You might be hearing a lot about IDOs these days. Initial DEX Offerings (IDOs) are the latest buzz in the crypto industry, especially in the realm of decentralized finance. IDOs are simply an issuance of tokens on a decentralized exchange. IDOs are a business model where both the investors and the startups can get monetary benefits. Start-ups need capital hence, they raise the funds by selling the tokens to the retail investors through the crowdfunding process.
IDOs are a unique model of crypto crowdfunding that is catching the attention of everyone in the crypto world. Since 2017, Initial Coin Offerings (ICOs) have been a popular option for crowdfunding, but soon IDOs might replace them, offering more benefits and overcoming their shortfalls. It is equally interesting to know how IDOs differ from their former prototypes, including the Initial Coin Offerings and Initial Exchange Offerings (IEOs), their fundraising format, their pros and cons, and much more. To understand them better, let’s dive deep into this concept.
What are Initial DEX Offerings (IDOs)?
In essence, an Initial DEX Offering is a fundraising process where a crypto company offers to retail investors to buy its tokens at a fairly low price. The tokens are generally offered on decentralized crypto exchanges (DEXs) using liquidity pools.
Crypto companies focusing on decentralized finance and the bandwagon of NFT projects are largely adopting IDOs, as they eye for immediate funding to accelerate the development of their projects. IDOs offer them easier access to retail investors than the previous fundraising options. For investors, IDOs are a great opportunity to make some profits while mitigating risks. Indeed, the launch price of IDO tokens is often the best price a retail investor can get.
IDOs draw lesser investments than ICOs or IEOs but the launch process is less tedious and provides more flexibility to the project team and the investors. Thus, it has gained significant popularity in a short period. IDOs are community-governed projects and thus they are focused entirely around the interests of the investors. They also have a locking period, which prevents immediate liquidity and avoids dumping on listing day.
Fundraising Models before Initial DEX Offerings (IDOs)
So far, you might have heard about ICOs, IEOs, and STOs fundraising models based on crypto token sales. Among them, the ICOs were a popular option for fundraising till 2018, but 80% of ICOs turned out to be scams that plummeted their popularity. Also, most of the IDO projects came under regulators’ radar.
But, with the substantial growth of the DeFi sector in 2020, Initial DEX Offerings have emerged as a more popular and flexible option for fundraising in the DeFi sector.
Top IDO platforms
BSCPad, Uniswap, DAO Maker, Binance DEX, Solanium, Polkastarter are among the top IDO platforms. Such platforms are built on liquidity pools which facilitate the investors to swap their cryptos on these platforms.
These liquidity pools are set in pairs of stablecoins and crypto coins that can be swapped with each other. The pairing with stablecoins provides more fund security, minimizing the risk of volatility in crypto markets. These platforms use automated market makers (AMMs), through which trading takes place automatically deploying the liquidity pools.
Raven Protocol (RAVEN), the First IDO
The first-ever IDO took place on Binance DEX in June 2019, with the launch of the Raven Protocol (RAVEN). However, the ICOFY Dapp project claims to be the one that introduced this concept. ICOFY Dapp project was launched in May 2018 and its whitepaper introduced the very concept, just a little before Raven protocol’s listing in June 2019.
Among other early projects, Universal Market Access (UMA) protocol or SushiSwap (SUSHI) protocol are the first projects which adopted the IDO model.
To demonstrate how lucrative an IDO can be, let’s take an example of the evolving Metaverse project Blocktopia.
Bloktopia is a new-age virtual reality (VR) Metaverse of 21 floors built to show gratitude to the first crypto innovation Bitcoin. Recently, this ambitious project has allied with Elrond blockchain to make Blocktopia a full-fledged edutainment and virtual reality business ecosystem.
The Metaverse is still under development and will probably launch in March 2022. Its popularity is growing enormously, and so are the profit figures of the early token holders.
As for early December, the Bloktopia IDO is the most lucrative IDO of 2021. The BLOK token was sold at $0.00025 during the IDO phase. In November, the BLOK token reached an ATH of $0.1780 at this price an IDO investor would have a return on investment of x712. After it’s ATH the token corrected a but still represent a return on investment of x558.
So, If you invested $100 in the IDO, it would be now worth more than $55,000 with a return on investment of 558x in just a few months.
Advantages of IDOs
IDOs involve minimum prerequisites for investors and developers. Thus this concept has gained instant popularity in the DeFi sector in 2020 as most of the projects gained substantial capital adopting this model. The data for top fundraising projects on CoinMarketCap’s ICO Calendar displays a significant preference for IDOs. Participating in the upcoming projects can be rewarding to you as IDOs unlock new avenues for revenue.
IDOs offer more advantages than their prototypes on certain fronts. To list the few :
- Easy and Hassle-free launch processes
- Transparent Decentralized Fundraising process. Unlike other fundraising options, where big players in the markets monopolize the auctions by purchasing a large number of tokens and selling them at a higher price in open markets, and IDO gives direct access to the retail investors to buy the tokens.
- Secure and Transparent transactions. As the deals are recorded on blockchains through the smart contracts, they are transparent and traceable.
- Low-cost Transactions. IDOs are launched mostly on DEXs, which have minimal transaction charges towards gas fees, except for the Ethereum network.
- Contribution Rewards to the community. The community members can become liquidity providers (LPs) after the IDO.
Comparing ICOs, IEOs, with IDOs
Initial Coin Offerings and Initial Exchange Offerings projects are often happening on centralized exchanges. Thus, the budding enterprises have to pay heavy exchange fees to list their tokens on these platforms. And, launches are often delayed until the approval of the exchanges, while time is of the essence for most crypto companies. That’s why more and more projects are taking the IDO way.
But the IDO projects are mostly decentralized and more cost-effective, as they don’t have to pay high fees for listing and approval from the exchanges. They have not been regulated by regulatory bodies either. The following comparison will give you more insight into the differences between these three concepts:
ICOs Versus IDOs
|AML/KYC registration||Decentralized projects but KYC /AML requirements vary||Centralized projects with AML/KYC requirements for the users||Decentralized process but KYC/AML may be required|
|Approval & permissions||Projects need to wait for the exchange’s approval to be listed||Projects need to wait for the exchange’s approval to be listed||Minimal requirements|
|Token availability||The token listing on exchanges is a time-consuming process||Tokens readily are not available for trading as the listing takes time||Tokens are immediately available for public sale or can have a vesting period.|
|Promotional activities budget||ICO projects spend hugely on promotions to attract a large number of investors||Here, the exchanges take care of the promotional activities||Promotional activities are done by the issuers themselves or by the Launchpad|
|Amount of Raised Funds||Funds raised through ICOs are enormous||IEOs raise comparatively low funds||IDO fundraising is much lower compared to ICOs|
|Exchange fees||Heavy fees for listing||Heavy fee for listing||They are listed on decentralized exchanges with negligible fees|
How to Participate in an IDO
To participate in an IDO, you need to keep an eye on the upcoming IDO launches. If any particular project interests you, you can research them before they get listed on an IDO platform. You can check out details about the project, its team, its offerings, roadmap, and its business model.
Step by step participation process can be as follows:
- Research and select any upcoming project with potential
- Do your own research through authentic resourceful sites
- Whitelist yourself with the IDO by fulfilling the platform requirements
- Prep-up your wallet with sufficient funds
- Participate in the IDO
- After a short cooldown period, you can trade the tokens.
Whitelisting ensures your participation in the project by confirming your address. These projects randomly select a group of addresses to participate in the project. So whitelisting gives you entry to the project. To complete the whitelisting, your KYC verification is done. After you purchase tokens in an IDO, your wallet will be placed for a short cool-down period. This may vary but mostly a short period of seven days for the registered buyers.
Closing Thoughts on IDOs
While IDOs are trending in the DeFi space for fundraising and distributing tokens, an increasing number of crypto startups are using this route for instant capital flow at a low cost. Several platforms are welcoming this trend and are launching IDO dashboards and other services.