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You can have third party risk management solutions in this environment. Why such solutions haven't emerged is a mystery to me. One solution I've been kicking a

You can have third party risk management solutions in this environment. Why such solutions haven't emerged is a mystery to me. One solution I've been kicking around is something like an escrow + shareholder voting. It would play out as follows: 1. Devs come up with an idea, decide they want to ICO to fund it. 2. Devs come up with game plan including set of milestones with timelines. 3. Devs reach out to escrow who arranges an ICO. ICO occurs, all ether besides a starting amount is held by the third party. 4. When devs hit first milestone, they show work to holders of ICO coin who then vote on whether the milestone has been achieved. Devs have to report any coins they previously mined or held so that they can't vote for themselves and agree to not purchase any further coins in a contract with the escrow. They also have to identify their relationships with any early coin buyers for the same reason. If they get approval from their shareholders, the next batch of money is released so that the work for the next milestone can be complete. If not, no money is released or the coins are voided and all monies are returned to the investors. The third party company would take a management fee, purchase insurance to protect against theft of the assets, and be a registered US corporation so legal action could be taken if they committed fraud. An added benefit is that if you are early to market you could help SEC shape ICO policy (assuming it's not too late) potentially becoming a mandated gold standard.

etrautmann 9y ago
seems reasonable as a Kickstarter++ model to implement this platform
otoburb 9y ago
Vitalik Buterin[1] last week brainstormed a proposed development, fundraising and stewardship structure combining elements of a DAO[2] and ICO called a DAICO[3]. People are still debating and considering whether this is a true improvement. The structure outlined in the parent comment is similar to the DAICO model proposed by Vitalik. [1] https://en.wikipedia.org/wiki/Vitalik_Buterin https://en.wikipedia.org/wiki/Vitalik_Buterin [2] https://en.wikipedia.org/wiki/Decentralized_autonomous_organization https://en.wikipedia.org/wiki/Decentralized_autonomous_organ... [3] https://ethresear.ch/t/explanation-of-daicos/465 https://ethresear.ch/t/explanation-of-daicos/465
- deleted 9y ago
  [deleted]
- makomk 9y ago
  The difference seems to be that rather than using third-party escrow, his idea uses code running on the Ethereum network to allow investors to vote on the release of funds (because we know that complex smart contract code of this kind worked perfectly in the past and certainly didn't have bugs so severe the entire Ethereum protocol was forked to undo them).
guiomie 9y ago
This sounds like Vitaliks DAICO model.
landryraccoon 9y ago
It doesn't matter because there's no incentive for companies that raise to do this. Dumb money is easy to raise, why try to fight for smart money? In other words, you could come up with this really complicated scheme to verify trust with your ICO in order to win over savvy investors. Or you could just hack together a buggy, insecure ICO in a few weeks and get flooded with retail investors clamoring to get their dumb money into any crypto they can lay their hands on. Barely computer literate friends and relatives have asked me recently how they could get into crypto. There's virtually an army of these woefully uninformed "investors" to get money from in an ICO. Why the heck would anyone lose months (at a minimum) of development time to build some trust that nobody cares about anyway?
- Thriptic 9y ago
  After this bubble inevitably collapses, the dumb money will largely exit and people will be forced to deal with smart money. Moreover, regulatory agencies won't tolerate this level of fraud long term. Either ICOs need some sort of regulator or they will be banned.
  - TeMPOraL 9y ago
    Assuming crypto survives (I personally hope it doesn't), escrow will happen - after the bubble collapses and the dumb money exits the market.
  - landryraccoon 9y ago
    That's a big gamble. If that's what you're banking on there's a high risk that regulators will simply overreach and ban any type of ICO, or at least ban ICOs except to "accredited investors". You could build a trust system nobody trusts anyway, because the concept is discredited.
jedberg 9y ago
> The third party company would take a management fee, purchase insurance to protect against theft of the assets, and be a registered US corporation so legal action could be taken if they committed fraud. Doesn't that basically mean your ICO is subject to US law, essentially eliminating the main benefit of a "trustless transaction"?
- Thriptic 9y ago
  If your escrow is not subject to some basic laws or threat of violence which prevents them from running off with money, then you're no better off than if you just gave the money to the devs running the ICO directly. The entire point is to build in external protections for the investor. The idea that you can have large investments and crypto backed companies without someone in the financial chain being subject to external governance is completely unrealistic. No rational investor would participate in that. Large numbers of people will inevitably commit fraud, and they have, as noted by the article.
  - jedberg 9y ago
    Yes, exactly. So how is having an escrow that is subject to US law an answer to "I want to have a trustless network with no government intervention"?
    - Thriptic 9y ago
      It's not, but this provides a hybrid approach which blends the best of both worlds. It allows companies to raise capital globally without being fully subject to SEC laws (depending on implementation and the SEC's willingness to play ball) while also eliminating much of the fraud and bullshit inherently baked into a trustless system by leveraging existing legal structures. At the end of the day it depends on what the goal is. Is the goal to lower the barrier to entry for new companies to raise money, or is it to create some idealistic free market? The former is possible and useful, the latter is not.

etrautmann 9y ago

seems reasonable as a Kickstarter++ model to implement this platform

otoburb 9y ago

Vitalik Buterin[1] last week brainstormed a proposed development, fundraising and stewardship structure combining elements of a DAO[2] and ICO called a DAICO[3]. People are still debating and considering whether this is a true improvement. The structure outlined in the parent comment is similar to the DAICO model proposed by Vitalik. [1] https://en.wikipedia.org/wiki/Vitalik_Buterin https://en.wikipedia.org/wiki/Vitalik_Buterin [2] https://en.wikipedia.org/wiki/Decentralized_autonomous_organization https://en.wikipedia.org/wiki/Decentralized_autonomous_organ... [3] https://ethresear.ch/t/explanation-of-daicos/465 https://ethresear.ch/t/explanation-of-daicos/465

deleted 9y ago
[deleted]
makomk 9y ago
The difference seems to be that rather than using third-party escrow, his idea uses code running on the Ethereum network to allow investors to vote on the release of funds (because we know that complex smart contract code of this kind worked perfectly in the past and certainly didn't have bugs so severe the entire Ethereum protocol was forked to undo them).

guiomie 9y ago

This sounds like Vitaliks DAICO model.

landryraccoon 9y ago

It doesn't matter because there's no incentive for companies that raise to do this. Dumb money is easy to raise, why try to fight for smart money? In other words, you could come up with this really complicated scheme to verify trust with your ICO in order to win over savvy investors. Or you could just hack together a buggy, insecure ICO in a few weeks and get flooded with retail investors clamoring to get their dumb money into any crypto they can lay their hands on. Barely computer literate friends and relatives have asked me recently how they could get into crypto. There's virtually an army of these woefully uninformed "investors" to get money from in an ICO. Why the heck would anyone lose months (at a minimum) of development time to build some trust that nobody cares about anyway?

Thriptic 9y ago
After this bubble inevitably collapses, the dumb money will largely exit and people will be forced to deal with smart money. Moreover, regulatory agencies won't tolerate this level of fraud long term. Either ICOs need some sort of regulator or they will be banned.
- TeMPOraL 9y ago
  Assuming crypto survives (I personally hope it doesn't), escrow will happen - after the bubble collapses and the dumb money exits the market.
- landryraccoon 9y ago
  That's a big gamble. If that's what you're banking on there's a high risk that regulators will simply overreach and ban any type of ICO, or at least ban ICOs except to "accredited investors". You could build a trust system nobody trusts anyway, because the concept is discredited.

jedberg 9y ago

> The third party company would take a management fee, purchase insurance to protect against theft of the assets, and be a registered US corporation so legal action could be taken if they committed fraud. Doesn't that basically mean your ICO is subject to US law, essentially eliminating the main benefit of a "trustless transaction"?

Thriptic 9y ago
If your escrow is not subject to some basic laws or threat of violence which prevents them from running off with money, then you're no better off than if you just gave the money to the devs running the ICO directly. The entire point is to build in external protections for the investor. The idea that you can have large investments and crypto backed companies without someone in the financial chain being subject to external governance is completely unrealistic. No rational investor would participate in that. Large numbers of people will inevitably commit fraud, and they have, as noted by the article.
- jedberg 9y ago
  Yes, exactly. So how is having an escrow that is subject to US law an answer to "I want to have a trustless network with no government intervention"?
  - Thriptic 9y ago
    It's not, but this provides a hybrid approach which blends the best of both worlds. It allows companies to raise capital globally without being fully subject to SEC laws (depending on implementation and the SEC's willingness to play ball) while also eliminating much of the fraud and bullshit inherently baked into a trustless system by leveraging existing legal structures. At the end of the day it depends on what the goal is. Is the goal to lower the barrier to entry for new companies to raise money, or is it to create some idealistic free market? The former is possible and useful, the latter is not.