Initial DEX offering (IDO) is a crowdfunding method. Thus, any cryptocurrency project can issue its token on a decentralized exchange. IDO is a reliable project launch means collecting money for the project to grow and develop.
Due to the rapid DEX market growth, IDO is one of the current blockchain fundraising methods. Initial coin offering (ICO) was widely used in 2017-2018 as the first method. Many projects promised revenue to their investors. Furthermore, many projects managed to show excellent results. However, ICO is not regulated; hence, suspicious for investors. Some projects are frauds, and investors have started to deny using this method since their number increased.
Initial exchange offering (IEO) appeared because ICO lost its reputation. This model was introduced in 2019, and since then, it has become popular and common. IEO is similar to ICO since the investors receive the tokens of the new cryptocurrency project before the market. However, they are different since the crowdfunding process will always involve exchanges. Yet, some investors find it complicated and time-consuming, so they started looking for other investment methods.
Recently, the Initial DEX offering (IDO) became popular. The technique solves all ICO and IEO issues by providing an alternative fundraising technology.
What is IDO?
IDO is a token offering on a decentralized exchange. In contrast to ICO, where the tokens go for sale before being listed on exchanges in IDO, the assets instantly appear on the DEX and launch there. Hence, the project creators do not fundraise assets in pools. The decentralized platform will organize the pool after IDO on the launchpad.
It is a popular model since it allows to bring investors without intermediaries with the liquidity pools. The investors benefit from instant trading opportunities, which is a win-win case for both parties. The applications are not linked to centralized exchanges and provide a range of unique benefits, thus, reducing the barriers to projects. DeFi projects, privacy, and non-fungible tokens (NFT) popularize IDO.
For instance, a project decides to employ IDO, meaning the token launch will proceed through DEX liquidity. With this exchange type, the clients can make critical decisions on the assets necessary for future project success. It is not an issue today since sufficient decentralized exchanges offer broad opportunities for startups and significant companies that launch their projects. DEX provides instant liquidity.
Entrepreneurs can use this method to launch a blockchain product and eliminate all possible fraud schemes, hackers, or human-factor issues.
Initial coin offering vs. Initial DEX offering. Source: cointelegraph.com
IDO, ICO, and IEO comparison.
Functioning principles IDO
IDO has two basic stages. Initially, the process starts on a launchpad for promotion and facilitating the fundraising for new projects. Launchpad will provide the necessary instruments for efficiency, early development and launch of projects. The investors will have access to various projects before listed on DEX. Launchpad community can access the coins at a low cost, fixed by the platform on round 1 of financing.
There are two launchpad groups:
- Versatile – are necessary for independent projects that are not classified according to blockchain role or linked to each other. This kind of panel was often used when the IDO was limited to the Ethereum ecosystem. Either project is an independent unit.
- For specific ecosystems – incubate projects whose ultimate goal is to work as part of a larger network on the same blockchain. The goal is to increase the chances of the long-term success of each project through synergy.
Transferring the tokens to the DEX is the second IDO stage. Here, the projects are available for the retail market and public trades.
IDO advantages and disadvantages
It’s a fact that many successful cryptocurrency projects launched
with ICO or IEO. Still, those popular projects have several issues. For ICO, there is no verification, which is quite dangerous for investors’ assets. The investors were automatically vulnerable to significant losses. IEO suffers from centralization since these exchanges regularly experience fraud schemes, hacker attacks, and thefts.
Therefore, IDO is a favorite with enough merits compared to the earlier two models. The main benefits are:
- No permits are required, and IDO charges almost no fees for listing on decentralized exchanges.
- DEX doesn’t hold the clients’ assets; hence, there are no security violations, and the investors can access the tokens through their wallets.
- No need to wait for months or years for tokens. They are instantly available to trade.
- The community manages mostly all launchpad panels; they make decisions on listing a project instead of the centralized organs.
- Instant liquidity without slippage is a vital component, without which it is impossible to maintain pricing to conduct the token exchange.
- Impartiality, because coins are often mined in advance, can be sold to some investors, so small speculators have no immediate involvement. Private investors will start selling tokens to the masses, which gives them an advantage over retail traders.
Indeed, IDO has several drawbacks since the crowdfunding model is not perfect. The drawbacks are:
- The still is room for fraud. There was a case with a 10 billion dollars theft. IDO’s accessibility and no verifications are both an advantage and disadvantage since the likelihood of fraud increases
- High price volatility at the beginning of IDO. The token price increases, and not all investors manage to buy it at the initial price.
- The likelihood of value manipulation because the IDO mechanism is vulnerable to price manipulation techniques. Some speculators can buy a lot of tokens through special bots, then sell sharply at market value when the asset price is high enough. This scheme is called Pump and dump.
Considering the advantage and drawbacks, IDO launch
risks can be highlighted. First, it is worth taking additional precautionary measures due to the lack of control over the DEX. It is critical to use reliable platforms that follow KYC and identify fraud. There is frequently no KYC since this is the idea of decentralized exchanges. Marketing support of some platforms will help to reduce the risks. The second point is the pre-subscription to IDO. The mechanism itself has a greater focus on small coin sales. Due to this, large projects often use pre-subscription, which makes it difficult for small traders to participate. For this reason, many platforms use pre-made allowlists that limit the range of participants.
Main IDO launching rules
Fundraising with IDO is the most transparent method compared to others. There are several steps to take before launch.
Steps for launching IDO
Developing a business strategy
First, it is vital to develop a strategy for issuing the tokens to decentralized exchanges. The project must offer a solution to an issue. Then this strategy will make sense. Also, developing a marketing company and a development plan after IDO will support the growth is essential.
Building marketing support
It’s possible to deploy the IDO if there is a website, technical documentation, and additional instruments for the corresponding content. It’s essential that professionals work on these elements. A trademark and beautiful visuals on the website increase investors’ trust.
High-quality technical documentation will provide facts and a clearer image; thus, the investors will feel closer to the project. It must include statistics, diagrams, spreadsheets, and other manuals. As a result, the technical documentation will help to persuade the investors that the project is worthy.
In addition, news, articles, and press releases will support the project greatly. You may generate the content independently or ask an agency that provides publication services.
Verify the launch panel
It is advisable to verify all parameters in the launch panel before creating the cryptocurrency
. IDO must be approved and meet the DEX requirements (White List or consensus).
Develop the cryptocurrency
The token launch process
is relatively simple, yet the primary task is to convince the investors. It is important you outline the values and benefits of the project. In DEX, the enrollment of coins for trading is executed after the end of the IDO and TGE.
Launching a token for collecting money
The development team will make the token pool. It’s the environment where investors stake the assets for their coins. The investors will receive the assets after TGE or IDO. Some developers might offer beneficial conditions for storing tokens; thus, stimulating the investors who provide liquidity. This approach allows the project to develop faster while the investors earn more through staking and other particular offers from the project team.
Selecting the blockchain for IDO launchpad
There are many blockchains for IDO launchpad, yet below you will find the most popular ones. They are perfect for any project:
- Ethereum is a blockchain that processes about 90% of all payments. It has an excellent mechanism that provides security and resilience. Launching projects on its launchpad is popular thanks to years of successful reputation and reliability.
- Binance Smart Chain (BSC) is a network that works with Binance blockchain and assimilates the primary network’s functions. It competes with Ethereum. BSC is famous for quick transactions, an advantage over other blockchains, and critical for IDO launchpads.
- Polygon is a Tier 2 Ethereum network protocol that solves high-fees and transaction speed issues. It works in Ethereum’s blockchain, making it secure and resilient. Polygon has its architecture that will Ethereum’s drawbacks. IDO on Polygon access enhanced functions and works more efficiently.
The investors will see all details and methods of participation while selecting a project for investment. Each option will have unique features; therefore, it is vital to study the functionality and select the one that fits your goals best.
One can participate in IDO through a white list if one has a cryptocurrency wallet. The main steps are:
- Receiving the white list. It will limit the number of investors and the total number of coins available for purchase. Investors often need to have some Launchpad token stock to be whitelisted. Investors with more coins are more likely to be accepted.
- Integrating the web3 wallet with clients’ checks. KYC verification is an essential element of whitelisting. It’s not possible to finish KYC without a wallet. Many IDO will not grant access to users from particular countries: USA, Iran, Iraq, Cuba, Venezuela, and others.
IDO is one of the investment options in early project states that can bring massive revenue. Still, it’s not advisable to invest in all IDOs. Studying all projects thoroughly, receiving additional information, and making a complex verification is necessary.
In conclusion, it should be noted that IDO is not perfect, there are a few problems, but the benefits exceed them. Many sites are working to address the shortcomings. Focusing on the growth of DeFi, and DEX, it is safe to say that IDO will have a promising future in 2023 and beyond.