Initial DEX Offering (IDO) – All You Need to Know
Along with the rise of DeFi and DEX, IDO also received a lot of attention from the crypto community. So what is IDO? What are the current popular IDO platforms for investors? Below is an article to give you an overview of this familiar term.
What Is An IDO?
- An IDO is a fundraising method in which the IDO coin is issued via decentralized liquidity exchange.
- A decentralized liquidity exchange is a type of crypto asset exchange that relies on liquidity pools with which traders can swap tokens.
- Liquidity pools are pairs of crypto assets and stable coins. For example, USDT/ETH is a liquidity pair. Traders can swap them between different crypto assets and stable coins based on market conditions. As the volatility of stablecoins is negligible, it offers a safe option for traders to manage the high volatility of crypto tokens and assets by swapping them with each other.
- As a result, decentralized liquidity exchanges enable companies to launch a token and access immediate liquidity.
In an IDO, the IDO coin is issued via decentralized liquidity exchanges, such as Uniswap, Bancor, or Binance. Binance DEX hosted the first-ever IDO. According to them, a fundraising method enables protocols available for traders without being controlled by others. An IDO can be self-organized by anyone. So, it does not bear any assurance or guarantee as the issuer controls the event. IDO is gaining popularity as more businesses are considering it for fundraising.
Role of IDO
In the era of strong development of the Internet, a project that wants to receive a large investment and has a high market capitalization needs to succeed in connecting the community. It was from this need that IDO was formed and developed.
IDO opens opportunities for investors to access, buy and hold tokens of potential projects. If the project is successful, that token can increase in price many times after the IDO, offering them huge profits.
For the project
IDO enables founders to raise capital quickly from the community to develop their projects without spending too much money and reducing complicated censorship or permission procedures. In addition, if you choose to do IDO on DEX exchanges or popular launchpad platforms, the project will be widely promoted in the platform’s existing community, increasing the number of investors interested in the project.
From partnering with a DEX to raise capital, the project will also begin to build relationships within the exchange’s ecosystem. Thus, future projects will go much more smoothly
- Help exchanges/platforms attract a large amount of traffic and help increase transaction volume.
- Contribute to building ecosystems and relationships with potential projects.
- Increase the reputation and popularity of the platform.
How does an IDO work?
An IDO uses the decentralized exchange to facilitate the token sale. A crypto project provides tokens to the DEX and users commit their funds through the platform, and then the final distribution and transfer are done by DEX. This automated process occurs through the smart contracts on the blockchain.
The rules of the IDO follow standard methods.
- They accept a project to run on an IDO after the vetting process, and once they offer a supply of tokens for a fixed price, the users can lock their funds in return for these tokens.
- You need to complete marketing tasks to join the investor whitelist, or you can provide your wallet address.
- Some funds are raised to create a liquidity pool, and the rest are given to the team. Investors trade the token after the TGE, and usually, the liquidity is locked for a certain period.
- At the TGE, tokens are transferred to the user, and then the liquidity provider is opened for trading.
Examples of IDOs
The first-ever IDO is known to have happened in June 2019 on Binance DEX by Raven developers. The most profitable IDO at the moment is Flow from the Dapper Labs project. There has been growing public interest in IDOs ever since.
Among other major IDOs, there are Compound, bZx Protocol, mStable, SushiSwap, Shift, and ExeedMe. The coins of these projects have grown tenfold after the tokensale.
Advantages and disadvantages of IDOs
- AdInstant Liquidity
Since tokens that are sold start trading on the host DEX immediately, IDOs provide instant liquidity with little to no slippage thanks to the available liquidity pools on the DEX. Instant liquidity for a token is important because if it cannot easily be sold for another token, it can be harder to find investors.
- Instant Trading
As soon as the first investor buys a token, the token is available for trading on the DEX. This instantaneous trading can allow users to immediately participate in the utility of the network by using the token to do things like staking, governance, and any other utility functions the token offers. This also allows for liquidity of the token because more people can access the token in liquid and stable markets.
- Lower Costs
IEOs and ICOs can incur huge costs when it comes to paying exchange listing fees or paying exchanges in tokens, but with decentralized exchanges the fees are not as high and there are no issues listing the token as there is no central authority to give permission.
- Investor Fairness
IDO launchpads often limit the amount of tokens you can purchase, effectively blocking whales and bots from locking out small investors. This encourages fairness among investors, and allows smaller investors the chance to get in on initial offerings.
- Risk of Scam
Since projects don’t need to be vetted to begin trading, this can lead to scams. The way you can combat this risk is by doing your research and only using a trustworthy launchpad platform. There are platforms that provide anti-scam vetting as well as KYC checks, but it’s also important to do your own research into a project before buying into their token.
- Difficulty Participating
It can actually be hard to get on a whitelist, which is a pre-arranged list of addresses that are eligible to participate in the IDO. The number of participants on the whitelist is limited, and if a project is popular it can make it harder to make it on the whitelist, especially for smaller investors who don’t have as high of a quantity of the launchpad’s native token – which is how you enter a whitelist.
Below is a list of successful IDO platforms that investors interested in IDO cannot ignore.
The BSCPad platform provides cryptocurrency projects with a means to distribute tokens and raise liquidity. It is a platform for fair, decentralized launches.
BSCPad aims to be the next generation of blockchain launchpads that addresses the issues with staking. Existing launchpads face a challenge due to an underlying problem, acquiring enough tokens to participate in the ecosystem is prohibitive, and even if you stake the tokens, the allocation spot is never guaranteed.
Polkastarter is an IDO launchpad for decentralized and multi-chain token pools. It allows crypto startups to raise capital in a fixed-swap pool and distribute their new tokens to early investors. Polkastarter was founded in 2020 by Daniel Stockhaus, Tiago Martins, and Miguel Leite.
As of Q1 2022, it has already assisted more than 100 projects to raise $45 million through public and private sales. Apart from IDOs, the platform also supports GameFi launchpads, metaverse land sales, and other NFT sales.
DAO Maker is a safe, retail-oriented start-up funding platform. After its launch, it has evolved to encourage low turnout frameworks, allowing many retail investors and individuals to become involved in venture capital. DAO Maker is now available on various online exchange platforms. It cannot be purchased directly for fiat money, but coins can be obtained by buying Ethereum through any of the fiat currency exchangers for cryptocurrency.
This project develops growth technologies and funding frameworks for businesses while lowering investor risks. This is a great option for anonymous projects looking to conduct an IDO and reach as many users as possible. DAO Maker integrates with platforms such as MetaMask, 1inch, Ronin, WalletConnect, and Wanchain.
TrustPad is a decentralized multi-chain fundraising platform that allows organizations to raise funds while assuring early-stage investors that their funds will be safe. It is yet another one-of-a-kind launchpad platform based on Binance’s blockchain. Certik Skynet, Ethereum, MetaMask, Solana, Trust Wallet, and WalletConnect are also supported.
The purpose is to provide users with a fully integrated limit order experience by removing the friction associated with the current platforms. Users can execute to earn, resulting in a long-term ecosystem where new traders can learn more about the operations that underpin transactions. TrustPad works with Mid-Size businesses, Small businesses, enterprises, and Free Users.
IDO is a new fundraising trend of the crypto market in 2021 when it has gradually overcome the shortcomings of previous methods. At the same time, IDO also offers attractive investment opportunities with huge profit margins.
Hopefully the detailed information in HotQA’s article has helped you gain more knowledge as well as these shares can help you better understand what IDO is. Read more of our articles to make politic investment decisions.
Disclaimer: This is not financial advice. This article is for informational and sharing purposes only.