Since innovation is the driving force behind the crypto industry’s perpetual growth and user base expansion, it naturally entices an ever-increasing number of investors. And one of the most ground-breaking developments is the Decentralized Exchange’s Initial DEX offering (IDO) (DEX).
Let’s take a deeper look into IDO to see what it is, why it’s essential for businesspeople, and how it may help them.
To find out more, continue reading!
What is IDO?
In June 2019, Raven Protocol launched the first IDO and placed it on Binance DEX. However, since the IDO crypto Launchpad has been found, various new initiatives have started representing themselves as IDO platforms.
One popular example of the emerging and growing IDO launchpad platforms is AdLunam, which is an IDO launchpad that uses a Proof of Attention model for allocation. However, compared to other similar platforms, AdLunam is a two-pronged approach.
Precisely speaking, the community at AdLunam handles the marketing while also investing in the token of different projects associated with it through the engage-to-earn Proof of Attention model.
So what is an IDO? And are all IDOs the same? Well, the Initial DEX Offering (IDO) is a fundraising mechanism in which a project offers a currency or token via a decentralized liquidity exchange. This cryptocurrency asset exchange is based on liquidity pools where traders can exchange tokens.
After an IDO platform development, individual investors fund a project’s initial DEX offerings. Considering this, IDOs can be developed for various projects, including cryptocurrency and music CDs. Moreover, most of these launchpads also share certain similarities with initial public offerings (IEOs).
In addition to fundraising, both methods seek to raise capital to kickstart a project and allow for rapid trading.
How does an IDO Work?
Before we explore how an IDO helps business people improve or benefit their approach to an initiative, it’s important to understand how an IDO primarily works.
Precisely speaking, an IDO’s operation is straightforward. A project solicits public contributions through a platform or Launchpad that offers IDO services, such as Uniswap, Binance DEX, and Polkastarter. Here’s a breakthrough at how trending IDO platforms work:
If the project meets the launchpad platform’s requirements, it is chosen to conduct an IDO.
Then, investors purchase IOUs for the upcoming token. An IOU is a debt acknowledgment. Essentially, they pay for the tokens in advance and receive them during the Token Generation Event. This is an effective way to promote your crypto token during the fundraising phase of your project. Moreover, investors buying a project’s token also leads to an effective crypto exchange marketing strategy.
Once these steps are completed, the token is listed for trading on a decentralized exchange.
Most tokens use the ERC20 protocol because many projects are still built on Ethereum.
An IDO makes use of it to facilitate token sales. The DEX receives cash from a crypto project, users commit funds through the platform, and the DEX completes the ultimate distribution and transfer. These processes are automated and take place via blockchain smart contracts.
A total of four stages are managed in an IDO launchpad. These stages are as follows:
- 1. A project is accepted to run an IDO on a DEX after verification. They provide a fixed supply of tokens at a defined price, and consumers lock in their funds in exchange for these tokens. Later, at the token generation event (TGE), investors will receive the tokens.
- There is usually an investor whitelist. You may be required to execute marketing chores or provide your wallet address to join the list.
- A portion of the funds raised will be utilized to generate the project’s coin. The remaining money is distributed to the team. Following the TGE, investors will be able to trade the token. Typically, the offered liquidity is locked in for a set time.
- The tokens are transferred to the user at the TGE, and the LP is made available for trading.
What are the Benefits of an IDO?
Today, token offers have become more equitable and secure for investors over time. Hence, there are numerous advantages of an IDO platform acquired through IDO services. Some of these benefits include:
- You don’t have to engage with a project directly and rely on its smart contracts. A dependable IDO platform will have multiple successful sales. You can have some faith in the offering if the smart contracts are the same.
- There is no need to sign up. You only need a wallet and money to participate in the transaction, and no personal information is required. As a result, it is accessible to a wide range of people. However, the absence of KYC or AML requirements can be a disadvantage (more on this below).
- Immediate liquidity is given following the sale. Some of the monies raised by IDOs will be locked up in liquidity pools to create a liquid market after the sale. This aids in the reduction and.
- IDOs frequently have anti-whale protections in place, meaning no single investor may purchase a significant quantity of tokens.
- IDOs are inexpensive and easily accessible for projects. It is frequently easier and less expensive for a small, unknown project to launch its token through a DEX rather than an extensive, centralized exchange.
What are the Drawbacks of an IDO?
Some of IDO’s strengths are also some of its weaknesses in the crypto space. These issues originate mainly from an IDO’s decentralized and anonymous nature. Hence, considering the crypto industry, some common drawbacks that come along with an Initial Dex Offering are:
- No KYC or AML. When necessary checks are conducted, investors and projects are safeguarded. These safeguards aim to prevent the laundering of unlawful funds and the circumvention of economic sanctions. Certain countries, for example, may be unable to lawfully participate in an IDO if the token is classified as a security.
- Fewer Projects. An untrustworthy project can distribute its token far more quickly through an IDO than through an IEO with an extensive, regulated exchange.
IDO Development: A Beneficial FundRaising Approach for Businesses
IDO development is an excellent model for those seeking instant liquidity and the most secure platform for traders to exchange crypto assets and tokens. As the existing liquidity pools on DEX allow IDO to provide instant liquidity with a marginal shortage, the Initial DEX Offering employs an economical token sale model.
All in all trusted IDO platforms like AdLunam serve both investors and projects. Not only does AdLunam assist projects that want to raise funds effectively but also the investors who want to be allocated tokens depending on their interest and participation in the project.