Management of funds

Initial coin offerings (ICOs) have been a popular fundraising method for blockchain projects, which typically involve the development team to be fully trusted with the development funds. Although this is sensible on the surface, it gets challenged when the token price increases speculatively, which results in the development team gaining control of a much larger amount than what the investors trusted them with in the first place. Since it is well established that centralized governance is strongly associated with corruption, we can say that this has the potential to lead to deceitful outcomes ranging from exit scams to development funds being misused in order to manipulate the token price further, resulting in unsustainable growth. This risk is heightened with a lack of budget transparency, which unfortunately is the norm. In addition to the technical development fund, some projects have an additional ecosystem development fund. It is even more difficult to justify giving the control of these funds to the development team, as they are only a part of the ecosystem and do not necessarily represent it and share its interests as a whole.

DAICOs (an amalgamation of the terms DAO and ICO) have been proposed as a solution to these problems, which involves a DAO of investors to allocate a stipend to the development team, which can be regulated and even completely cut off by the DAO. A more flexible approach that is being employed by DAOs successfully today is to conduct the entire development through grants. In this scheme, the DAO does not have a development team, but rather jobs to do, and it contracts third parties to work on them on a case-by-case basis. This typically results in honest and efficient allocation of development and ecosystem funds at actual market rates.