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Crypto is awash with esoteric acronyms and abbreviations that baffle the uninitiated, but are dispensed like machine guns in TG groups, live streams, and Twitter.
An acronym you won’t hear often touted these days is ICO, once synonymous with crypto fundraising but has since been replaced by a phonetically similar term: IDO. What is the difference between the two and why did the latter replace the former? Let’s jump into the jargon and find out.
PS: For a brief history of ICOs and all the acronyms that followed up to IDO, please read my previous Article which delves into all the differences, pros and cons.
1. What happened to the ICO?
During the height of the 2017 crypto bull market, a wave of high-stakes ICOs (Initial Coin Offerings) hit the market, and the need for more secure crowdfunding platforms became apparent, something I explored deeply in a Article I wrote to you at the beginning of 2019, as in the same year, cryptocurrency exchanges like Binance pioneered the idea of IEO (Initial Exchange Offering) to provide a more secure launchpad environment. At the same time, other experiments were being carried out, among which the Decentralized ICO (DAICO)a concept introduced in 2018 by Vitalik Buterin, which followed the fundraising logic of ICOs but improved on it by not releasing all funds at once, which is a major disadvantage of ICOs.
The security and convenience of IEOs was a success, but the centralized nature of such launches was a major drawback, with a middleman deciding which projects needed to be approved and extracting a fee for the privilege. Not exactly the decentralized spirit of cryptocurrencies.
Now, following the rapid growth of the DeFi ecosystem, DEX platforms with billions in total value locked and daily trading volumes have also made decentralized crowdfunding viable. Leveraging those DEXs, IDOs (Initial DEX Offerings) can provide an alternative to their centralized predecessors.
The security and convenience of IEOs was a success, but the centralized nature of such launches was a major drawback, with a middleman deciding which projects needed to be approved and extracting a fee for the privilege. Not exactly the decentralized spirit of cryptocurrencies.
So what is an IDO and how do the benefits compare to previous ICOs and IEOs?
2. What is an IDO?
Initial DEX offerings are crowdfunding token sales that take place on decentralized exchange platforms such as Uniswap, SushiSwap, and PancakeSwap, rather than centralized cryptocurrency exchange or fundraising platforms. The oldest and most prominent DEXs were built on the Ethereum blockchain, but alternatives are gaining popularity on blockchains like Binance Smart Chain (BSC), Solana, and Polkadot. Through an IDO, a crypto project can launch the public debut of its token on a DEX, attracting the interest of retail investors.
Initial DEX offerings are crowdfunding token sales that take place on decentralized exchange platforms.
Making history, Raven Protocol started the first IDO in 2019, followed soon after by projects like Compound, UMA, and Curve that have become household names within the defi ecosystem today.
The big difference from traditional exchanges is that IDOs launch project tokens on DEXs by opening liquidity pools of token pairs, for example ETH/USDT, instead of order books. This means that the price will only change if the token is bought or sold and the proportion of tokens in the liquidity pools is changed.
By separating them from the IEO and ICO fundraising models, IDOs can be run autonomously by the token project and listed without trust on a decentralized exchange. This allows new projects to engage directly with a decentralized investment community rather than through intermediaries, much more in line with the peer-to-peer foundations of the space.
By separating them from the IEO and ICO fundraising models, IDOs can be run autonomously by the token project and listed without trust on a decentralized exchange.
3. IDO versus IEO and ICO
IDOs present several benefits over ICOs and IEOs beyond the spirit of decentralization. Most notably, initial DEX offerings provide frictionless liquidity, immediate trading, and significantly lower listing costs without restricting users. By cutting out the middlemen, IDOs are seen as a more open, transparent, and fair way to launch a new crypto project than the pre-mined ICO models of the past that rewarded founders for sufficient community distribution.
Unlike ICOs, IDOs typically have a very low market cap after public listing. This is due to the award period for any private investor and the small amount of money raised from the actual IDO, with each participant earning a relatively small allocation. By using this model, demand tends to be more sustainable and a healthy market develops, rather than the ICO/IEO model where investors can rush to sell by listing.
Unlike centralized options, there is no need to pay a huge fee or offer a portion of the tokens to an exchange. Platforms cannot ban projects or require approval to launch IDOs, nor can they prevent them from being included in other DEXes. IDOs have full control over the parameters of the sale according to the vision of the project rather than the commercial requirements of a crowdfunding platform. Additionally, token projects and buyers retain control of their own funds at all times, instantly secured using their own wallets and private keys without having to transfer in and out of a centralized exchange. As many DEXes accept a variety of wallet types, it also simplifies the user experience.
IDOs therefore provide a more profitable, non-custodial token trading method, offering fast liquidity and instant trading with low slippage through liquidity pools on a variety of decentralized exchange platforms with a volume of users. significant.
4. The future of IDOs
Right now, IDOs tend to focus on launching new defi projects into an ecosystem of pre-existing defi users. However, not all crypto startups are defi-oriented. Your target user may not be that adept at crypto, which presents a learning curve barrier for an IDO release. In contrast, defi users may be less inclined to invest in non-defi projects.
For IDOs to grow, improvements in education, awareness, and convenience will need to be made. That is happening, and IDOs have certainly established themselves as the next step in decentralized fundraising across multiple blockchains, opening up the potential for launches beyond the defined niche.
As the major DEX platforms continue to outpace the growth of centralized exchanges and challenge them for market dominance, larger user bases will make them an increasingly popular and necessary option in the long run. Until then, projects will most likely select the most beneficial centralized, decentralized, or hybrid launch strategies based on their go-to-market philosophy.
also published here on the Medium subdomain.
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