By Nathan Ferguson
The initial DEX offering (IDO), one of several innovative fundraising methods, was born out of the maturing of the crypto sector as a whole. However, the initial coin offering (ICO) was the first method of crypto funding, and it caused a lot of controversy in 2017. It also made a lot of early investors wealthy overnight.
So, what exactly is an initial coin offering (ICO)? In basic terms, an initial coin offering (ICO) is an unregulated method of raising funds from ordinary investors. The lack of governance and investor security were the two biggest issues with ICOs. Project participants were not subjected to any due research because there were no control measures in place.
Almost any ICO initiative could guarantee large returns, and many did. Several initial coin offering (ICO) ideas proved out to be either hasty money grabs or outright frauds. They also tarnished the cryptocurrency industry, discouraging potential new investors from jumping on board.
Decentralized financing (DeFi) is an alternate fundraising strategy that tries to solve this challenge. The Decentralized Exchange model is one such example. DEXs are allowing cryptocurrency investors to participate in a new, more equitable crowdfunding approach. But, before we get into the specifics of the IDO, let’s have a look at DeFi and DEXs.
What Is DEX Initial Offering?
An initial DEX offering is a type of fundraising in which regular investors pool their money. The IDO was intended to address the flaws in the “conventional” ICO cryptocurrency crowdfunding paradigm. DEX can be regarded as a decentralized liquidity exchange because they work with an IDO rather than a centralized exchange.
IDOs are the most recent approach for cryptocurrency firms seeking funding from investors. However, they are not without flaws. DEXs, for example, are less scalable. It’s not unusual for ICOs and IEOs to raise more than a billion dollars. This is rare for DEXs.
Because DeFi platforms have a learning curve, the common crypto trader’s lack of understanding of how crypto works may be a barrier to admission. To effectively address this problem, DeFi training must be funded.
Nothing can break an investor’s confidence if they have the appropriate knowledge. The capacity of DEXs to obtain funding for such firms will be a challenge.
How Do Crypto IDOs Work?
This section discusses a few of the more notable characteristics of DEXs that enable IDOs to function.
Many firms were aiming to resolve issues using the blockchain when ICOs and tokens sales became mainstream in 2017, generating an anticipated 4.9 billion dollars that year. While several have passed on to prosper, much more have failed, it’s difficult to deny that ICOs have several flaws: they’re centralized and fragile. 3rd-party bias, susceptibility to fraud and operator mistakes, and a loss of privacy are among the prominent flaws of ICOs.
Because of the decentralization of IDOs, this focuses on the improvement mechanism that aims to address the difficulties with ICOs while also expanding the crypto market’s possibilities. Companies can create a cryptocurrency product that is immune to malicious 3rd-party influencers, as well as attackers and human mistakes, by fundraising with IDOs. Furthermore, the coins of token purchasers and holders are instantaneously secured in their wallets and private keys.
Gas fees for implementing a fresh smart contract are minimal on a liquid exchange since trade pairs have lots of liquidity. The assets tokens and liquidity pool are managed using smart contracts. IDOs, unlike conventional fundraising strategies, can issue tokens immediately.
Furthermore, any viable idea can be considered for funding. Many projects have gained access to individual investors by skirting the arduous regulatory process. Preventing the high price of initial exchange offerings is a similar case.
However, a lack of proper procedure has resulted in the introduction of numerous low-quality ventures. Projects like these can sometimes be outright frauds, with project owners stealing money from investors and then disappearing.
There is no need to wait for the approval of your favorite cryptocurrencies to feature on the exchange. The listing process starts when IDO is completed. Initial Coin Offerings take considerable time while IDOs are faster. This helps traders to start making money faster.
That isn’t to argue that all DEXs are good. Yes, because they are distrustful, they can be deemed more reliable. (A human middleman is unnecessary.) DEXs, on the other hand, are still prone to technological flaws. For example, it’s not uncommon to hear about potential exploits in which hackers have made off with investor money.
What Is The Best Way To Start An IDO?
This section walks users through the process of launching their IDOs step by step. Users must also understand how to establish a coin in order to start up a successful IDO.
- Step 1: Create A Business Plan
Create a plan that makes sense for the token offering to be issued on a DEX. The plan should contain the problem that the project wants to solve, funding allocation, the blockchain that the project will run on, a general marketing approach, and how to lead the project after the IDO and keep the momentum going.
- Step 2: Develop Marketing Collateral
Websites and white papers are required promotional materials for IDO launches at the very least. Investor confidence can be boosted significantly by a well-branded, visually appealing website.
A smart website can enable users who are already logically invested in the project to push the emotional triggers. The websites can also help to give the project a more professional appearance. Many initiatives, especially those without a website, struggle to build a brand reputation.
A superb white paper, on the other hand, adds specificity and data to the investors’ experience. This brings the investor closer to the end of the pipeline. A white paper’s objective is to sell through education. That’s why there is no print version in the document itself. The white paper, on the other hand, includes statistical data, illustrations, tables, and other visual aids. The white paper employs statistics to convince the client that the project is worth pursuing investment.
- Step 3: Go To One Of The DEX Launchpads.
An IDO will be accepted if the project fits the platform’s conditions (usually agreement and whitelisting).
- Step 4: Create The Cryptocurrency
“Can I start my own cryptocurrency?” users may wonder. Here’s the solution: Anybody with technological knowledge and good marketing skills can establish a cryptocurrency coin.
The procedure for creating a coin has become very simple. Clients can use an application like CoinTool to have the software do all of the work for them. What is the time it takes to develop a cryptocurrency? Users may be able to deduce from CoinTool that it takes very little time.
The challenge does not lie in the production of tokens. Anybody can learn how to create a cryptocurrency. The task is to encourage investors to invest in the project by determining its real-world worth and utility.
The DEX lists the token for trading after the IDO and Token Generation Event (TGE) are completed successfully. AMM) such as Sushiswap or PancakeSwap is used to list items.
- Step 5: Launch The Token.
Below is a basic overview for people who are interested in launching a cryptocurrency token. A token pool is created by the project team. A token pool is a place where investors pre-pay for their tokens.
Investors will get their crypto token after the TGE, which completes after IDO. You shouldn’t fix the price of the token. The exchange will execute an auction, and then the price will be set after evaluating the market forces.
Investors may be enticed to contribute liquidity in some ventures. This will assist the project in gaining and maintaining momentum. Users, on the other hand, can make even more coins by providing liquidity.
The Similarities And Differences Between An ICO And An IDO
Already though, you should have a good understanding of what an IDO is and why it is superior to an ICO. This section compares and contrasts ICOs and IDOs.
Unlike IPOs and initial exchange offerings, the IDO and ICO do not require token issuers to pay any fees to intermediaries. Projects using the IDO or ICO funding models, on the other hand, have complete control over their marketing.
The programmer is hired by more experienced organizations to design the smart contract, which is used for trading the tokens. Teams may also be required to conduct audits that everything is in order. As a result, there will be no legislative or ethical surprises for the project owners afterward.
Let’s look at the major problems with ICOs and why IDOs might be a better option. To begin with, ICOs are quite centralized. Rug-pulling is also a threat to them. This is a scam when firms run away with investors’ money. Finally, there is no investor protection in place.
After the sale, ICO tokens are frequently produced, and token printing money takes happen on the firm’s site. This strategy is not without its drawbacks. Because the coin issuer requires it to be published on one or all of the most well-known (thus, centralized) exchanges, this is the case.
What About IDOs?
When compared to Initial coin offerings, one major advantage of IDOs is that they do not require a premise. This can improve traders’ confidence, particularly for those who pick projects based on basic analysis. This is because a large pre-mine allocation can make investors become apprehensive about the token’s long-term emission rate.
IDOs are also thought to be more equitable when it comes to granting token access to investors. IDO tokens, in particular, are instantaneously tradeable. Apart from ICOs, where lockup restrictions are prevalent, IDOs have no such restrictions.
Executives and early investors are frequently offered preferential terms in ICOs that aren’t available to public investors. As smart contracts do not allow for such favoritism, IDOs are unable to supply it. In addition, unlike ICOs, which require a wait time for liquidity and trade, IDOs offer instant access. Another advantage of IDOs is that the created token is listed on the DEX, in which the IDO occurred right away.
When using an ICO to raise funds for a project, the project must first pay the exchange fees. After that, the team must wait for the exchange to allow the project before the token can be published. Projects do not have to pay exorbitant fees when using IDOs. They also don’t need permission from anyone because the system is completely decentralized.
As a result, the project team will not be held up and waiting for an authority to authorize the project. Instead, powerful members of the community can often take the initiative and evaluate projects and tokens ahead of time. This method expands the program’s reach without the need for traditional marketing.
Support is typically provided through social media sites such as Twitter, Discord, and Telegram. This isn’t to argue that IDOs are without drawbacks. Bots have been employed to affect price action on multiple occasions. Using all these bots can result in large profits for a few persons at the cost of other shareholders.
Furthermore, smart contract flaws have been reported to be exploited by hackers. Hackers are notorious for vanishing with investment dollars before anyone notices. It’s worth repeating that IDOs do not even raise nearly as much revenue as ICOs. While it’s very uncommon for an ICO project to reach a value of more than 1 billion dollars, IDOs have never seen such figures.
In recent years, the DeFi industry has grown at a breakneck pace. Even well-known DEXs like Uniswap and PancakeSwap, though, have failed to generate liquidity when compared to centralized exchanges like Binance. DEXs also have a substantially greater training time than other types of exchanges. Potential investors, particularly those who are fresh to cryptocurrency, may be intimidated by a high learning curve. IDOs were designed to address many of the issues that ICOs raise.
IDOs allow companies to provide traders with a more direct way to become engaged with their preferred projects. IDOs have a lesser barrier to entry, which might be considered a benefit. Many worthwhile projects wouldn’t be able to raise funds through other means if it weren’t for IDOs. IDOs are regarded as a “great equalizer” because of their perceived impartiality. Small groups with new ideas can use IDOs to start their projects and acquire recognition.
The Benefits Of IDOs
When compared to initial exchange offerings (IEO) and initial coin offerings (ICO), an initial DEX offering has a number of distinct advantages (ICO)
Let’s take a look at a couple of them.
When a project raises cash through an IEO or ICO, it must first deposit an exchange service fee and then wait for the exchange to approve the project before it can be listed. Projects using IDOs don’t have to pay excessive fees and don’t need authorization from anyone because it’s a truly decentralized service.
Furthermore, rather than having to wait for an exchange to authorize a project, outspoken community participants assess projects and tokens, allowing for both small and large-scale partnerships.
IDOs allow quick access to funds and trade, unlike IEOs or ICOs, which require a wait time. Furthermore, IDOs assist customers by providing a secured wallet and platform assistance that is integrated into a single interface. IDOs can also handle multiple types of wallets, which makes the investor’s experience easier.
IDOs are becoming more common and are arguably more extensively used for cryptocurrency fundraising than their rivals.
Future Of IDOs
IDOs are the latest means for cryptocurrency projects to acquire their currencies into the hands of the general public, but they, like ICOs, IEOs, and STOs, still need to be improved. UMA’s IDO is proof of this. DEX, on the other hand, indicates that there is no control mechanism with IDOs. When it refers to fundraising, it’s critical to have some type of control, such as Verification rules or ICO, IEO, and STO restrictions, to prevent token price swings.
Scalability is another development that should be prioritized. Currently, only DeFi initiatives have used IDOs to raise funds; however, this does not rule out the possibility of other crypto projects using this method of funding. Obviously, for these ventures to succeed, existing DeFi users will need to be interested in investing in the project’s token.
DeFi platforms have a degree of difficulty, which for the common cryptocurrency trader may be prohibitive. As the DeFi sector grows, another benefit would be to increase DeFi education and awareness.
Last Thoughts
The idea behind cryptocurrency is to decentralize finance and hence offer up new avenues for investment. IDOs are one step in the right direction, but who knows whether a new endeavor will be the next best thing. Another thing to keep in mind is that, despite the growing demand in Initial DEX Offering, centralized exchanges like Binance and Coinbase still have a stranglehold in the industry.
Investors aren’t inquiring about the timing of the next IDO IPO. They’re curious about when Coinbase will list a particular coin right now. As more people become aware of DEXs and DeFi in general, this will most likely alter.