The DAICO is a combination of a DAO (Distributed Autonomous Organization) and an ICO (Initial Coin Offering). In this variation on an ICO, a development team setups a DAICO contract and lets investors contribute funds to the contract in exchange for tokens. Once the contribution phase stops, the token balances are fixed and at that point the tokens are tradable.
The contributors of tokens decide how much of the funds are applied to the project. It’s called the “tap” which determines how much of the funds the development team can draw out. The contributors maintain the right to raise the tap, lower the tap, or shut down the system altogether and get their funds back.
The intention is to fund a team with an initial amount of tokens and then raise it over time as the team proves itself.
It reminds me of the traditional practice among venture capitalists to provide their funding in stages. Oftentimes a company will announce a fundraise of $5M. In practice, the VC didn’t write a check for $5M, but rather gave the team an initial amount such as $100,000, to begin work. If the funds were spent well and progress achieved, then more funds from the $5M would be allocated. If the funds were not spent well and little progress was achieved, then no further funds would be forthcoming.
In the DAICO each investor votes independently, so it is up to the developers to convince some portion of the investors to increase the tap.
Other issues to figure out include how to handle the voting process- how often, what duration, what interval?
Hall T. Martin is the founder of TEN Capital and a builder of entrepreneur ecosystems by startup funding through angel networks, funding portals, syndicates, and more. Connect with him about fundraising, business growth, and emerging technologies.
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