If you’re looking to get involved in cryptocurrency, you may be wondering what the difference is between an IDO vs ICO vs IEO. Both are initial offerings of new digital assets, but some critical distinctions exist. Read on to learn more about this topic.
IDO Definition Crypto
The IDO meaning crypto is a cryptocurrency (or token) offering known as the Initial DEX Offering, takes place on a decentralized exchange (DEX). Tokens in an IDO are instantly listed on the DEX via which they are launched, unlike ICOs, where sales occur before the tokens are posted on the exchange.
The pool is created on a DEX once the IDO is finished via its own or a third-party launchpad; therefore, project creators are no longer required to gather pool assets.
Since cryptocurrency initiatives may obtain funds without the need of mediators and investors may profit from quick token trading, the IDO model has gained popularity. This creates a win-win situation for all parties.
Initial DEX offers have benefits and limitations, just like everything else. Let’s examine it more closely.
Pros
- Almost every initiative may raise funds: Many projects now have access to crowdsourced funding thanks to the elimination of the stringent IEO screening processes, which should, in principle, help the whole sector. Of course, there are drawbacks to this as well; continue reading.
- Flexibility: The coins are listed on exchanges quickly, which is good news for investors. They can profit from their investment more quickly than ICOs because the listing often occur right after the IDO is finished.
- High and Instantaneous Liquidity: Most projects now routinely lock a sizeable amount of their crowdfunded money as liquidity on the DEX, where the token begins to trade. Additionally, many projects may give staking incentives right away to encourage holding.
- Transparency: Because everything takes place on the blockchain, there is transparency, and everyone can check the token contracts in advance (if they are public, of course).
Cons
- Unknown Vetting Method: A Scammer’s Paradise: In keeping with the first benefit, the huge demand for IDOs makes it possible for scammers to develop unusual projects and have them bootstrapped quite rapidly.
- Costly Participation Requirements: Even though everyone may participate in the public round on most platforms, the odds of getting an allocation are so slim that they effectively don’t exist.
- Users need to retain a lot of launchpad tokens for this reason to make a significant investment and receive a decent return: The holding of bags by seed, private, and public investors is disproportionate.
- For the team and investors in the seed or private round, most IDOs will retain the bulk of the tokens. As has already been noted, the vesting over time helps stop a token price discovery dump: However, this invariably leads to significant profit-taking once the unlocking dates by the vesting schedule are reached.
Pro tip: Investors may identify when such an occurrence occurs by following smart contracts (usually once a week, once a month, or once a quarter).
What Is An ICO?
Initial coin offers (ICOs) were formerly the most widely used form of funding in the sector. A cryptocurrency startup looking for investment has to provide a white paper outlining the functioning of the suggested system.
The coins from the token sale would later serve as the currency’s future valuable units. Those interested in the project’s potential can buy a token using fiat money or a cryptocurrency.
This is a wager in the hopes that the token’s value will increase when the project launches.
The initial launch of the ICO occurred in 2013. Then, ICO was an unregulated, quick and inexpensive means to attract investment.
However, it wasn’t until 2017 that the technique gained popularity. Industry sources claim that ICOs raised an astounding $5.6 billion.
The approach to fundraising peaked about the same time as Bitcoin did then. The largest ICOs of 2017–2018 are listed below:
- $4.19 billion in EOS.
- $1.7 billion: Telegram Open Network.
- $575 million is the TaTaTu’s.
- 407 million Dragon Coin
- $258 million: Hyundai DAC.
- $257 million in Filecoin.
- $232 million goes to Tezos.
- $157.8 million goes to Sirin Labs.
- $153 million belongs to Bancor Network.
- With $145 million, Polkadot.
Although it took ICOs some time to become well-known, the strategy swiftly lost favor with the general public.
The figures were still astounding in 2018: 1,253 executed ICOs raised $8 billion from investors. However, there was a noticeable fall in the second part of the year. Many ICOs in 2019 have trouble luring investors.
According to reporting records, only 84 projects, far less than prior funding levels, managed to raise around $350 million.
The effect of attackers who chose to abuse the protocols significantly affected the drop in ICO popularity. Speculation and greed have afflicted the sector.
For instance, in 2018, over half of all initial coin offerings were fraudulent. Despite introducing standards and laws for ICOs, the fundraising strategy has not been able to bounce back.
Pros
- Because they are straightforward and have a low bar for fundraising, ICOs attract money rapidly.
- Through ICOs, business owners may draw in investors from all around the world.
- Most ICO development services campaigns last for thirty days, and almost all businesses receive funds within this period.
Cons
- A poor success rate is standard for ICO projects.
- The tokens will depreciate and eventually lose all of their value if the ICO project fails.
- ICO-related regulatory tools aren’t entirely accessible.
- There are a ton of different ways to commit fraud.
- It is simple to employ bad firms to disrupt ICOs.
A Background On The Development Of IDOs
The IDO model has replaced the IPO, ICO, and IEO models. Let’s examine these models in more detail:
What is an Initial Public Offering (IPO)?
Businesses battled for a while to raise money for their lofty objectives. Angel investors, venture capitalists, and eventually an IPO, in which a portion of the company’s total shares are offered to the public, were some of the most well-liked methods for businesses to generate capital.
What exactly is an Initial Coin Offering (ICO)?
As we mentioned above
What Is an IEO (Initial Exchange Offering)?
Like an ICO, an IEO promised that the token would be published on an exchange and that investors wouldn’t be taken advantage of. It was launched on a controlled exchange.
Additionally, IEOs extensively scrutinized crypto projects, and the threshold for projects to conduct an IEO was relatively high. This thus increased the level of confidence among investors and the larger crypto community.
Some of the most notable blockchain projects of the day, including Polygon and Elrond, were born from IEOs.
Read more: Polygon Vs Ethereum: MATIC Vs ETH. Which Crypto Is Better In 2023
The Initial DEX Offering’s Birth (IDO)
However, many cryptocurrency projects were lured to the decentralized aspect of these decentralized exchanges in 2019 when DEXs entered the scene. They are, therefore, a better way to introduce tokens and generate money without the hassles of centralized exchanges.
As a result, the idea of IDOs was created, with the Raven protocol serving as the first project ever to introduce an IDO.
Then Initial DEX Offering launchpads, which provided services designed especially for new IDO projects. This increased IDOs’ appeal as a means of financing in the cryptocurrency industry to raise funds.
IDO Vs ICO Vs IEO: What Are The Main Differences?
Besides the decentralization concept of IDO and ICO, IDOs offer several significant benefits over ICOs. So, these are IDO’s three main benefits:
Instead of being created by a single project, marketing efforts are shared between the platform and the project. Because investors do not receive all the tokens at once, IDOs are more stable. This is a result of the sale’s smaller size.
After the sale, tokens are instantly placed on DEX. IDO offers consumers no limits, quick trading, continuous liquidity, and—most importantly—lower listing fees.
IDOs are a better approach to introducing a new crypto project than the ICO models previously employed since they are open and more transparent.
IDO cryptocurrency has a low market capitalization following a public sale, unlike ICOs. This is brought on by the minimal amount of tokens and the vesting time for any private investors.
On the other hand, the benefit of Initial DEX Offering is that the token gets listed right away on the decentralized platform where the offering took place.
What The IDO’s Future Holds
Platforms with liquidity pools, like Uniswap, are increasingly favored for financing and distributing Defi coins. IDOs are becoming more and more common and may replace existing industry standards.
IDOs are now the primary funding source for DeFi initiatives. However, this does not imply that initiatives from other facets of the cryptocurrency industry won’t employ this fundraising strategy. IDO is not expected to displace ICO and IEO, though.
IDO is the best method for luring investment for DeFi projects, but it could not offer the same advantages for other crypto initiatives.
However, cryptocurrency initiatives will also employ IDO as long as the decentralized finance industry expands.
Read more:
- TOP Polkadot Projects To Know In 2023: DeFi, P2P, NFTs, Metaverse
- TOP Solana Projects To Know In 2023: DeFi, P2P, NFTs, Metaverse
How To Invest In IDO Crypto
Depending on the launchpad of choice, the process of participating in an IDO might change. Nevertheless, regardless of the launchpad, there are a few guidelines that most initiatives prefer to stick to.
Step 1: Complete KYC/AML
Before enabling them to join, most IDOs demand that their investors go through a KYC/AML screening process, this is done since the majority of nations’ regulatory frameworks for cryptocurrencies have tightened up considerably.
Nearly all IDO initiatives carry out a KYC to avoid potential legal difficulties. Additionally, this explains why participation by US citizens is so infrequently permitted.
Step 2: Keep the Launchpad Tokens in your hand.
Additionally, practically every launchpad platform asks potential investors to complete this step. They must own a minimum quantity of the allocation’s tokens or offer liquidity in another way to be eligible for an allocation.
As previously indicated, it can occasionally boost your chances of getting an allocation.
Step 3: The Whitelisting Process
As was already indicated, users must be whitelisted to be eligible for an allocation. They must also do other duties, such as joining Telegram groups, retweeting particular messages, and following particular Twitter sites, in addition to a KYC check-up.
Step 4: Prepare Your Web 3.0 Wallet
Users must engage with the launchpad platform to invest in an IDO and obtain their tokens.
Other choices are available, with MetaMask being the most popular and reliable wallet.
Step 5: Learn how to use Uniswap and other DEXes.
You will ultimately want to start trading them if you successfully receive an allocation and the tokens in your wallet.
You should educate yourself about the operation of Uniswap and other decentralized exchanges to obtain a quick listing. This guide is a beautiful place to start because many have interfaces comparable to Uniswap.
Related post:
What are Difference of Pancake Swap vs Uniswap: Which Is Better? 2023
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FAQs
What Distinguishes The IDO From The Presale?
Projects issuing coins or tokens before the initial DEX (decentralized exchange) offering, also known as an IDO, are referred to as pre-IDOs.
A pre-IDO allows everyone to invest in future DeFi initiatives, unlike a pre-sale, when tokens are only given to a restricted number of investors.
Does an ICO exist for Bitcoin?
Even though Ethereum has hosted the bulk of ICOs, the first ICO, Mastercoin, took place on the Bitcoin network.
Read more: Litecoin Vs Bitcoin Comparison: Which Should You Invest 2023?
Are ICOs forbidden in the US?
Depending on the facts, ICOs may qualify as securities offerings and be regulated by the SEC under federal securities laws.
IDO Is Open To US People, Right?
Nearly all IDO initiatives carry out a KYC to avoid potential legal difficulties. Additionally, this explains why participation by US citizens is so infrequently permitted.
Conclusion
IDOs are still a relatively new phenomenon in the world of cryptocurrency, and as such, they come with their own set of challenges. However, the benefits of IDOs far outweigh these challenges, and IDO launchpads are working hard to overcome these challenges shortly.
With the rapid growth of DeFi and DEXs over the past few years, it is safe to say that the future for IDOs is bright. Projects of DeFi are especially well-positioned to benefit from IDOs compared to ICOs or IEOs.
Disclaimer: The information provided in this article is not investment advice from Cove Markets. Cryptocurrency investment activities are yet to be recognized and protected by the laws in some countries. Cryptocurrencies always contain financial risks.
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