Crowdfunding used to be a simple concept – you invest in a project and receive special perks at its launch, that was the deal. The advancement of cryptocurrency has changed that. We’re now funding virtual money before it’s even created to make massive profits from the latecomers. The competition has evolved and we call it Initial DEX Offering (IDO.)
The decentralized exchange (DEX) model is offering crypto investors access to a different, more egalitarian crowdfunding model. The benefits of the Initial DEX Offering are undeniable, but there are also risks. This article will walk you through the pros and cons as well as what is an IDO in crypto and how to launch a token on a DEX.
What is an Initial DEX Offering?
An IDO is a crowdfunding mETHod for cryptocurrency using a decentralized exchange (DEX). It has many cousins, the most popular of which is ICO, Initial Coin Offering. An ICO is similar to an IDO in many ways in terms of process.
Someone came up with an idea for a new crypto. They begin to market it to potential investors, usually with a ready and attractive whitepaper. While the campaign runs strong, the developers connect with a crypto exchange and pitch their project. Since it’s a centralized platform, the fees for running an ICO can reach terrifying heights. Some have reportedly cost over $3 million.
An Initial DEX Offering does all of that except through a decentralized exchange. A DEX is run by the public, so there is very little cost for running a token offering. You also don’t need to pitch it to anyone and hope for approval.
How Does an IDO Work?
Similar to an ICO, a developer needs to come up with a project and create a token for it. Keep in mind that the IDO is different from the coin it sells. The Initial DEX Offering crypto is what investors will use to trade or pay for utility within the project once it launches.
Once a whitepaper for the token is established, the project will get listed on the DEX. The tokens become available for a cheap price. Users then start funding the project in return for these tokens. The idea here is their prices may skyrocket at the project’s conception. Hence, profit.
The funds collected during the IDO end up in a liquidity pool. Once the project is live, the liquidity pool will open for trading. Investors who bought the token early can start trading immediately.
How to Launch a Token on a DEX
This section covers how users can launch their IDOs in a step-by-step fashion. To launch a successful IDO, users must also learn how to create a cryptocurrency.
Step 1: Devise a business strategy
Plan the token offering to be released over a DEX by creating a strategy that makes sense. The strategy should include the challenge the project aims to resolve, fund allocation, which blockchain the project will run on, the general marketing strategy and how to spearhead the project post-IDO and maintain that momentum.
Step 2: Create marketing collateral
At the very least, marketing collateral for an IDO launch includes a website and a white paper. A well-branded website that is visually pleasing can do wonders for investor confidence.
A great website can help push the emotional levers for investors who have already bought into the project logically. The website can also make the project appear more professional. Many projects can struggle to establish a brand image, especially if they lack a website.
A great white paper, in contrast, enhances investors' experience with specificity and facts. Doing so moves the investor closer down the pipeline as the purpose of a white paper is to sell by educating, which is why there is no hard-sell copy in the white paper, itself. Instead, the white paper presents statistical data, diagrams, tables and so on. The white paper uses facts to persuade the investor that the project is a worthwhile investment.
Step 3: Visit a DEX launchpad
If the project meets the platform’s requirements (typically consensus and whitelisting), an IDO will be approved.
Step 4: Create the cryptocurrency
If users are wondering, "Can I launch my own cryptocurrency?" Here's the answer: Pretty much anyone with a little technical savvy and decent marketing skills can figure out how to launch a crypto coin.
The process for launching a cryptocurrency has become straightforward. Users can use an app like CoinTool to get the app to do all the hard work. And exactly how long does it take to create a cryptocurrency? Users might be able to discern from CoinTool that it doesn’t take much time at all.
The difficulty isn’t in the token generation. Pretty much anyone can figure out how to make a cryptocurrency. The challenge is in convincing investors to put their money behind the project by discerning real-world value and utility.
Upon successful completion of the IDO and Token Generation Event (TGE), the DEX lists the token for trading. Listing occurs via an automated market maker (AMM) like Sushiswap or PancakeSwap.
Step 5: Launch the token to start raising funds immediately
The project team generates a token pool which is where investors pay for their tokens in advance. The investors are to receive their tokens once the TGE takes place, shortly after the IDO. In this manner, instead of setting a fixed price, the issuer can hold an auction, thereby achieving a price driven by supply and demand.
Some projects may also incentivize investors to provide liquidity. Doing so can help the project to gain and sustain momentum. On the other side, by providing liquidity, users can earn even more tokens.
Benefits of an IDO
One of the outstanding benefits of an Initial DEX Offering is the decentralized platform. That eliminates the need for permission and high fees. Other advantages include the following.
Immediate liquidity
After the offering, the IDO will deposit the accumulated funds into a liquidity pool. This will create an active market and users can begin trading right away.
No need for sign-ups
Since it’s a decentralized exchange, you don’t need any personal information to join an IDO or start a project. All it takes is a crypto wallet with enough money.
Fair trading
Initial DEX Offering crypto is usually affordable and secure. The developers are known to also impose purchase limits to prevent market domination by a single investor.
Downsides of an IDO
SomETHing at this scale almost always comes with risks. IDOs come with some inherent disadvantages, but they aren’t too severe.
Lack of control
As no sign-up is required, there is no KYC (Know your customer) or any relevant policy present. Anyone can become a member and own a part of the project without revealing who they are or how they’d accrued the funds they spent.
Make sure to do your research before investing in a project and choose a reputable platform.
It’s easy to start an IDO
Due to the low costs, almost anyone with basic technical skills can create a token and start an IDO. It can be tough to figure out who exactly you’re dealing with. If a project promises too much or sounds too good, it might be a cautionary sign.
Closing Thoughts
Token offerings are becoming more of an industry by themselves within the crypto space. Soon, it will become the optimal way to promote your coin, NFT, or even ideas involving cryptocurrency. Initial DEX Offering has managed to solve most of the problems of its previous incarnation, ICO. For that reason, more teams are learning how to launch a token on a DEX, for it’s now a go-to mETHod for kickstarting a project and garnering investor attention.
