The initial coin offer market mode of raising capital has given rise to a hype-cycle in funding, that is competing with the market dominance of private equity. However, ICOs that have the ability to raise capital internationally (and not just in the home country). This market is Kickstarter on steroids with little governmental oversight.
Recent statistics studying ICOs and their effectiveness shows that less than 10% of the ICOs have functional market-ready products. Forget profitability or revenue growth for a project, just the basic Beta product launch itself would take several years after the ICO. To prevent, 1990’s repeat of the dot-com boom-bust, the Ethereum ecosystem is slowly adopting what is known as the DAICO. This is one of the most brilliant innovations in smart contracts, that is just beginning to take shape.
Game theoretic security protection
The DAICO implements game-theoretic security protections for all involved players in the market.
1) The token (or contract) that the team is selling is limited (or capped) prior to the end of sale. Sales can be conducted using either individual limits or through KYC based investment mechanisms. The US allows accredited investors to partake a sale.
2) Each contract has a time-limited withdrawal rate wherein the team conducting the token sale can choose to withdraw capital through a sale of ethereum in public markets.
3) Each holder of the token can vote to either a) increase the team’s withdrawal rate or b) to self-destruct the contract to withdraw capital from the token by means of a voting based consensus.
What this effectively does is as follows: It provides leverage to the team raising capital, through a monthly budget. It also provides the ability for investors to choose to either allow the team to continue to use the budget, increase it or reduce it, or to withdraw funds based on their visibility.
ICO protection against gaming
That being said, game theoretically, it is possible for the ICOs to be held or controlled by one entity with >51% voting rights, similar to what is happening in some of today’s top public company boards. DAICO’s can be set up so as to perpetually suspend such a possibility, which will increase both the capital and quantity raised. DAICO’s can prevent the team from swerving away from the goal, and, finally in case of a 51% attack on withdrawal the honest development team can create another token sale invalidating the rights of the first attacker. The DAICO mechanism provides proof of a malicious attack (>51%) or collusion on the contract.