When a project or startup releases their first cryptocurrency coins or tokens for sale, some investors may see it as a great opportunity to purchase these new coins. This is called a token offering. There is tremendous upside and promise in such investments if the prices of these coins skyrocket, or if the project turns out to be successful. On the other hand, said project’s failure would mean wasted investments. This then begs the question: what is crypto IDO meaning?
An initial DEX offering, or IDO, is a new type of decentralized crowdfunding platform, which is giving rise to a new way of fundraising in the crypto space. In fact, an IDO is simply one of the several mETHods of token offering.
Crowdfunding
The theory behind IDOs is not new. In fact, it has been going on for a long time, for as long as businesses have existed. When businesses are first launched, an initial public offering (IPO) is launched for fundraising purposes, in which a portion of the company’s total shares are sold to the public.
When crypto first became mainstream in 2017, crypto projects emulated such a fundraising concept by introducing the initial coin offering (ICO). They do this by selling a part of their total crypto supply to the public. However, the craze was not well-lived. ICOs have led to the rise of many scam projects such as Ponzi schemes. The downfall of ICOs have therefore led to the rise of a new alternative fundraising mETHod, the Initial Exchange Offering (IEO).
To reduce the possibility of scams, cryptocurrency exchanges would have to oversee token sales in the case of an IEO. This means that any new token would have to be listed on exchanges before the public can offer money to purchase it. Crypto exchanges would also perform a multitude of checks before new tokens can be listed to the public. In essence, IEOs are much more secure compared to its predecessor, the ICO.
Now, what is crypto IDO meaning and how is it different from other crowdfunding mETHods? In short, the IDO (Initial DEX Offering) was birthed due to the increased popularity of decentralized exchanges (DEX) in 2019. The decentralized nature of these exchanges made it more attractive for budding projects to launch their tokens and raise funds. Of course, these projects need to be vetted before they can be launched to the public.
How does the IDO work?
As mentioned, a decentralized exchange is involved in facilitating token sales in an IDO. Through the exchange, participants are able to pledge their funds to a particular token, and the exchange would facilitate the transaction accordingly. These are made possible via smart contracts on the blockchain platform.
IDOs can work because decentralized exchanges are able to provide immediate token liquidity. Investors can begin trading their project tokens immediately once their project is launched. Moreover, a liquid exchange is highly beneficial to new projects because the gas fees for executing a smart contract are negligible. This is due to the tremendous amount of liquidity in such exchanges.
Unlike an IEO, an IDO would require vetting only by the public. We will talk about this later, as this will bring about both pros and cons.
In order to launch an IDO, projects would have to create marketing collateral to entice and attract potential investors. For example, a well-established website and white paper would encourage people to invest in the project. Some well-known crypto projects that have risen to the spotlight due to the IDO are the Raven Protocol, which has contributed greatly to the AI and machine learning industry by reducing cost greatly.
Advantages of IDO
Compared to the IEO or ICO, projects are not required to pay exchange fees and wait for approval from the centralized exchange. This means that small projects can launch their tokens without having to pay large amounts of money. Projects do not need permission to launch their projects as well, hence tokens are available for trading immediately. These projects are vetted beforehand by prominent community members.
Furthermore, users of decentralized exchanges do not need to worry about security breaches or foul play because such exchanges do not hold their funds. Users can trade and access tokens through their own wallets.
In a nutshell, when we view IDOs, we should view them as a “great equalizer”. IDOs allow small projects with great upside to broadcast their ideas to the public and gain exposure.
Disadvantages of IDO
In the same way as an ICO, some projects, if not carefully vetted by the public, may result in scams. This is due to the lack of professional vetting, which decentralized exchanges are not able to provide.
Users can also execute the pump and dump. This phenomenon occurs when a group of people can buy a large number of tokens at once, causing an unprecedented rise in price of the token. Subsequently, selling off the tokens will lead to huge profits and a steep price drop of the token. This is made possible by the liquidity of decentralized exchanges.
In Conclusion
What is crypto IDO meaning? We hope that this question has been answered by giving you various viewpoints of the topic at hand. In the end, the IDO was created to give smaller projects a more even playing field because these projects do not require to pay large sums of money to list their tokens. However, with that being said, it is important that you do adequate research if you are interested in investing in a new project.
