Initial DEX offering (IDO) is one of the many creative fundraising methods in the crypto industry. Initial coin offerings (ICOs) were one of the first fundraising methods in the crypto industry. An ICO is an unregulated approach to crowdfunding from retail investors. Lack of control and investor security were challenging with ICOs. The project team did not have to do due diligence without control mechanisms. But many ICO projects were just scams. These scams led to negative publicity in the crypto industry and discouraged many new crypto investors.
DeFi, or decentralized finance, aims to solve this issue through alternative fundraising methods. One such method is the decentralized exchange method (DEX). DEXs offer investors a different and more secure fundraising model. In this blog we have got everything covered with respect to Initial DEX Offerings(IDO).
Read more: What is a Crypto Scam
The Growing Popularity of IDOs
In ICOs, projects are required to pay fees and wait for approval from the crypto exchange before they are listed. Whereas in IDOs, projects do not require high fees and require no permission as it is a decentralized offering. The crypto community helps vet IDO projects, supports small projects, and encourages collaborations.
IDOs offer immediate access to trading and liquidity compared to ICOs. IDOs simplify the user’s experience by supporting multiple types of digital wallets.
Benefits of Using an IDO for Fundraising
ICOs gained popularity in 2017 and raised an estimated $4.9 billion that year. While many ICOs succeeded, some failed due to several issues. Issues like centralization and security vulnerabilities were some of the roadblocks. The decentralized nature of IDOs can solve these issues. Crowdfunding through IDOs can help eliminate issues like human error and hacking. Crypto token holders are secured on their digital wallets and private keys in IDOs.
What are Decentralized Exchanges (DEXs)
DEXs are peer-to-peer crypto marketplaces where traders make transactions without any intermediaries. Smart contracts facilitate these crypto transactions.
How do IDOs work on DEXs?
Immediate liquidity provided by DEXs is one of the main reasons IDOs work. Liquidity pool providers get big rewards from DEXs. Most projects give liquidity to DEXs by allocating a cut of the funds. Many projects in IDOs also use the proof-of-stake (PoS) consensus mechanism to discourage crypto investors from selling too soon. The PoS system involves investors holding their capital, and in return, investors accrue rewards for their stake in the blockchain network.
Once the IDO goes live, early investors can sell their crypto tokens at a higher price. The value of a crypto token can increase once the public sale goes live. The gas fees in a liquid exchange are minimal. Smart contracts manage the asset tokens and liquidity pools. Unlike traditional fundraising methods, IDOs can mint crypto tokens instantly. Crypto investors do not have to wait for a long period to get their crypto tokens listed in IDOs. This timing enables crypto investors to cash in on their investments faster than ICOs.
Advantages of Using IDOs Over Traditional Fundraising Methods
Fundraisers: Through launchpads, a percentage of the token supply is available to the public in IDOs. The project is mainly the fundraiser in case of an ICO.
Crypto token listing: In the case of ICOs, the token listing happens on centralised exchanges where users can buy the token with Fiat or any other crypto. IDO listing allows crypto tokens to be listed on decentralised exchanges. Liquidity pools enable buy and sell activity for an IDO.
Project vetting process: Projects should meet the launchpad’s requirements in IDOs. There is no strict vetting process for ICOs.
How to Invest in an IDO?
A Step-by-Step Guide to Participating in an IDO
Users need crypto wallets and tokens to participate in an IDO. Users have to read the details of an IDO before participating. You will get clear instructions on how to lock your funds in preparation for an IDO. Mostly, crypto tokens are transferred once the subscription is over.
- Use the correct link to subscribe to an IDO: Scammers can take advantage of the hype surrounding an IDO and create fake subscription pages to scam potential investors.
- Use a trusted launchpad: The best chance for users to receive their tokens after a crowd sale is by using trustworthy DEXs. Some of the trustworthy DEXs include Uniswap and PancakeSwap.
- Research: Crypto investors should perform detailed research on a project before investing
- Read IDO terms and conditions: User’s crypto tokens can be locked for a long period after an IDO. It is vital to understand a project’s tokenomics before investing.
- Invest sensibly: Crypto token sales can be highly volatile, and users should consider this before investing
Example of an IDO
Real-life Example of a Successful IDO
- Raven Protocol: This is a distributed deep-learning training protocol for neural networks. This protocol provides fast and cost-efficient solutions to transform AI industries using blockchain technology. Users receive rewards for sharing computer resources through Raven tokens and the utility token is used for AI training.
- SushiSwap IDO: SushiSwap is a decentralised crypto exchange built on the Ethereum blockchain. This exchange is challenging Uniswap as the most popular Ethereum decentralized exchange. SushiSwap users reportedly migrated over $1.14 billion of Uniswap’s assets to the SushiSwap platform in late 2020.
Currently, IDOs have become the standard fundraising model in the crypto industry. With features like easy accessibility, affordability, and ease of use, IDOs are an attractive fundraising method. It is a safer option to take part in a crypto sale through a decentralized liquidity exchange. Crypto investors should do their due diligence and perform thorough research to pick the right project. IDOs are one of many innovative fundraising ways available in the DeFi market and staying informed about the innovations in IDOs can help investors identify good investment opportunities.
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FAQs on IDO
How do I participate in an IDO?
To participate in an IDO, you typically need to connect your crypto wallet to the decentralized exchange where the IDO is taking place. From there, you can transfer crypto to the IDO smart contract to purchase the new tokens.
What are the criteria for a project to conduct an IDO?
The criteria for a project to conduct an IDO can vary depending on the decentralised exchange where the IDO is taking place. However, some common criteria include having a functioning product or prototype, a solid team with experience in the relevant field, and a clear vision for how the project will use the funds raised in the IDO.
What is the difference between a public and private IDO?
A public IDO is open to all investors who meet the criteria for participation, while a private IDO is only open to a select group of investors. Private IDOs may be used to raise funds from strategic partners or early supporters of the project.
What is the typical timeline for an IDO?
The timeline for an IDO can vary, but typically it involves a pre-sale phase where early investors can purchase tokens at a discounted price, followed by a public sale phase where tokens are available to all investors. The entire process can take anywhere from a few days to several weeks.