do with their tokens as they wish.

This is a hard question to do without writing a very long text with our research.

Simply put, we have thought of the following ideas, each with their own trade offs:

  • After a vote is made, freeze the account tokens until the poll is over
  • After a trade is made, freeze the account tokens for 7 days (poll duration).

These options will negatively affect users and their freedom.

Other options are:

  • Consider vote % when the poll is over. This means the voting power will depend on the amount of tokens the users have at the second the poll is over.

This option alone cannot prevent exchanges from voting.

  • Set a maximum vote power for each account

This last option should be used with other options, but alone cannot prevent exchanges for example to transfer their tokens to N numbers of different accounts and vote with them and then transfer them back.

Which option(s) would be the preferred way to go? Does anyone know of another method for handling votes?

Micah, you are spot on.

Could we transition to something I think we need to steer the regulators around?

What constitutes a "utility token?"

Based on how the aggregate practitioner perspectives are evolving, here are my six observations -> working conclusions -> draft suggestions, I humble propose that we should start to debate, ratify and syndicate these?

  1. A utility token should add to a fabric (not just five lines of code to “create a coin”)
  2. A utility token should be minable (some action that should be taken - not just tradable in post-primary markets)
  3. A utility token should [have the possibility] be widely held (not just held by a small subset of humanity)
  4. A utility token should lead to some socioeconomic outcome (meaning with every new mining action, should increase the probability of leading to some socioeconomic outcome [of utility])
  5. A utility token’s dilution should be managed transparently and responsibly (you just can’t mint it willy nilly)
  6. A utility token should have [at least the possibility] of other organizations to accept it in exchange for goods, services, or other benefits
  7. A utility token should not be marketed as a security

I believe leading regulators (somewhat globally) should be fed a framework of this type/shape.

How do we make this draft suggested framework better?


The main issue I see with the DAICO concept is that any party can prevent the self-destruct at relatively low cost- They just need to own yes - no - absent / 6 + epsilon tokens (likely a modest percentage) to keep the self destruct from ever taking effect, even if confidence in the developers is low.

In this situation, the party that is blocking votes would have significant leverage to extort funds from the developers or stakeholders. (this attack would be even more effective if the attackers are the developers themselves, basically saying to stakeholders “vote to open up the tap against your desires and we’ll refund you at least part of your original stake”)

…or am I missing something?

I’m not at all convinced that “just” owning yes - no - absent / 6 + epsilon is going to be a “low” cost. It’s millions of dollars for large ICOs. We could add an extra layer of defense by allowing the developers to self-destruct the DAICO and do a proportional refund, so if one does get captured by an outside attacker the developer can do that and then start another DAICO for everyone to put their funds back into with a higher initial tap.

I agree that DAICOs don’t prevent scenarios where the attacking voters are the developers themselves; that’s explicitly outside the security model and seems very hard to prevent in any model. The one thing that DAICOs do accomplish is ensuring that such attacks have a higher capital cost.

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