- Dynamic Coin Offerings are a token sale framework that addresses the risks associated with ICOs and IEOs
- Participants can ask for their money back if they are not satisfied with progress
- Refunded tokens are burned, reducing circulating supply
The Dynamic Coin Offering (DYCO) is the latest cryptocurrency token offering method, created by blockchain consulting firm DAO Maker. The company claims that the framework protects participants through its buyback initiative, reducing the risk of a project failing to meet deadlines or absconding with the funds. But what is a Dynamic Coin Offering, how does it work, and why do we need them? Our quick guide provides answers to these questions, and more.
What is a Dynamic Coin Offering?
A Dynamic Coin Offering is a method of raising funds for blockchain projects where investors are protected through refunds if certain conditions are met – i.e. if the token price drops too low after launch, or the performance isn’t satisfactory.
How Does a Dynamic Coin Offering Work?
Token buybacks are baked into the offering at 9, 12, and 16-month intervals, with the circulating supply locked for the full 16 months. If token holders are not satisfied with the performance of the project, or the token price drops by more than 20% from its initial price, participants can “generate risk free profits” by selling tokens back to the team at the original price. They can also buy tokens from the market and get them refunded at the original rate. Refunded tokens are burned upon receipt, reducing the circulating supply.
Why do we need Dynamic Coin Offerings?
Current token offerings such as ICOs and IEOs put all the risk in the hands of the buyer, with almost no risk attached to the team. This has led to situations where money has been wasted and projects have folded, or plain exit scammed. In this model, it is up to the team to prove that token holders should stick with them, while the various mechanisms in place should help maintain a balanced token price, eliminating the pump and dump schemes seen in the past where teams ramp up their tokens price, cash out, and abandon the project.
Can Projects Defy the Buyback Rules?
DAO Maker states that teams are “mandated to buy back every token in circulation”, with team tokens being unlocked after month 16. Any attempts by projects to pump and dump their tokens will result in trust being lost, whereupon participants will likely ask for refunds, potentially decimating the circulating supply.
Team Need Protection Too
Dynamic Coin Offerings are the first proper attempt to tackle the issue of ICO malpractice, putting the power back in the hands of the buyers rather than the teams. However, there is an argument to say that DYCOs put too much power in the hands of the buyer, that they could refund tokens on a whim if they need to release some liquidity, regardless of how the team is performing.
On a small scale this might benefit holders as the circulating supply is reduced and therefore the price should increase, but projects with utility tokens often need a minimum number of tokens in order to operate at full functionality, and so if a whale was to refund a massive amount of tokens that could negatively impact the project.
It is important therefore that, for DYCOs to work in the way intended, they should have limits on how many tokens individuals can buy. With the first DYCO, Orion Protocol, having just been announced, we will soon get a glimpse of how this new token offering protocol will work and whether we have finally found the solution to the inefficiencies that have plagued the ICO model since their inception.