The DAO ICO

If you’re familiar with the crypto world at all, you’ve surely heard about ICOs.

If you haven’t, let me give you a quick crash course.

What is an ICO?
ICO stands for Initial Coin Offering. It’s a fundraising mechanism in which projects sell their underlying crypto tokens in exchange for bitcoin or ether, usually at a discount or with a bonus. It’s somewhat similar to an Initial Public Offering (IPO) in which investors purchase shares of a company. Only you are getting tokens that hold value related to the project and don’t actually own any shares in the company.

As with any industry, when there’s money to be made, frauds and scammers are surely waiting in the shadows. There have been plenty of incidents of scammers taking investors money and running. The most recent $600 million Arisecoin scam, and Prodeum, which left bag holders sitting with their d***’s in their hands (literally, they took their money and ran leaving only a website that read the word “penis”). Examples like this keep coming, which is why I urge you to do your due diligence before participating in any ICO.

Have no fear, Vitalik Buterin is here.

Ok, that was really cheesy, but I recently listened to a podcast where the host interviewed Ethereum’s founder and CEO Vitalik Buterin. He’s a visionary, to say the least. He had a slew of great ideas and perspectives, but one stood out to me the most about ICOs.

The DAO ICO.
He proposed that we utilize the benefits of a DAO to run our ICO projects (if you don’t know what a DAO is, read my post on DAOstack). Instead of companies collecting funds and hoarding them in an account only they can control. Take the money raised in the ICO and put it in a private DAO.

This does three things.

1. It prevents the possibility of a scam in the first place. If the company tried to run with the fundraised money, the contract would be terminated and everyones investment would be refunded.

2. It also lets the investors have a say in how the funds are issued throughout the project, not just the team. They can control (by majority vote) a fair price for the to developers get paid per month while building the platform, as well as how much should be allocated to other initiatives in the build out such as marketing.

3. They can vote on whether the project is failing as it moves along and shut it down to get what remains of their money back. Of course, no one wants the project to fail. If it did they would have to take a loss on the funds already used, and they wouldn’t have the advantage of being in early on the action.

I believe this sort of innovation could be critical in making ICOs a less risky investment. It will give developers incentive to keep the project going, and they won’t have access to the funds raised if the project never takes off the ground. It also gives ICO holders peace of mind knowing they can control their investment and have a say in the success of the project.

One of my biggest pet peeves is the saying, “This is how we’ve always done it”. That just doesn’t cut it in my book. Scammers always find a way to cheat the system, but it is our job and responsibility to make it harder for them to do so. Finding new ways to create functioning systems and transparency is what the blockchain is all about.