Cryptocurrency Explained: What Is An IDO and How Does It Work?
30 March 2022
What is an IDO? IDO is a Decentralized Exchange Token Issuer (DEX). Liquidity pools assist IDOs to establish liquidity for tokens following the sale. During a token generation event, an IDO allows users to lock funds for new tokens. The raised funds and tokens are then put to the LP and eventually returned to the enterprise.
IDO is a low-cost mechanism to distribute tokens. IDOs have been around for a long, but new models like Initial Farm Release have emerged (IFO). KYC standards are growing as the sector expands.
You will need a digital wallet like MetaMask and enough cryptocurrency to participate in an IDO. Always conduct your own research and choose a reliable decentralized exchange (DEX). This involves examining the IDO, the project team, and tokenomics. Buying new coins is always risky, therefore only invest money you can lose. In this article, bePAY’s going to explain all information about what is an IDO?
What Is An IDO?
What is an IDO? IDO, or Initial DEX Offering, is a decentralized exchange-based cryptocurrency (or token) offering (DEX). Unlike an ICO, which sells tokens prior to their placement on an exchange, an IDO instantly lists tokens on the DEX via which they are launched. This eliminates the need for project developers to gather assets for pools; instead, the pool is formed on a DEX once the IDO is completed using the project’s own or a third-party launchpad.
IDOs are the newest fundraising strategy for cryptocurrency initiatives. However, there are several disadvantages to this approach. Scalability is a problem with DEXs. It is fairly unusual for initial coin offerings (ICOs) and initial exchange offerings (IEOs) to raise more than $1 billion. This is unheard of for DEXs.
The IDO concept gained popularity because it enabled crypto projects to receive funding directly from investors through liquidity pools, while investors benefited from immediate token trading, which is effectively a win-win scenario for everyone.
Initial DEX offering definition
How Does An IDO Work?
Initial DEX Offering is a method of offering tokens through a decentralized exchange (DEX). A crypto project lists its tokens on a DEX, customers commit funds to purchase tokens through the platform, and the DEX facilitates token distribution and transfer. These procedures are automated and take place on the blockchain using smart contracts.
DEX execution determines IDO rules and phases, however, there are a few typical methods:
- A project is accepted for IDO on the DEX following the moderation procedure. The initiative sells tokens at a predetermined price, and users swap their money for these tokens. During the future token generation event, investors will get tokens (TGE).
- There is usually a whitelist of investors. To get on the list, you may have to execute marketing chores or just enter your wallet address.
- A portion of the proceeds will be utilized to establish a liquidity pool for the project’s tokens. The remaining funds will be distributed to the development team. Following the TGE, investors will be able to exchange tokens (token generation event). Typically, the liquidity offered is locked for a set length of time.
- During the TGE event, the tokens are distributed to users and the liquidity pool is made available for trade.
How does an IDO work?
What Is The Difference Between An IDO And ICO?
It should be evident to readers now why an IDO is preferable to an ICO and what it entails. This section focuses on the differences between ICOs and IDOs. Unlike IPOs and IEOs, the token issuers in an IDO or ICO do not have to pay any fees to an intermediary. In contrast, projects using the IDO or ICO crowdfunding model are solely responsible for their own marketing.
Developers skilled in creating smart contracts are sought by more established firms. Additionally, teams may be required to perform their own audits to ensure that everything is “on the books.” As a result, the project owners won’t be caught off guard by any unanticipated legal or regulatory requirements.
It is time to take a closer look at what ICOs are and why IDOs are a superior option. In the first place, ICOs are quite centralized. Rug-pulling is also a problem for them (where the team disappears with investor funds). Finally, there are no safeguards in place to protect investors.
After the sale, ICO tokens are frequently created on the company’s website, where the token minting takes place. This strategy has a high price tag attached to it. A token’s creators must get it listed on one or more centralized exchanges in order for it to function.
What is the difference between an IDO and ICO?
What is an IDO, though?
IDOs have a major benefit over ICOs in that they don’t require a premise. If you’re an investor who relies on fundamental analysis to choose your ventures, then you’ll benefit from this. Investors worried about the token’s long-term emission rate may be alarmed by a large pre-mine allocation.
In addition, IDOs are seen as more equitable in terms of token access for investors. To be more specific, IDO tokens can be traded immediately. In contrast to ICOs, where lockup periods are popular, IDOs do not have lockup periods.
Insiders and early investors sometimes get better conditions with ICOs than the general public. Because smart contracts do not allow for such favorability, IDOs cannot be used for this purpose.
It is also notable that in contrast to ICOs, IDOs do not require a waiting time for liquidity and trading. A further advantage of IDOs is that they are listed on the DEX immediately after they are issued.
|Vetting process||DEX vets the project||No vetting process as the project runs the sale itself|
|Fundraising||DEX handles investors’ funds||Investor money is handled by this project|
|Smart contracts||DEX is a platform for the creation and management of smart contracts.||Smart contracts are created and administered by this project|
|Token listing||On the DEX, liquidity pools are available||The project must find a place to list on|
|Investor perception||Equitable distribution||Unfair distribution|
|Speed of token issuance||Instantaneous||Slow|
|Amount of funds that might be raised||Small compared to ICOs||Substantial|
First, ICO projects must pay the exchange fees before they may raise money for their project. Finally, the team waits for the exchange to authorize the proposal before it is placed on the platform. For projects using IDOs, there are no costs. Furthermore, they don’t need permission from anyone, as the system is completely decentralized.
So the project team doesn’t have to wait for an exchange to provide the go-ahead for their work. Projects and tokens may frequently be pre-vetted by significant members of the community. There is no need for typical advertising venues to use this method. Social media sites like Twitter, Discord, and Telegram are frequently used to provide this type of assistance.
This is not to suggest that IDOs do not have drawbacks. A number of times, bots have been employed to affect the price of an asset. Using these bots can result in significant gains for a small group of people at the cost of the rest of the investors.
Furthermore, smart contract flaws have been exploited by hackers. Many times, hackers make off with investment dollars without anybody noticing. That IDOs don’t raise as much cash as ICOs is worth noting again. In contrast to ICOs, IDOs have never exceeded a valuation of more than $1 billion in the market.
In the last several years, the DeFi industry has grown at a breakneck speed. In comparison to centralized exchanges like Binance, even well-known decentralized exchanges like Uniswap and PancakeSwap have had difficulty providing liquidity. There is also a greater learning curve associated with DEXs. Inexperienced crypto investors may be put off by a high learning curve.
IDOs vs ICOs
Many of the problems with ICOs were addressed by the creation of IDOs. With the use of IDOs, teams may give investors a more hands-on role in their initiatives.
IDOs have a reduced barrier to entry, which might be a benefit. Other than IDOs, many excellent initiatives would not have been able to raise money for their endeavors in the first place.
IDOs are sometimes referred to as the “great equalizer” because of the public’s perception of their fairness. Using IDOs, small teams with creative ideas may get their ventures off the ground and into the public eye.
>> Read also: What is ICOs? How can investors take profit from it?
How To Buy IDO?
An Initial DEX Offering participant will need to secure a seat on a launchpad for decentralized exchange offers in order to participate. It is necessary for IDOs to limit the number of purchasers as well as the number of tokens that investors may purchase because of their smaller size.
To be considered for a launchpad’s whitelist, you must first decide which launchpad you want to join and then possess the requisite amount of the launchpad’s native token. There are more entries available the more tokens you have. Generally speaking, you can only win once.
These whitelists normally need a crypto wallet and KYC checks, and certain countries like the United States and Iran have outlawed IDOs altogether, so verify with your local authority whether it is even authorized.
How to buy IDO?
FAQs About IDO
What Is The IDO Crypto List?
The IDO crypto list is the list of upcoming IDO projects. Traders can use this list to track the project to maximize their opportunity to join IDO projects. Amongst platforms that offer IDO crypto list here are some famous sites you can trust:
Is IDO A Good Investment?
And an IDO investment is, perhaps, riskier than investing in cryptocurrency. However, a well-executed DEX can pay you for a lengthy period of time. Decentralization of the cryptocurrency ecosystem is becoming increasingly popular. The number of IDOs will continue to rise. Because of this, you should conduct your due diligence before investing in an IDO.
Is IDO a good investment?
In What Ways Are IDOs Dangerous?
This can lead to fraud because projects don’t need to be approved before they can begin trading. If you do your homework and stick with a respected launchpad, you may lessen this risk. You should conduct your investigation into a project before investing in its coin, even if a platform provides anti-scam screening and KYC checks.
Hard to participate
To participate in the IDO, you must be on the whitelist, which is a list of addresses that have been pre-approved by the IDO. This can make it difficult for smaller investors to get on the whitelist, especially if a project is well-known and has a large number of tokens in circulation, which is how you get on a whitelist.
Now you have gone through the definition of what is an IDO? Hopefully, this article will be useful IDOs have become a typical funding mechanism for many new ventures in the crypto market because they combined simplicity, cost, and accessibility. Token offers are becoming a thriving sector unto themselves. Finally, a sale on a Decentralized Liquidity Exchange is typically safer than a project. However, finding the correct project is a big element of success in an IDO.
The benefits of IDOs much exceed their drawbacks, and IDO launchpads have been trying to overcome these obstacles shortly. It’s reasonable to conclude that IDOs have a bright future, and DeFi projects are more positioned to gain from IDOs than ICOs or IEOs, given the recent expansion of DeFi and DEXs. Research in the cryptosphere is the best way to do this.