The Coin Governance System: towards a safer and more secure ICO ecosystem
Since you’re reading this article, you probably already know what an Initial Coin Offering is (a fundraising process by which a company issues a series of tokens in exchange for cryptocurrencies (in general) through smart contracts). We consider it a powerful tool that democratizes crowdfunding and the participation in early stages of innovative companies.
Whereas before there was one ICO launched every couple of weeks, now there are on an average 5 ICO’s being launched everyday. We know some great examples to follow, such as Gnosis and Melonport, but we have also seen scams, like Bitcard or Confido, or projects that turned out to not be viable, that had internal issues or that were not capable of managing the funds, like Tezos.
Such projects that turned out to be scams or weren’t capable of managing correctly the raised capital, looked one day like great opportunities but often turned out to be losses for the token holders.
We believe in the potential of ICOs but we think there is an increasing need for governance, to prevent bad practices and to protect the token buyers from scams, projects that are not viable and from teams that are not capable of managing correctly the raised funds.
ICOs & Governance
ICOs make it possible for anyone to participate in the success of groundbreaking companies, however, once an ICO is completed, token buyers have no control over the management of the raised funds, and if they are unsatisfied they can only sell their tokens in a secondary market, so the interests of the ICO launchers and those of the investors could become misaligned post-ICO.
To solve this, we have created the “Coin Governance System”, which consists in an on-chain coordination mechanism that decentralizes the most conflictive point of an ICO: the management of the raised funds.
Through this mechanism a series of smart contracts will hold the funds raised in the ICO in escrow. Those funds will be released to the ICO launcher over a period of time. However, if the participants in the ICO lose faith in the project, they may trigger a voting mechanism which could enable ICO token holders to withdraw the funds remaining in escrow.
How does the Coin Governance System work?
Currently, there is a dangerous imbalance of power in favor of the ICO launcher, who has an almost absolutely free disposition of the raised funds. We know that transferring all the control over the funds from the ICO launcher to the ICO token holders will cause other problems, therefore the Coin Governance System introduces a third party: the CGS arbiter (CGS token holder), who will help keep the interests of the other two participants aligned.
ICO Token Holders can submit claims if they are not pleased by the way the project is managing the raised funds. As soon as the voting system of the Coin Governance System is triggered, a certain percentage of ICO funds would be locked up while the voting is taking place.
With the tokens locked in the escrow, the community of CGS Arbiters (those who hold CGS Tokens) acts as a decentralized judge and will vote about whether to allow the withdrawal of the funds in the escrow contract. They are incentivized to vote correctly, because they can gain or lose CGS Tokens depending on the outcome.
Towards a safer and more secure ICO ecosystem
With the Coin Governance System we aim to prevent bad practices, align the interests of ICO launchers and ICO supporters and, last but not least, make ICOs an even more attractive way of raising funds and participating in the success of innovative companies.
“Initial Coin Offering have demonstrated how the access to startups could be completely disrupted. But this methodology is at its earliest stage, and need to be improved not only with regulation, but also with self regulation, where smart contracts play a key role. This thought led us to start building a Coin Governance System, a simple but strong machine to align the interests of all the players in an ICO” explains Alejandro Gómez de la Cruz, CEO & cofounder of the Coin Governance System.
We have been working on the Coin Governance System for a while now and are very content to launch the product and hear your feedback! You can read the whitepaper here.
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Official CGS channels:
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Twitter: https://twitter.com/CGS_vote
LinkedIn: https://www.linkedin.com/company/coin-governance-system/
Medium: https://medium.com/coin-governance-system
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Website: https://cgs.vote/
