The growth of the cryptocurrency sector as a whole led to the creation of the initial DEX offering DEVELOPMENT (IDO), one of many cutting-edge fundraising strategies. However, the initial coin offering (ICO) was the first way to raise capital in the cryptocurrency sector and it generated a lot of debate in 2017. It also caused many early investors to overnight become billionaires.
What is an ICO
To put it simply, an ICO is a non-regulated way to raise money from common investors. The basic issue with ICOs was the lack of governance and investor protections. Because there were no control procedures in place, project teams were not subject to any due diligence.
Any ICO project could, and many did, claim to have made enormous profits. Many ICO projects that were launched in an effort to make quick money ended up being gimmicks or, worse, outright scams. They also tarnished the market’s reputation and discouraged a lot of prospective new investors from participating.
Different fundraising techniques are used by decentralized finance (DeFi) to attempt to address this problem. One such illustration is the Decentralized exchange (DEX) model. Thanks to DEXs, cryptocurrency investors now have access to a unique, inclusive crowdfunding model.
But before we get into the inner workings of the IDO, here is a brief review of DeFi and DEXs.
What is a Initial DEX offering?
An initial DEX offering (IDO), a method of generating money, collects capital from normal investors. To overcome the shortcomings of the “traditional” ICO crypto crowdfunding approach, the IDO development business was created. Because an IDO engages with DEXs rather than a centralized exchange, they can be regarded as decentralized liquidity exchanges.
An IDO is the newest paradigm for cryptocurrency projects looking for investor support. They do have certain restrictions, though. For instance, DEXs are not as scalable. Over $1 billion is routinely raised through IEOs and ICOs. For DEXs, this is unheard of.
The average crypto trader may have trouble getting started because DeFi platforms have a steep learning curve and they are not aware with how cryptocurrencies work. In order to deal with this scenario successfully, funding for DeFi instruction would be required.
Nothing can shake an investor’s confidence when they have the necessary knowledge. The challenge will be for DEXs to raise the necessary funds for such projects.
How are crypto IDOs put into practice?
This section discusses some of the more salient traits of DEXs that permit IDOs.
Because DEXs can provide instant token liquidity, IDOs are successful. As a result, DEXs routinely give liquidity pool suppliers hefty benefits. Liquidity enables DEXs to operate without any unexpected interruptions for its users.
The majority of projects allot some of the funds to the DEX as liquidity to facilitate trade. This tactic is currently a common practice. Several projects use the proof-of-stake (PoS) consensus method as well. Network security was considered when developing the PoS consensus. However, in this case, the technique is mainly used to discourage investors from making hasty sales.
Investors must keep their funds in supported cryptocurrency wallets in order to maintain the PoS consensus.
Investors earn payment for their “stake” in the network.
As soon as the project is launched, investors can begin trading the project token. Early investors can sell their tokens for more money once the IDO is running. A large bag of tokens is offered at a discounted price to early investors.
Once the public auction begins, the token value increases. As soon as the first sale takes place, the price will start to increase.
Due to the abundance of trading pairs with access to liquidity, gas costs for executing a new smart contract on a liquid exchange are very low. Smart contracts are used to manage the liquidity pool and asset token. In addition, in contrast to traditional fundraising strategies, IDOs can instantly create tokens.
Additionally, financing is available for any excellent endeavor. Several projects can now be funded by ordinary investors thanks to techniques for passing the rigorous approval process. The same is true for avoiding inflated initial exchange offers (IEOs).
However, the adoption of certain poor-quality programs has also been facilitated by a lack of due process. These endeavors may also be outright frauds, where the perpetrators defraud investors of their money before vanishing.
For investors, the period of time it takes for a token to be listed on an exchange is brief. Normally, the listing occurs immediately after the IDO is complete. This timeline allows investors the possibility to make money off of their investments far sooner than ICOs do.
That does not mean DEXs are always beneficial. They can be considered to be more trustworthy because they don’t have any. They don’t need a human intermediary. But DEXs are still being hampered by technical issues. For instance, when hackers stole investor money and ran, it is common to learn of potential vulnerabilities.
How to launch an IDO
The procedures users must follow to launch their IDOs are described in this section. In order to successfully develop an IDO, users must also comprehend how to set up a currency.
Plan your business.
Create a sensible plan for releasing the token offering over a DEX. The strategy should include information about the issue the project aims to solve, the funding strategy, the blockchain it will utilize, a broad marketing strategy, and how to continue moving the initiative ahead after the IDO.
Create marketing collateral
Marketing materials for an IDO launch must at the very least consist of a website and a white paper. A well-branded, appealing website can significantly boost investor trust.
An outstanding website can ignite the emotions of investors who have already made sensible investments in the enterprise. The webpage might make the project seem more polished. Building a brand may be challenging for many efforts, especially without a website.
On the other hand, a great white paper enhances investors’ experiences by being specific and providing statistics. By doing this, the investor moves closer to the pipeline’s end.
The white paper itself does not contain any hard sales copy because the purpose of a white paper is to sell while educating. They instead provides graphs, tables, and other visual assistance. It provides statistics to persuade the investor that the project is a smart investment.
Check out a DEX launchpad.
If the project conforms with the platform’s specifications, an IDO will be accepted (usually consensus and whitelisting).
Make a cryptocurrency
Continue reading if users are unsure about creating their own cryptocurrency. The answer is as follows: A cryptocurrency can be started by anyone with some marketing expertise and a basic understanding of technology.
Today, the process of generating a cryptocurrency is straightforward. Here, customers can use an application like CoinTool to automate all the time-consuming operations. How long does it take to create a cryptocurrency, exactly? Users may draw the conclusion that it doesn’t take very long thanks to CoinTool.
There is no challenge in the creation of tokens. You can establish a cryptocurrency almost anywhere. The challenging component of getting investors to support the project is demonstrating value and usability in the real world.
After the IDO and Token Generation Event (TGE) are successfully finished, the token is listed for trading on the DEX. An automated market maker (AMM), such as PancakeSwap or SushiSwap, is used for listing.
Launch the token to start funding immediately.
For those who are interested in learning how to launch a cryptocurrency token, the following is a brief explanation. The project team establishes a token pool. In a token pool, investors can prepaid for their tokens.
The investors will receive their tokens after the TGE, which will soon follow the IDO. The issuer can reach a price determined by supply and demand rather than setting a fixed price by conducting an auction in this manner.
Various programs may also incentivize investors to provide liquidity. This will help the initiative gain and sustain momentum. Users, on the other hand, can raise the value of their tokens by providing liquidity.
The distinctions and similarities between an ICO and an IDO
The reader should now be clear on what an IDO is and why it’s better than an ICO. We compare ICOs to IDOs in this section.
In contrast to initial public offers and initial exchange offerings, token issuers are not obligated to pay any middleman fees in conjunction with the IDO or ICO. However, it is entirely up to the projects if they choose to use the IDO or ICO fundraising models for their marketing.
More experienced companies hire developers who can create the smart contract required to sell the tokens. Audits may also be required of teams to ensure that everything is “on the books.” The project owners won’t later be faced with unforeseen legal or regulatory liabilities in this way.
Let’s look at the main issues with ICOs and why IDOs may be a better choice. The centralized nature of ICOs is the first. They also have a tendency to pull rugs (where the team disappears with investor funds). Additionally, they lack investor protections.
On the company’s website, ICO tokens are regularly produced after the sale. The costs of employing this tactic are substantial. This is a result of the token’s creator’s requirement that it be listed on one or more well-known (thus centralized) exchanges.
But what about IDOs?
The complete absence of a premine is one of many advantages IDOs have over ICOs. This may boost investor confidence, especially for those who select their investments based on fundamental research. This prevents large premine allocation from alarming investors who are worried about the token’s long-term emission rate.
IDOs are also regarded to treat investors more equally when it comes to token access. In particular, IDO tokens are instantaneously tradeable. Contrary to ICOs, where lockup periods are routinely employed, IDOs are not permitted to have them.
Insiders and early investors usually benefit from ICOs’ special terms, which are not available to normal investors. This favorability is not possible with IDOs since smart contracts forbid it.
In contrast to ICOs, which require some time before trading can begin, IDOs provide immediate access. Another benefit of IDOs is that the issued token is immediately uploaded on the DEX where the IDO development was conducted.
Before attempting to raise funds through an ICO, projects must first pay the exchange costs. Before the coin is listed, the team then waits for the exchange to approve the request. Projects can avoid paying high fees thanks to IDOs. The system is totally decentralized, so they don’t require anyone’s consent either.
There is no need to wait for an exchange to authorize it before the project team can continue. Instead, influential members of the community frequently take the lead and pre-vet projects and tokens. This tactic expands the project’s audience without the need of traditional advertising methods. Usually, social media platforms like Twitter, Discord, and Telegram offer this kind of support.
This does not imply that IDOs are without faults.
Numerous times, price activity has been manipulated using bots. These bot users may receive disproportionately large rewards at the expense of other investors.
Additionally, it has been revealed that hackers have exploited smart contract weaknesses. Hackers regularly steal financial funds and vanish without being caught.
It is important to reiterate that IDOs do not raise as much capital as ICOs. Although an ICO project valued at more over $1 billion is not unheard of, IDOs have never encountered amounts this large.
The DeFi market has grown significantly in recent years. Even well-known DEXs like Uniswap and PancakeSwap have struggled to provide liquidity in comparison to their centralized competitors like Binance. Oftentimes, DEXs have noticeably longer learning curves. A challenging learning curve can deter potential investors, especially if they are not familiar with cryptocurrency.
IDOs were created to deal with many of the problems that ICOs brought up. By utilizing IDOs, teams can provide investors the opportunity to interact more directly with the initiatives they find most appealing.
The easier entrance standards for IDOs might also be considered favorable. Many deserving of listing efforts would not have been able to raise money through other means if it weren’t for IDOs.
IDOs are considered a “great equalizer” because of their reputation for fairness. With the aid of IDOs, small groups with innovative ideas can start their projects and get recognition.