Fabian Vogelsteller, the developer who helped create the code underpinning Ethereum's ERC20 token standard (though, as Vogelsteller himself has noted, the first draft came from Vitalik Buterin), has proposed a new form of initial coin offering (ICO) that could make funding safer for investors.
Vogelsteller, speaking at Devcon4 in Prague this week, revealed that he feels responsible for the ICO boom. With some reports estimating the failure rate of ICOs at 50 percent or more, the developer says he has felt "obligated" to come up with an alternative to ICOs. Thus, today, he introduced the concept of a "reversible ICO."
A reversible initial coin offering (RICO) would allow investors buying tokens in a sale to take back their investment during the project using a special-purpose executable distributed code contract (aka smart contract).
The model would create volatility in the value of a project as investors buy in, or withdraw funding, at will. ICO creators and startup projects would need to compensate for the potential volatility by securing private or more secure venture capital investment.
Vogelsteller believes RICOs would reduce the number of scams in the market, protecting investors by allowing them to withdraw their backing while incentivizing a RICO project to commit to its promises. Projects would also "fail naturally" if widespread market backing withdrew.
The current ICO model, says Vogelsteller, encourages ICO founders to buy "lambos rather than doing something useful."
Others, including Ethereum co-founder Vitalik Buterin, have called for safer ICOs. In December 2017, TrueBit founder Jason Teutsch, along with Buterin and Modular CEO Christopher Brown, penned a paper titled "Interactive Coin Offerings." This proposal recommended a better valuation of tokens for investors as well as the option to voluntarily withdraw funding, which was managed by adding smart contracts. In this model, should the valuation fall below investors' expectations, the mechanism would automatically withdraw the investment if the investor set this preference.
To test his new RICO model, Vogelsteller will be implementing it with his own startup, Lukso. The developer is creating a fashion and design industry blockchain to manage automated "economic interactions" and ownership management. The platform looks set to manage provenance and certification as well as rights management and supply chain tracking. The white paper is yet to be released, says the Lukso website, but the roadmap indicates that Lukso's private sale is set for fall 2018.