Blockchain-Based Accelerators For ICO Startups: the DAICO Approach, or Vesting Escrow Model

Applicature
Jun 19, 2018 · 9 min read

Blockchain-Based Accelerators and Their Significance for Startups

The crypto community of entrepreneurs and developers focused on blockchain technologies is constantly expanding, along with a supporting ecosystem that aims to provide and nurture high-performing solutions. As blockchain technologies become more vital and viable, a new trend of using blockchain accelerators and incubators to support and guide new startups in the blockchain industry has appeared. Some accelerators cover funding assistance and guidance in a variety of services; others just cover services.

As of today, there exists a number of accelerators and incubators designed to create a robust protagonist’s ecosystem for blockchain-based startups.

The accelerating programs provide:

  • company advice
  • project guidance
  • early-stage startup support

Conventional business accelerators usually support and guide startups that have a preexisting, fully-formed idea for commercial promotion. When contributing to these projects, accelerators expect a profit or return on investment.

The characteristic features of business accelerators are intended to:

  1. design a cooperation model. This period usually takes between one and four months.
  2. not only provide startups with their services, but also purchase a certain share of the company to generate a profit.
  3. act as an independent escrow holder or intermediary between projects and investors.
  4. work with several similar projects and provide competitive conditions between them, additionally decreasing the implementation period.

The Cooperation Model

The main business model of cooperation is finding additional capital for investment and monitoring its use/allocation. Here are several working models:

  1. Equity participation: The conditions in which an accelerator purchases a certain company share (usually 5%). This participation can be considered risky, as some projects fail, but if the project is promising and enters the market well, an accelerator can gain a pretty large profit. This model is commonly used in the early development stages.
  2. Trade-in services: This model doesn’t require a division of startup shares, as the accelerator does not invest, but gets money or stocks in return. This model is more convenient when the company or startup has already collected the required amount of funds for development.
  3. Free participation: In this model, accelerators provide startups with free services, as they are interested in the development of their own ecosystem. Thus, they have a strict set of requirements when considering project launch and product development. The possibility of raising funds here is limited.
  4. Flexible participation conditions: In this cooperation model, accelerators cannot charge startups any fees or invest. Both parties have to be sure of future success: accelerators must ensure the business plan and believe in its success, and companies have to be sure that the accelerator is an established institution with work experience. Then, both parties start negotiations and come to a reasonable working cooperation model.

Blockchain-based accelerators usually commit to funding blockchain companies that use smart-contract technology for business settlement. This type of cooperation also eliminates third-party involvement and strictly confirms all parties’ personal information to avoid the risk of fraudulent activities.

Blockchain-based accelerators often offer the following models:

  1. Connecting blockchain startups with industry partners and business advisors
  2. Providing workshops on strategies of development, marketing, programming and coding, legal issues, etc.
  3. Providing startups with an accelerator team of experts who work closely with project participants, guiding and supporting the team
  4. Providing technical partners along with an opportunity to present the project idea at various international meetups
  5. Investing for the first push

Blockchain Trust Accelerator, for instance, supports innovative startups, promising them support to deal with the toughest challenges. Their working model works is as follows:

Additionally, blockchain-based accelerators can invest in startup projects to obtain equity and provide a developmental push.

The following is a list of the most popular blockchain-focused accelerators:

Startups that need assistance should research all accelerators in order to choose the best match, as it is helpful to join accelerators that are focused within a specific blockchain area.

Some of the most well-known blockchain-focused accelerators are:

What Is DAICO?

The current problem investors face when contributing to ICOs is that they basically have to trust investments to the development team, and cannot control these funds. Unfortunately, a number of ICOs do not reach their set goals, and do not comply with their commitments. The risk of scams is extremely high, as investors can’t just trust any project.

DAICO offers a different approach to the above-mentioned issues. DAICO is an advanced ICO model integrating the main features of DAOs (decentralized autonomous organizations). This idea, offered by Vitalik Buterin in 2018, ensures ICO safety by involving investors and supporters in the project’s initial development.

According to DAICO, tokens are enabled to vote for funding contribution recovery in case investors/contributors aren’t satisfied with the project development process. This approach ensures the security of invested funds and motivates development companies to meet their set milestones.

To enable the DAICO process, smart contracts act as a mechanism allowing contributors to send their investments against specific codes.These funds will be only received if the project’s milestones are complied with. Therefore, after the contribution period, investors can vote and decide whether to send money to the project or not. This variable is known as a “tap variable:”

Blockchain-based accelerators often act as agents between ICO projects and investors to ensure contributors’ investment safety and guide/assist projects in order to comply with their roadmaps and milestones.

One of the disadvantages of the DAICO process is that it is costly, as smart-contract execution costs certain fees. Additionally, multi-signature contracts can take a lot of time, as a significant share of investors should take part in the voting. If they don’t come to a decision, the voting has to be redone under new conditions. Though the general DAICO idea is great, it faces certain difficulties, as many ICOs don’t want to take part in it; the process is technically complicated and very expensive.

The Idea of a Delegated DAICO

The Applicature blockchain agency offers a new solution to guarantee startup goal achievement and contributor funds safety.

“Delegated DAICO (dDAICO) is a new and simplified approach to ensure investor safety and stimulate startup development,” states Stanislav Sheliakin, Applicature business analyst. “To eliminate voting complications, all investors needn’t participate in the voting procedure. Therefore, we can delegate the right of the vote to a particular organization — an accelerator for instance — thereby saving time and avoiding a range of complications.”

The idea behind a delegated DAICO is the following: a company wants to run an ICO campaign and uses an accelerator’s assistance, but the ICO can receive money from a multi-signature smart contract or multi-signature transaction (if we are speaking about Bitcoin, Litecoin, etc). The latter can be processed only if the accelerator signs and approves this transaction. Thus, an accelerator has the voting right and responsibility to make decisions. Using delegated DAICO, we can avoid all sorts of difficulties concerning the technical complications of voting procedures, and provide cost efficiency.

“Delegating an accelerator the right to make such decisions is a smart move, as accelerators are already established companies we can trust. They usually have extensive work experience and a great reputation,” comments Stanislav.

Accelerators benefit from the dDAICO approach, as well, as they own the ICO’s tokens and are also interested in an investment return. The accelerator’s role is to:

  • help project development
  • control milestone compliance
  • support the ICO in achieving its goals

In case the project is incapable of meeting the requirements, the accelerator does not release the funds, and has the right to send a reverse transaction to refund all investor money during an ICO.

Applicature is one of the leading blockchain agencies that supports ICO launches, provides blockchain solutions, and helps with smart-contract development and deployment. With deep experience in the blockchain industry, Applicature experts see the pros and cons of the initial DAICO approach. Therefore, a delegated DAICO approach is offered to blockchain accelerators and investors, as dDAICO:

  • is cheaper
  • is technically simpler
  • perfectly matches the accelerator working concept

Accelerators are welcome to consult with Applicature team experts and use the team’s ICO cabinet service or specially-designed platform “blockchain as a service,” which helps with smart-contract development and execution.

Vesting Escrow Model

Smart contracts usually lock a certain amount of funds until contract conditions are met. Vesting is used for a certain ICO coin: the team can reserve 15% of coins, for instance, which will be gradually released once a month/quarter/year during the project process for financial purposes. The process of releasing these coins is called vesting. Vesting is usually used to show that the team is highly interested in the project, and will continue working on project development. Additionally, vesting eliminates market price manipulations.

Vesting can be applied to anything. We can process transactions on a certain number of coins released on any blockchain platform. An example of coin vesting is illustrated below:

Escrow means that there is an intermediary between the ICO project and investors, which is an additional signature for the transaction. A transaction usually requires two of three signatures in order to be processed (but can have more like 3 of 5, 4 of 5, 99 of 100, etc). Therefore, escrow functions as an independent agent between an ICO and a contributor, ensuring transaction safety and contract compliance. Escrow signs the transaction, which is beneficial; it can support one party if the other does not comply with regulations. Take a closer look at the graph below to understand the escrow principle:

Hence, dDAICO is the general concept in which the vesting escrow model functions as a technological means to process these types of transactions.

The Benefits of dDAICO For Investors, Startups, and Accelerators

The delegated DAICO approach has a range of benefits, as it was designed with the cons of the initial DAICO approach in mind. dDAICO provides:

  • cost efficiency
  • a simple technical process
  • advanced utilization of investor funds
  • an improved relationship between parties with independent escrow
  • decentralized crypto transactions
  • smart-contract execution
  • improved security

ICOs will benefit from dDAICO, as there will emerge a larger number of investors who won’t be afraid to contribute to the project. Additionally, blockchain-based accelerators will provide guidance and support, thereby helping ICO projects.

Investors will have the guarantee of ICOs achieving their goals. Investor funds will be safe and locked, due to smart contracts and multi-signature contracts, until the project complies with the milestones.

Accelerators will find advantages, as well, as they are interested in successful ICO projects. When accelerators support certain startups, they profit, too, as the price of the initially-purchased tokens gradually grows. They may charge additional fees, but usually, their profit comes from startup investments.

One of the disadvantages is that accelerators are still dependent on token volatility, and there is no legal enforcement governing the delegated DAICO approach.

On the other hand, closed types of ICOs can be launched without public exchanges, and later developed when there is a ready platform. This will avoid the issue of dealing with security tokens, as utility tokens could fall under regulatory policy exemptions in certain cases.

Consider the benefits of the delegated DAICO approach. Hurry to contact Applicature team experts for additional information!

Applicature

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Blockchain development agency focusing on production ready solutions, smart contracts technologies, cryptocurrencies and technical ICO support.