<p>5 years ago when JR Willett pioneered the idea for his startup Mastercoin, and the first ICO was held.</p><p>ICO is a funding model like a traditional IPO. New crypto or blockchain-based token is offered by a company in exchange for investors' money. Typically, a specific business case or new functionality is promised.</p><p>This does not require building a successful company before the ICO. Nevertheless, companies should have all of their research, strategy, concepts, marketing/PR plans and roadmaps ready. If a startup is seeking investment, it should communicate with potential investors and how its product profile will handle the problem.</p><p>EOS raised $4 billion using the ICO model. Other successful examples include Bankera ($51 million in 2018), ARK ($5 million in 2016), and Ethereum ($18.4 million in 2014). You can also analyze the success by the return on the initial investment. It can go as high as 598,000% (NXT).</p><p>Seeing all these success stories, many players jumped into the ICO fray. But the boom was so high that the quality of projects was affected and the number of fraudsters skyrocketed. It announced the idea of a new model, and smart contract-based DAICO may just be the future.</p><h3 id="ico-risk-involved">ICO: Risk Involved</h3><p>The biggest risk in an ICO is persuading investors. Will you be able to meet the business challenge you are posing? And then prove it. Unfortunately, at times inexperience and dishonesty lead to promises that fail, causing losses to investors.</p><p>ICOs are certainly an effective way to raise money but the risk to investors and the crowded field of potential ICOs pose a major impediment to their success. If you see a pie-in-the-sky product, it can also waste your investment dollars because people buy into the hype as well.</p><p>Knowing all this, the idea of ICO turns quite sour for the investors. In very high-profile cases after the proceeds of the ICO, the project was even shut down.</p><p>Several firms have even spawned multiple scams, such as the Shenzen Puyin Blockchain Group, which raised $60 million across their BioLifeChain, ACChain, and PuyinCoin startups.</p><h3 id="daico-trust-model">DAICO: Trust Model</h3><p>Ethereum co-founder Vitalik Buterin conceptualized DAICO in the ICO market, taking into account these inherent risks. This acronym stands for Distributed Automated ICO which is composed of Distributed Automated Organization and Traditional ICO. It involves the investors in the development process, even giving approval for how the business will run.</p><p>This model entitles the investor to claim a refund of the money contributed by them if they are not satisfied with the progress of the development. Abyss has completed the first DAICO and has raised $15 million dollars for gaming-related tokens.</p><p>The difference that comes with the DAICO model is that in any case, the project has to reach certain milestones before it touches the funds raised by the investors. </p><h3 id="smart-contracts">Smart Contracts</h3><p>The key concept of the DAICO model is the smart contract that embeds rules about the system right into the code of the blockchain. When these rules are combined with ICO, investors are protected against the usual risks that come with traditional ICO.</p><p>There is no limit to what smart contracts can do within the ICO framework. It also protects funds or creates milestones. And the control of their ratification or approval is also in the hands of investors, that is, those who have money in it.</p><p>According to some proponents, it can work for any organization, not just those that deal with currency and transactions. Overall, they approach it from the point of view of the democratic application of ideas where investors announce the final product.</p><h3 id="controlled-flow-just-like-a-faucet">Controlled Flow: Just like a faucet</h3><p>Another advantage that comes with the DAICO ICO model is that investors can control the rate at which funds are distributed to the development team. Like a handle tap!</p><p>Smart contracts keep the flow of money under control. There is no impact on the unutilized portion of the investment while the work is in progress. This means that there is no need to provide all funds available right away.</p><p>In the case of an ICO, as soon as the initial token sale is completed, all the money goes into the hands of the developer. There is no compulsion on the developer, and any form of product exposure may leave investors vulnerable.</p><p>In DAICO, contributors can approve proposals whenever they want to increase the flow of funds, or even reduce funds with the consent of other contributors. This allows developers to be more proactive in what they do which further eliminates the risk of 'vaporware'. All of these terms can be agreed upon before launch, bringing complete transparency to the final solution.</p><p>Once the ICO has raised millions of dollars, there is no guarantee of motivation to implement the project. Even sometimes the product gets spoiled. With the DAICO model, product development is assured and the idea of completion is sustained.</p><h3 id="challenges">Challenges</h3><p>With every new idea come challenges. DAICO is designed so that developers can hold a substantial portion of the distributed token. The risk involved is still there to influence the vote of a small number of investors which will lead to the release of more funds from the smart contract.</p><p>Just like ICO, awareness of contributors is important. When voting on whether to increase the tap amount or return the remaining funds, investors must understand the value of a specific token and why the price of a specific token is rising or falling. Decisions should be based on facts, not emotion.</p><p>Another difficulty may arise in which contributors cease to participate in votes on resolutions. This will dilute the power within the DAICO. Despite all these challenges, the DAICO model has emerged as a major improvement.</p><h3 id="final-words">Final Words</h3><p>The DAICO model is a concept that maintains trust among potential investors. Instead, the inherited risk exists in traditional ICOs and forces investors to have second thoughts. That is, despite a significant product idea and a talented team, the funding potential fades away.</p>

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