After ICO (Initial Coin Offering), STO (Security Token Offering) and IEO (Initial Exchange Offering), it is now the time for IDO (Initial DEX Offering) where DEX stands for Decentralized Exchange. But why this method to raise funds is becoming so popular in 2021?
This new form of fund raising seem to attract more and more project developers but this is not new. The first IDO took place in June 2019 on Binance Decentralized Exchange and was launched for the Raven protocol. Let’s have a deeper look at it.
1. What is an IDO ?
Initial DEX Offering (IDO) is a token sale which takes place in a decentralized way. A third-party platform is vetting the project and conducting the token sale.
Initially tokens were available for purchase at a fixed price and offered only on this DEX. The initial intend of IDO was to directly list the token on an exchange in a similar vein than IEO in order to gain immediate trading and liquidity.
Along the years, IDO have been adapted to IDO launchpad platforms to limit the automatic purchases by bot. IDOs usually fund small amount of money and the market cap at listing time doesn’t exceed couple of million with most of the projects raising less than $500K. One of the reasons is the vesting periods which apply to the token holders.
2. Is an IDO interesting?
An IDO seems a better option than an IEO if:
- You are looking to raise small amounts
- You want to avoid the pump and dump on your token after listing
- You are mindful about your initial circulating supply to matters for your investors in terms of returns It is common to see a demand pushing price from x10 to x100 at listing which could give a market capitalization in the couple of hundreds of million. More importantly, it is a good way to grow the community exponentially by adding tens to hundreds of thousands of followers. However, the IDO is launchpad platform / blockchain specific. Therefore, you might be considering launching on multiple launchpads to capture a wider range of investors. The different blockchains available are: Ethereum (ERC-20), Binance Smart Chain (BSC Pad), Polkadot (Polkastarter), Solana, Cardano or other networks.
3. Advantages and disadvantages of IDOs
3.1. Pros
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Less constringent KYC procedures: Vetting procedure are lighter than an IEO which enable a wider variety of projects to raise funds via this new format of crowdfunding
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Immediate listing and liquidity There is no waiting time for the token to get listed on decentralized exchanges as it is embedded in the token issuance. That removes the main concern observed with ICO. The issuer usually provides liquidity on its tokens.
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Auditability As usual with blockchain technology, all the transactions are transparent and can be traced on-chain. The smart contracts is also publicly available for review (most of the time).
3.2. Cons
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Less constringent KYC procedures: Similar lighter vetting procedure also apply to the token issuers which increase potential risk of scam project
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Launchpad token More and more the launchpads are imposing the investors to own their launchpad token and will allocate issued token proportional to their platform token ownership.
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Still dumps are observed When the vesting period ends which could takes place weekly, monthly, quarterly… we observe profit taking driving price down.
3.3. Comparison between ICO, IEO and IDO
Here is a comparative tab from CryptoPotato:
Would you favor an IDO as an issuer? Would you invest in any IDO?