What is an IDO?
'Initial DEX Offerings' are a new way of crowdfunding - fairer and safer than ICO's and IEO's.
IDOs provide a cheap and simple way for projects to distribute their tokens and fundraise. If a project is launching an IDO then they will make their coin or token available via a 'Decentralised liquidity exchange'.
A Decentralised exchange or DEX is an exchange which does not require users to deposit funds to start trading and does not hold the funds for the user. Instead, users trade directly from their own wallets.
Effectively an initial DEX offering is the successor to Initial Coin Offerings (ICOs) and Initial Exchange Offerings (IEOs). They are similar in that they aim to raise money for their projects. The difference with an IDO is that the tokens are listed immediately on a decentralised exchange. One example of a decentralised exchange is the Binance Decentralised Exchange.
Crypto launchpads, often referred to as IDO platforms, are platforms for launching new coins, crypto projects, and raising liquidity.
- 1.A project goes to a launchpad, and if they meet their requirements, they are given the green light to launch an IDO. They fundraise on the launchpad platform.
- 2.There is a pool where users can buy “IOUs” of the token that the project wants to launch, which means that the investors pay for their tokens in advance but receive them upon the Token Generation Event (TGE), which usually happens very shortly after the IDO itself (typically within a few hours).
- 3.Once the IDO is successfully concluded, and the TGE takes place, the token is immediately listed for trading on a decentralised exchange. Many launch on Ethereum's Uniswap exchange however, like Scallop, many choose to avoid the high network fee's associated with ERC20 tokens and chose to launch on Binance Smart Chain (BSC and BEP20 tokens).
In 2018 Initial Coin offerings were all the rage, we saw very high profile sales of coins until the bubble burst. Scams and rug pulls were widespread, and investors often suffered big losses. These ICO's were coordinated by the projects themselves and therefore there was no vetting process. The next iteration was the Initial Exchange offering, which saw Exchanges vetting projects and only choosing a few of the best tokens to launch on their exchanges. The vetting process is inhibitory for many projects and so the IDO has emerged as the final iteration of this journey - projects are vetted by launchpads and then released onto decentralised exchanges. This has many advantages:
- 1.Tokens are listed to an exchange immediately after launch
- 2.Marketing budgets aren't required as the launchpads share the duties of raising awareness for the fundraise
- 3.Vesting periods - which effectively lock up the coins of the initial investors for a scheduled period of time - provide safety to new investors as those participating in the IDO can't sell coins as soon as the project is listed - this can sometimes crash the price of the coin in ICO's as initial investors scramble to take profit as soon as the coin is listed to an exchange.
- 4.Transparency - as everything happens on the blockchain, it is available for everyone to verify
- 5.Accessible fundraising for more projects - without the rigorous vetting process of the exchanges, many more projects have access to funding.
The demand for involvement in IDO's is high, which allows projects to create whitelists for participants. This is great exposure for the projects and helps them grow. To be eligible for being whitelisted, users need to perform various marketing tasks, which sometimes include:
- Joining the project’s Telegram chat
- Retweeting and commenting on project tweets
- Liking the project’s social media platforms
This creates a coordinated marketing strategy that helps give the IDO's exposure and supports the projects in turn.
There are things to be wary of when thinking about participating in an IDO
Lack of vetting can lead to scams, so be careful which launchpad you look into. They are the ones that decide the vetting process.
IDO's will leave the majority of tokens in the hands of the team and investors from the seed/private round of investing. Vesting prevents large dumps due to profit take, but investors should be aware of the vesting schedule as this usually depresses price action.
BSC Pad was the first launchpad built for projects on BSC - and is a good place to start exploring small projects that are looking to fundraise. Early investors are rewarded with exponential gains, when things go right, which is why IDO's are so oversubscribed.