If you’re a smart ICO investor, you always do your research to make sure it’s not a scam. What’s sad is that there’s a growing list of frauds, like Benebit, who ran off with $2.7 million in investor funds.

How can such scams be prevented?

Vitalik Buterin and the team have recently come up with a better model: the DAICO. It’s what we’re using to raise funds for Ethearnal — because we want our investors and users to be protected.

Why we like the DAICO model

The DAICO is a new method of decentralized fundraising that incorporates elements of DAOs into ICOs.

But don’t decentralized autonomous organizations (DAOs) have a bad reputation?

Yes, they do. But that’s because everyone’s heard about the infamous DAO hack in 2016, where roughly $70 million USD in Ethereum at the time was stolen overnight by exploiting a flaw in the code. That was a scary time for the Ethereum Network.

Yet we can’t ignore the good things about DAOs. The model leverages wisdom of the crowd, enables funds to be spread over time, and ensures we don’t have to trust a centralized team. With a DAO, code functions as law.

Integrating characteristics of DAOs into ICOs enhances their traditional structure and reduces risk of ICO creators misusing or stealing the funds. It ensures startups are held accountable by investors.

In the original ICO model, teams can use funds in any manner they please. With DAICO, those teams won’t be able to drive off in Lambos before doing the work they promised.

As Vitalik Buterin writes:

“A DAICO contract is published by a single development team that wishes to raise funds for a project. The DAICO contract starts off in “contribution mode”, specifying a mechanism by which anyone can contribute ETH to the contract, and get tokens in exchange. This could be a capped sale, an uncapped sale, a dutch auction, an interactive coin offering, a KYC’d sale with dynamic per-person caps, or whatever other mechanism the team chooses. Once the contribution period ends, the ability to contribute ETH stops, and the initial token balances are set; from there on the tokens can become tradeable.”

Token allocation and usage are baked into the smart contract, ensuring all players follow the rules. There is even a mechanism that determines how much developers can use, as well as a process for investors to vote on resolutions, like monthly budgets for the core team.

Simply put, DAICOs restore honesty and security to ICOs and the business operations of blockchain startups. They are the way forward — because they truly create a trustless platform (isn’t that the point of all this?). That’s why we’re all in on running a DAICO at Ethearnal.

How specifically does the DAICO model benefit Ethearnal?

As a P2P freelance system, one in which employers and freelancers meet, we depend upon smart contracts to guarantee everyone’s motives align. If an issue arises, our decentralized system of moderators can step in to solve the dispute.

As Stanislav Uzunchev, Co-Founder of Ethearnal, says, “Thanks to Ethereum smart contracts, both employers and freelancers can have peace of mind that their investment, be it money, time, or, effort, is safe and secure.”

For the freelancing economy, trust has long been a major issue. If we were to run a traditional ICO, we know that freelancers would be hesitant, given the power it puts in the hands of a centralized team. Could you blame them?

That’s why we’re paving the way for ICO 2.0 (aka DAICO). We want to finally bring trust to ICOs. And we’re going to let the tech establish trust. Through smart contracts, we protect freelancers and employers from not just each other, but also inappropriate activity from developers and investors.

For the Ethearnal ICO, investors will be protected via the power of smart contracts and crowd auditability. After the ICO, we even give investors control of our spending (it’s built into the smart contract!). If we wish to spend money on engineering, marketing, etc, we must get majority approval from the community.

Now, this may bring up concerns about a 51% attack. Buterin notes this could happen, but the DAICO model dramatically reduces that possibility. This is because “ the developer and the vote to be compromised to cause any real damage.” In any case of misconduct, one side can hold the other accountable.

On the Ethearnal platform, we utilize smart contracts to eliminate the possibility of corruption through the ERT token. The ERT token monetizes reputation and ensures malicious actors can’t gain power.

For example, for each job, freelancers and employers stake ERT. They can earn ERT if the job goes successfully (and therefore gain a better reputation). This will give them a better profile on the platform, and make it possible to benefit even more.

If there’s a dispute, moderators must also stake ERT, from 5% to 33.4% of the transaction value. To prevent “whales” from manipulating, each moderator’s vote is weighted the same, regardless of how much they put at stake. It also makes certain moderators act honestly and don’t engage in manipulative behavior.

In DAICO we trust

The goal of the blockchain has been to create a trustless society. ICOs and the platforms blockchain startups create haven’t been living up to that standard.

Freelancers will soon make up the majority of our workforce. Both them and their employers deserve a system where they don’t have to worry about scams and negligence. The DAICO model can give that to them.

That’s why Ethearnal is full DAICO. Because we want to build a better tomorrow for the freelancing world.