Money-Backed Utility Tokens are a Necessity
In a DYCO, every token in circulation is money-backed with at least 80% of the token sale price.
Even though the tokens have a speculative value and an eventual live utility value, they are backed with USDC for 16 months.
The purpose of this model is to ensure that a project is able to have a circulating supply held by a dedicated community, while allowing others to claim buybacks (and burns) for tokens that they do not want to hold.
Three buybacks take place, split across the 9th, 12th, and 16th month after TGE.
The timeline allows DYCO participants sufficient time to assess the potential of a project, and whether they want to hold their token or claim a buyback. It simultaneously allows teams ample time to deliver a viable development with a good product market/fit (PMF).
The rationale behind three buyback rounds is to give holders enough time to assess whether the team has delivered a good product and whether it is reasonable to release funds so that the team can scale their product. Holders are given this opportunity three times, while having the right to claim a partial buyback in each round.
If the team is able to deliver a viable product with good product/market fit, holders do not claim a buyback. This unlocks funds, which no longer need to be used for buybacks, and instead enable the growth and scaling phase for the product.
On the other hand, if the team fails to deliver roadmap achievements, holders initiate buybacks. This process is split into three rounds so that teams are given additional opportunities if needed, but delayed performance comes at a cost to the team.
For each buyback round, if the team has not done well, people will claim a partial buyback, reducing the funds the team could have had if the team had performed well. At the same point, the project’s valuation is reduced because all bought back tokens are burned.
This system also motivates teams to be incredibly transparent with their community to retain their confidence and trust. Acquiring trust may give teams some sway during the buyback period, allowing them to appeal to some long-term holders to forego buybacks.
However, in the end, buybacks are guaranteed and it is up to holders to claim them, and they may claim them regardless of how transparent a team is.
A DYCO is Different From a Refundable Token Sale
A Dynamic Coin Offering has various distinguishing factors from a token sale that offers refunds.
First and foremost, a DYCO does not force holders to lock their tokens for any length period. Instead, a DYCO allows the sale participants to have the freedom to sell tokens, trade them, or hold them, without tarnishing the buyback status.
Moreover, until the final buyback, circulating tokens are money-backed.
This factor makes tokens issued under a DYCO truly money-backed because anyone in the secondary market can participate and benefit from the price floor, which limits the downside while giving full exposure to the upside of a venture.
The most important differentiation of a DYCO, though, is that it gives a token a dynamic supply and valuation.
Tokens that are bought back are burned, and hence permanently removed from circulation.
Understandably, holders are making claims for a token buyback if there is insufficient demand. If a portion of a token’s supply lacks demand, then it is reasonable to burn this excess token supply so that a healthy secondary market can be retained.
This factor also gives holders the opportunity to re-assesses a project’s valuation. Project valuation can be decreased if a project falls off its roadmap and if the team fails to meet its responsibilities to the community.
This valuation reduction, which can be painful for the team, ceases once a team has delivered a product/market fit, and organic demand for tokens is generated.
Secondary Market Outlook: https://medium.com/daomaker/incentive-theory-in-a-dynamic-coin-offering-dyco-5f1d4218e9c8
Buyback System Explained: https://medium.com/daomaker/dyco-buyback-system-explained-4b5b0da68a3f
Mirror Flips — Profits from Token Drops: https://medium.com/@SolidWater/what-is-a-mirror-flip-and-how-to-profit-through-it-f036fd870d1b