June 24, 2021

What is an Initial DEX Offering (IDO)? How is it Different Than ICO & IEO?

11 min read

The cryptocurrency neighborhood has been particularly innovative when it pertains to discovering brand-new methods to bootstrap jobs and raise funds.

In late 2017 and 2018, we saw the look of preliminary coin offerings (ICOs), where teams would raise money by offering a part of their overall token supply to the general public. This developed an outright ecstasy as these freshly minted coins would increase in value once they were listed on an exchange and open for trading.

Quick Navigation:

  • What is an Initial DEX Offering or IDO?
  • IDOs in Their Most Popular Form: How They Differ From IEOs?
  • Very Low Initial Market Cap: Is This The IDO Secret Sauce?
  • Benefits and drawbacks of IDOs
  • How to Invest in an IDO?
  • One Of The Most Popular IDO Launchpad Platforms

ICOs were mainly released through Ethereum’s ERC-20 protocol requirement, and they quickly ended up being the leading use case for ETH-based tokens. The very first ICOs in 2016 raised just a few million, but a year after that, the typical sum was between $20 and $30 million. Soon after that, bigger tasks like Bancor raised over $150 million.

The buzz was so strong back then that some jobs handled to raise whopping sums. The very best example for the peak is possibly EOS – – the project received more than $4 billion in financing throughout its lasting token sale.

Like everything that ends up being too hyped too fast, the ICO bubble burst in 2018, however it didn’t take wish for us to see a new model with a couple of crucial differences. Towards completion of the very first quarter of 2019, preliminary exchange offerings (IEOs) made their grand entryway.

Largely spearheaded by the Binance Launchpad, these IEOs followed the crowdfunding design of ICOs, however the tasks were vetted a lot more thoroughly. Since they were released on popular exchanges such as Binance, KuCoin, Huobi, OKEx, and so forth, the exchange groups did substantial due diligence, hence why IEOs weren’t so abundant as ICOs – – there was a higher barrier to entry. Aside from the fundraising, IEOs likewise benefited from getting noted on the exchange, which handled their token sale. Among the greatest discomforts of ICOs financiers back in 2018 is whether or which exchange will consent to list their token while the range of ICOs was substantial.

A few of the more popular tasks that are presently multi-million and even multi-billion dollar enterprises started off as IEOs. These consist of Elrond, Matic Network (now Polygon), Celer Network, WazirX, and Band Protocol.

Due to the listing issues, together with the growing popularity of decentralized exchanges such as Uniswap (Ethereum) and PancakeSwap (BSC), anybody can note a new token and begin supplying liquidity to it. So it was simply a matter of time till token sales would take advantage of this.

So, in 2021, a new arrival rendered the above rather obsolete. Initial DEX offerings (IDOs) have actually taken spotlight, so let’s have a thorough look at what they are and everything you need to understand about them.

What is an Initial DEX Offering or IDO?

It’s worth keeping in mind that the original principle of preliminary DEX offerings has actually shifted tremendously for many years, and, in its current most popular kind, it has little to do with what it was intended to be back when the very first IDO happened.

In its essence, a preliminary DEX offering is a follower to ICOs and IEOs in that it aims to raise money and bootstrap a job. Nevertheless, unlike ICOs and IEOs where the tokens are offered prior to the listing, with IDOs, they are noted instantly on a decentralized exchange (DEX) – – for this reason, the name.

The first-ever IDO to happen occurred in June 2019 – – Raven Protocol. The team behind the protocol chose to utilize Binance’s decentralized exchange – – the Binance DEX. They set up the token there at a particular cost, and traders might buy it till the difficult cap was reached. This is how the first few IDOs happened on most of platforms.

This specific method of fundraising had, in theory, a few powerful advantages, consisting of:

  • Fast trading
  • Immediate liquidity
  • Open and reasonable fundraising

However, investors weren’t satisfied. The reason was that these token sales would basically get purchased up immediately, leaving little chance for the average Joe financiers to get a share and get involved. The notion that they were getting scooped up by bots and experts was born, and the market needed to adapt to please the growing demand.

This led to the birth of IDO launchpad platforms – – among the hottest subjects of late 2020 and 2021.

IDOs in Their Most Popular Form: How They Differ From IEOs?

In their most popular shape and kind, nowadays, preliminary DEX offerings are particularly similar to preliminary exchange offerings (IEOs) with a few key distinctions.

With an IEO, it was the exchange vetting the task and conducting the token sale. With an IDO – – it’s a third-party platform that’s vetting the exchange while the token sale itself takes place in a rather decentralized style.

In theory, anyone can raise funds through an IDO with a third-party launchpad platform, as all they ‘d have to do is open a swimming pool.

The method this works is relatively simple. A project goes to a launchpad, and if they meet their requirement, they are chosen to perform an IDO. The procedure itself may vary from one launchpad to another, but the principle is constantly the exact same.

There is a pool where users can purchase “IOUs” of the token that the job wishes to introduce. An IOU is an acknowledgment of financial obligation. To put it simply, the investors pay for their tokens beforehand however receive them upon the Token Generation Event (TGE), which generally occurs extremely shortly after the IDO itself (normally within a couple of hours).

As soon as the IDO is successfully concluded, and the TGE happens, the token is right away noted for trading on a decentralized exchange. For the most part, this happens on Uniswap as the predominant number of jobs are still constructed on Ethereum, and their tokens are based on the ERC20 protocol standard.

However, other blockchains are likewise growing in popularity, consisting of Solana, Polkadot, and the Binance Smart Chain (BSC). This is why some jobs prefer to have their tokens launched on them to avoid the high network fees on Ethereum. In this case, the token would be noted on native exchanges such as BSC’s PancakeSwap, for example.

With this said, we can currently see some distinctions and some similarities between ICOs and IEOs. Here’s an extensive comparative table:

ico_ieo_ido_chart-min
ICO vs. IEO vs. IDO. Image by: CryptoPotato Very Low Initial Market Cap: Is This The IDO Secret Sauce? Unlike initial coin offerings, particularly during the peak of 2017-2018, IDOs normally have an extremely low market cap when their public listing takes place. It’s generally just a few million or, in many cases, even less than a million. This is because of vesting periods for practically all token holders(consisting of the group and seed and private investors)apart from those who take part in the real preliminary DEX

offering process. The IDO procedure itself typically raises the tiniest quantity of money. As discussed above, each participant can win an allocation of a few hundred dollars, and the overall amount raised is hardly ever more than $500K.

What’s the point of this? There are a few things to consider:

  • Demand is most likely to stay high throughout the cost discovery. For this reason, excellent projects can easily skyrocket to 10x just as they struck the markets. From there, some jobs have actually even gone another 10x, which supplies a return of 100x for IDO participants. Even after a 100x, a project that began with a market cap of $3 million would be at $300 million, which is something sensible.
  • This fixes a few of the ICO/IEO issues where investors rush to offer in earnings and dispose the cost as quickly as the token is noting – – this might easily produce a snowball result.
  • The fundraising amount can still be high (a couple of million dollars or even more), however the preliminary flowing supply is what matters in terms of returns.

Multi-Chain IDOs, Multiple Launchpads: A New Trend

With the above in mind, it’s worth noting that there’s a growing trend where tasks would launch their IDOs on multiple launchpads to record more blockchains and a wider series of financiers.

So, for example, a task would do one IDO on an Ethereum-based platform and another (or a couple of others) on other platforms constructed on Binance Smart Chain, Polkadot, Solana, or other networks.

This allows users to take their pick regarding where they wish to get involved.

Win-Win: Investors Enjoy Huge ROIs While Project Gets Excessive Marketing

This is another typical part of basically each and every single preliminary DEX offering – – the whitelisting process. Due to the fact that the demand for those token sales is extremely high, the launchpad platforms can just enable a minimal number of users to get involved and supply them with an extremely limited size allowance, typically worth a few hundred dollars.

This is why every single IDO out there goes through an extensive whitelisting process that narrows down the participants to a supported optimum.

To be eligible for being whitelisted, users require to perform different marketing jobs, which often include:

  • Join the project’s Telegram chat
  • Retweet and discuss job’s tweets
  • Like the job’s social media platforms etc

This produces a complete marketing storm that sees the development of these communities significantly. It’s not a surprise to see a future IDO project collecting over 100,000 fans on Twitter and just as many individuals in their Telegram groups in a matter of days.

Another shared criteria is for users to need to hold a specific quantity of tokens that are native to the launchpad’s platform itself. For example, the popular IDO launchpad Polkastarter has two swimming pools – – one open for everyone and one where only POLS holders can get involved. The competition in the latter is significantly smaller.

Typically, there would be two rounds of whitelisting: one for those who hold the launchpad’s native tokens and one for the wider public. Naturally, the 2nd round sees astronomical competitors, leaving inconsiderably little involvement odds. This is why some platforms have transferred to another token distribution design of ensured allotments.

Surefire IDO Allocations: What Are They?

To get an allowance in an upcoming IDO, many platforms now require their users to hold their own native tokens (as discussed above) to increase the chances of involvement.

To avoid lottos, however, some platforms have decided to offer ensured allowance based upon the variety of native tokens a user holds. Some examples include Kickpad, BSCPAD, TrustSwap, etc.

So, for example, if an IDO wants to raise $100,000 and there are 1,000 certifying individuals, they would each receive $100.

Nevertheless, to incentivize larger holders, launchpad platforms have also created tiers where the more of their tokens the user holds, the higher their allotment would be. This is why the prices of lots of tokens belonging to IDO launchpads have actually likewise increased in worth considerably.

Advantages and disadvantages of IDOs

As it is with whatever, preliminary DEX offerings also have their benefits and downsides. Let’s have a better look.

Benefits

  • Essentially every task can raise money.

Getting rid of the vigorous vetting procedures of IEOs has actually provided a lot of jobs access to crowd-sourced capital, which, in theory, benefits the broader market. Naturally, this can likewise be a drawback – – read below.

  • Flexibility

Investors do not have to wait extended periods of time for the tokens to be noted on an exchange. The listing typically takes place right away after the IDO is completed, permitting them the versatility to capitalize their financial investment quicker than it was with ICOs.

  • Instant and High Liquidity

It has become a practice for the majority of the projects to lock a considerable part of their crowd-sourced funds as liquidity on the DEX where the token starts to trade. On top of that, lots of projects will instantly offer staking programs to incentivize holding.

  • Openness

Due to the fact that everything takes place on-chain, there’s traceability, and everyone can validate the token contracts beforehand (if they are public, of course).

Downsides

  • Unknown Vetting Process: Ground for rip-offs

In extension of the very first benefit, the reality that there’s such a high need for IDOs also enables scammer to develop odd projects and have them bootstrapped relatively rapidly.

  • Costly Participation Criteria

While many platforms have a public round where anyone can take part, the chances of winning an allocation are virtually non-existent because of the sky-high competition. This is why users need to hold a great deal of launchpad tokens to get a significant investment and a proper return.

  • Unproportional bag holding between seed, personal and public investors

A lot of IDOs will keep the majority of the tokens for the team and seed/private round financiers. As pointed out above, the vesting over time assists in avoiding a rate discovery dump of the token. Nevertheless, as soon as the unlocking dates based on the vesting schedule are reached, this usually results in massive profit-taking. Pro idea: by tracking wise agreements, investors can easily see when such an occasion takes place (normally as soon as a week, when a month, or once a quarter).

How to Invest in an IDO?

Participating in an IDO is a procedure that can vary depending on the launchpad of choice. However, there are a couple of requirements that many jobs tend to follow, despite the launchpad.

Action # 1: Perform KYC/AML

The broad bulk of IDOs require their investors to perform a KYC/AML screening procedure before permitting them to get involved. This is done since the regulatory framework for cryptocurrencies in the majority of countries has actually ended up being a lot more stringent. To avoid any possible legislative issues, almost all IDO jobs perform a KYC. This is also the factor for which United States people are hardly ever allowed to take part.

Action # 2 (Optional): Hold Launchpad Tokens

This is also something that nearly every launchpad platform needs prospective financiers to do. If they want to be qualified for an allowance, they should hold a certain variety of its tokens or offer liquidity in some shape or kind.

As mentioned above, sometimes it increases the possibilities of winning an allotment.

Action # 3 The Whitelisting Process

As mentioned above, to be qualified for an allocation, users require to be whitelisted. Apart from a KYC check-up, they also need to carry out numerous tasks such as following particular pages on Twitter, retweet certain posts, and sign up with particular Telegram groups.

Action # 4 Have a Web 3.0 Wallet Ready

To participate in an IDO, users need to interact with the launchpad platform to first invest and, second, to get their tokens.

There are a lot of alternatives out there with the most extensively utilized wallet, likewise one of the most reputable, being MetaMask.

Action # 5 Learn How to Use Uniswap and Other DEXes

Assuming you manage to get an allowance and receive the tokens in your wallet, you would want to begin trading them eventually.

To access the instant listing, you need to familiarize yourself with how Uniswap and other decentralized exchanges work. Considered that a lot of them share comparable user interfaces with Uniswap, this guide is an excellent starting point.

The Most Popular IDO Launchpad Platforms

Polkastarter

Polkastarter can be considered as the leader in the launchpad field due to the fact that it’s amongst the very first platforms out there. It is likewise presently the greatest one. Tasks on Polkastarter normally get 10s, if not hundreds of countless followers and grow their neighborhood greatly.

DuckSTARTER by DuckDAO

DuckSTARTER is the launchpad platform of DuckDAO, and it’s also one that gets major attention from investors. It has effectively bootstrapped numerous projects and continues to see major interest.

BSC Pad

The BSC Pad is the first launchpad built for projects on Binance Smart Chain. It’s also fascinating that users get guaranteed allocations based on the variety of BSCPAD tokens they hold, removing the lottery game process but likewise minimizing the size of the allotment based on the fundraising objectives.

Of course, these are some of the more popular launchpads. Below is an infographic, thanks to Coin98 Analytics.

ido_platforms-min

IDO Platforms. Source: Twitter