Venture capitalists enjoy the biggest cake of the sumptuous opportunities that flow from equity ventures. Whatever the retail investors get is nothing different from the crumbs that fall off the table of a venture capitalist.
The incredible returns compensate largely for the early risk covered by venture capital funds – a good compensation for their troubles. By the time a company goes public, providing an opportunity for retail investors to get in, the bigger cut of the cake would already have been swallowed by the venture capitalist.
Cryptocurrency fundraising has been characterized by what we know to be the dot com bubbles, an industry sector whose flourishing days was short-lived before it came crashing. 2017-2018 was the most viable year for ICO investing. ICO was simply a household cryptocurrency name at that time, the massive surge in interest was characterized by investors who saw ICO as the easiest way to get in early into crypto investment.
Due to the massive boom, both “shitty” and “well-thought” projects were simply doing well in the market. Picking mouth-watering opportunities was nothing different from picking a “Head” where 99 Heads exist among 5 Tails. Fraudulent teams with projects that have absolutely no real intrinsic value capitalized on this wave to roll-out dumb projects to sap millions and tens of millions of dollars from investors.
How ICOs Went To Dust
A total of $4.9 billion was raised through ICOs in 2017, and this number stepped up to the 6 billion range in 2018. Due to the blind nature of the ICO market, most projects listed in 2017 enjoyed the wave of the crypto bull market to return an incredible amount for ICO investors. 2018 and beyond have become a shadow of itself, the narrative is quite the opposite.
Projects with little or no real-world value now go to ashes, trading far below the price it was issued to early investors. Out of the total number of projects that conducted token sales conducted in 2017-2018, more than 80 percent of these projects have gone to the dust. With varieties of trash tokens that have flooded the crypto market, finding an institutional-grade token is like traveling to the other end of the earth by foot, the odds are very slim.
Even though IEO has been re-engineered to look like a better model than the ICO, a closer look into its activities reveals nothing better than the ICO narrative. The journey continues, a new kind of fundraising called DYCO is now being talked about.
What You Should Know About A Dynamic Coin Offering (DYCO)
DYCO or a Dynamic Coin Offering is a fundraising structure with the aim to maximize wealth for early or equity investors. The bet is that the project either succeeds or investors get a refund. This model creates a minimum price threshold within which a token or coin must not trade below after listing on exchanges.
These tokens will not be issued as securities, however, the project team will be liable and accountable to the funds committed into their care. Teams will work with the sole aim of the progress of the project with high-level transparency.
In a broader sense, a DYCO is a money-backed utility token in which 80% of the funds raised in the token sales will be reserved for potential buyback should a token price trades at 0.8x of its issued price. This provides a cover for equity investors to ensure that their initial investment is secured while providing them with an unlimited upside.
Assuming a token was issued for $1 in its token sales, upon listing, the token price plummets below $0.8 within a specified period, the team will be forced to buyback these tokens at 0.8x of its initial token sales price. The buyback period will be scheduled to take place at the 9, 12, and 16 months after the token sales with refund schedule as follows:
- 25% of the buyback will be conducted at the 9th month
- 37.5% of the buyback will be conducted at the 12th month
- 37.5% of the buyback will be conducted at the 16th month
In the case of a default, Each buyback token will potentially be burnt, thereby triggering a deflationary token economy. Should a token perform poorly in all three stages, all token would be bought back and burnt thereby making the project non-existent.