Investors need more regulaion over ICOs
Leastwise, that’s according to ethereum founder Vitalik Buterin. One of the early thinkers to form the crypto funding mechanism conception, he hasn’t quite put this thought aside, last month supposing it could be joint to a decentralized autonomous organization (DAO) to best allow investors to have a possibility to say in how money raised gets handled.
Flare forward to today and what Buterin called a “DAICO” is already being developed, with gaming startup The Abyss building its own version for its upcoming token sale.
“This idea found a free place in my heart,” said Konstantin Boyko-Romanovsky, the project’s creator. “We really want to make something beautiful.”
As Boyko-Romanovsky refers to, the ICO model has been called into question for enabling entrepreneurs to get big profit without a product or platform already built. (Even Boyko-Romanovsky has gotten burned by several ICOs, which is why he believes better tech could help ensure a token’s team isn’t interested in a cash grab.)
And by accepting the DAICO model first, he also wants to show investors that The Abyss is really about disrupting platforms for selling computer games (like Valve’s market-leading site, Steam) by making the promotion of computer games more flexible and delivering more money to creators.
Nevertheless, while the conception will get a test run with The Abyss project, others are skeptical it will be broadly embraced.
First of all, like ICOs, the DAO conception has a rude history, since the first DAO had a vulnerability that allowed a “attacker” to transfer $60 million worth of ether to themselves. (The consequences and uneasiness of the fallout still reverberate throughout the community.)
Actually, former Monax legal counsel and ICO skeptic, P. Byrne pointed to a deeper question: Do ICO investors really want to be bothered with governance?
“Most DAO users are less interested in managing their chosen project than they are in offloading their coins at a massive profit on new entrants as quickly as possible,” he wrote.
However, Boyko-Romanovsky believes the industry has grown enough, with a considerable number of complicated, institutional investors coming to the table, to want such understanding into the inner-workings of an ICO issuer.
He told CoinDesk:
“DAICO, this is true crypto for me, because it utilizes the best from ethereum.”
Minimum viable DAICO
So, how exactly does the DAICO combine 2 of ethereum’s more famous conceptions.
Buterin describes a smart contract in which token holders vote to set 2 mechanisms: a “tap” and a “refund.” First, the tap is the rate at which the smart contract would allow the issuing group to draw down ether from the smart contract that holds funds raised in a crowdsale.
“The intention is that the voters start off by giving the development team a reasonable and not-too-high monthly budget, and raise it over time as the team demonstrates its ability to competently execute with its existing budget,” Buterin said in the post.
Refund then allows users to vote if they should “self-destruct” the ICO, which merely empties out the smart contract of all remaining ether and returns it to the token holders in proportion to no matter how many tokens they hold.
To Boyko-Romanovsky, it’s a slick idea.
“Most people don’t understand what is DAICO and how it will change the industry,” he said.
But one that was even more attractive since Buterin himself proposed it.
He told CoinDesk:
“We got much, much more attention because of this.”
However, as much as Buterin’s DAICO idea spoke to Boyko-Romanovsky, the creator is setting the mechanism a bit to make it more suitable for The Abyss.
For example, The Abyss DAICO will have another method to increase funds to the group, called a “buffer.” The buffer is a functon for a one-time payment, so if one month they have a major expense which the flow doesn’t cover, they can offer a buffer vote to token holders.
On top of that, the project’s tap is more restricted than the one Buterin offered.
First of all, the flow can never be increased more than 50% month over month. Thus, if the tap is 100 ETH per month now, it can’t go higher than 150 ETH per month during the next vote. On the vote after that, it couldn’t go higher than 225 ETH per month, etc.
And even then, the rate of rises could still happen quite fast, so The Abyss team inserted another restriction. After each tap and buffer vote, no vote of the same type can happen again for 14 days.
The group also determined some rules about what it takes to establish a “quorum” – the number of people it takes to make a vote legal.
The number of voters in each vote has to equal no less than half the number of voters in the prior vote. Thus, if 100 people vote in the first poll, at least 50 people have to vote the next time to make a quorum. It means, if 200 people vote on that second poll instead, then at least 100 people would be necessary to hold a legal vote the next time.
Probably, though, the most radical change The Abyss team made was in what it takes to launch a refund vote.
The Abyss will search 3 to 5 crypto luminaries to serve as “oracles” over their ICO, and a majority of those oracles must agree to a refund vote for it to be initiated. If the oracles vote for a refund voting, then the token holders get a chance to vote on it.
This modification protects an honest creator running a DAICO from investors moving for a refund because a fast rise in the price of ether makes them want to cash out ether now, instead of wait for ICO returns later.
Having added that nuance, though, Boyko-Romanovsky stated, “I am not afraid that my project will be closed because of refund or something else.”
The industry will soon see, as The Abyss’s ICO starts next month, with a hard cap of $60 million in ether.
“People are asking why we need $60 million, but we really need big money to compete with Steam,” Boyko-Romanovksy claimed.
The project’s KYC will be run from Switzerland, where the company is domiciled, although the group works from Russia. In accordance with the company’s official website, in the US, only accredited investors can take part in the ICO, but everywhere else the crowdsale is open to everyone.
With the KYC and limit on investors, the project looks to be playing by the rules, something that aligns with Boyko-Romanovsky interest in being a trusted member of the crypto space.
According to his words, just as the DAICO conception has attracted much attention because of Buterin’s support, potential investors trust people more than they understand the technology or basic business models of platforms run with tokens.
And in that way, Boyko-Romanovsky concluded:
“I want to become in this market: No matter what I do, what I do is very good. I think people will see in one year. I will get people’s trust.”