ICO (Initial Coin Offering) and IDO (Initial DEX Offering) are two different ways in which cryptocurrency projects sell tokens to investors. ICO is conducted through a centralised platform, while IDO is conducted through a decentralised exchange (DEX). While ICO can often be subject to stricter regulations, IDO has a more flexible transaction structure.
Cryptocurrencies have helped us redesign the world of finance and investment. But the technology is still new and most people have no idea what cryptocurrency is. We can safely say that the number of people who understand how to invest in crypto is even lower. That’s why we’re going to cover one of the most important parts of the crypto trading space. The Initial DEX Offering or IDO (Initial Dex Offering)
We will explore what IDO means in cryptocurrency, why it is gaining popularity. And how you can help a promising cryptocurrency project to raise funds and get a reliable source of income in the future.
Meaning of IDO
An Initial DEX Offering (IDO) is a type of asset offering organised on a decentralised liquidity exchange.
It is a new crowdfunding technique that allows many projects to raise money from multiple investors when investors buy tokens directly from a liquidity pool. The first decentralised exchange offering model allows projects to raise funds for their further growth and development.
Key Differences Between IDO , ICO and IEO
The IDO model is not the only way to raise money in the crypto space. Initial coin offering, initial exchange offering, initial game offering and initial DEX offering are among the most popular IDO models.
IDO is the successor to the initial coin offering (ICO) model. In the case of an ICO, however, token sales are organised on the project’s website.
Initial exchange offerings are organised by centralised exchange platforms. In the ido fundraising model, token crowdsales are organised on a decentralised crypto exchange. The place where token offerings take place is the main difference between a typical IDO model and the other two token offering options.
How does an IDO work?
In an IDO, the project team allows investors to lock their funds in smart contracts on a decentralised finance platform just before the project token is launched.
Once the project team organises the token generation event in the IDO, the smart contracts distribute the project tokens to investors. And the investor can start trading activities on the exchange.
Advantages of the First Decentralised Exchange Offering (ido)
Compared to token offerings organised on a centralised exchange or other token sale options, IDO is more advantageous in many aspects.
Accessibility
This fundraising method is accessible to everyone. Any trader can deposit even a small amount of money to buy tokens from the available liquidity pools.
There is no vetting process for traders; you simply join the allowlist to join an IDO, purchase a new token and wait for the token to be released to start trading.
Security of ICO and IDO
IDO offers its participants more security than other common methods for investing in crypto projects because investors do not have to send their money to a centralised cryptocurrency exchange account.
This is one of the main differences between token supply on centralised exchanges and decentralised exchanges. The platform also does not hold users’ private keys, personal data or financial information.
Fair Fundraising
Anyone can launch an initial dex offering and anyone can buy project tokens if the price level allows. The token sale is not limited to venture capital investors or accredited investors.
After a certain period of time, when the tokens are offered to the public, they can be immediately traded on the market. This is another feature that makes the IDO model attractive to crypto enthusiasts and investors.
Low Costs
Although crypto projects pay relatively high fees for the implementation of smart contracts and investors pay blockchain fees for secure transactions on a DEX, these fees are lower than the fees that a centralised exchange can impose.
IDO’s Disadvantages Compared to Pre-Sales on Centralised Exchanges
Although IDO is very useful, it also has some disadvantages.
Risk of Fraud
Over $10 billion was stolen from DeFi in the previous year alone. If your coins are stolen by hackers, the platform may or may not compensate them.
Another problem is that any crypto project can launch a coin offering, but there is no vetting process for projects to ensure that the projects are viable in the long run and to eliminate scam projects from decentralised exchanges. Therefore, investors should carefully research all the data behind a project by choosing an IDO.
Token Price Volatility
When the first project tokens are distributed to the crypto wallets of IDO participants, the price of these tokens rises. When traders start selling the project’s token, the crypto market reacts immediately and token prices fall.
Until the market capitalisation and trading volumes of the new tokens stabilise, volatility is likely to be very high.
While some will see this as a benefit and will try to profit from price fluctuations, for the majority it can be a confusing thing.
High Probability of Price Manipulation
In the crypto space, the prices of new coins can be easily manipulated. The value of a project native token is sensitive to price spikes and dips.
Although some projects limit the number of tokens sold to a single buyer, many traders use bots to buy plenty of tokens. Subsequently, these tokens are discarded and their price drops. It also happens when a single crypto wallet owns many tokens and then sells them.
Why Does the Crypto Market Need IDOs?
An IDO offers cryptocurrency projects an easy way to find potential investors and raise funds for further project development. Normally, projects do not have to comply with certain requirements for an IDO to work. The initial DEX offering is therefore a common way to raise money for new projects.
For those who want to buy coins at a lower price, the initial DEX offer offers such an opportunity. You don’t need to register to receive new project tokens, and even if you only buy one coin, there is no problem.
How to find an IDO and how to choose an IDO to invest in?
Finding a meaningful IDO is not an easy task, despite the fact that many crypto startups are looking for available funding options.
Before investing any funds, make sure that the selected project meets some important requirements. It offers some amount of value. If it solves a problem, makes it easier to fulfil a task or offers something of value, you might consider spending some money on it.
Check who is behind the product. If there are some famous people, experts working for similar companies with similar tasks, those who are moving the market forward, this is a good sign.
The platform chosen for the token offer run will be 100% secure. There are well-known launch pads that have already earned an excellent reputation. Therefore, it is better if the crypto startup chosen by you uses one of these launch pads.
Once the project is selected, you will see all possible ways to join it. To join, you must be on the project’s allowlist (you can check the project’s social networks to become its future investor through an IDO) and don’t forget to get a wallet to receive your tokens once they are created.
Then lock your allocation in a special smart contract and wait for your coins to be sent to your wallet. Then they are instantly available for trading through the liquidity pools of the same platform.