As the crypto industry has evolved and matured over the years, several innovative approaches to fundraising have emerged. What began with the ICO (initial coin offering) boom in 2017 and later the IEO (Initial Exchange Offering) is now centred around the IDO or Initial DEX Offering – a new type of decentralized and permissionless method for crowdfunding.
While ICOs were initially all the rage in the crypto space, they were frequently plagued by issues such as a lack of governance and investor protection. Several ICO projects guaranteed substantial returns to lure investors, but the majority of them turned out to be scams. They also tainted the image of the cryptocurrency sector, discouraging many new investors from jumping on board.
This is where the IDO enters the picture. The IDO is now opening up a new fundraising method in the crypto space and providing crypto investors with access to a different, more equitable crowdfunding model by introducing an alternative decentralized approach to fundraising.
Individual investors fund projects issuing IDOs in the same way traditional firms acquire venture capital before launching. These days, several IDO platforms are available, each with its own set of norms for participation. When a project launches an IDO, it usually means that it is issuing a currency or token through a decentralized liquidity exchange.
To fully comprehend the impact and benefits of IDOs, it’s vital to examine how they vary from ICOs and IEOs.
What is an ICO?
An initial coin offering (ICO) is quite similar to an initial public offering (IPO). While investors in an IPO typically receive shares of stock in a company in exchange for their investment, in an ICO, they receive a cryptocurrency token – the blockchain equivalent of a share.
What is an IEO?
An initial exchange offering (IEO) is a variant of an ICO. While ICOs allow crypto projects to approach investors directly, IEOs are operated directly by crypto exchanges.
Differences between ICO, IEO, and IDO
In an ICO, issuers handle all of the responsibilities for managing transactions and operations, while in an IEO, a centralized exchange host handles everything. In fact, the only difference between IEO and IDO is the platform that hosts the fundraising process.
Typically, organizations can directly swap tokens with individual investors and traders in both IEO and IDO. However, because an IDO is self-organized and decentralized, you do not have to pay an exchange fee as you do in IEO. Community members rather than exchanges vet projects and coins. The IDO is, in fact, a hybrid of an ICO and an IEO, with the sole difference being that a centralized exchange (CEX) is replaced with a decentralized one (DEX).
Advantages of using the IDO model
- Open and fair fundraising
Companies, particularly startups, do not require a centralized exchange to kick off a fundraising event when using the IDO fundraising technique. In addition, anybody can launch or participate in an IDO.
- Reduced costs
Typically, when a project raises funds through an IEO or ICO, it must first pay exchange fees and wait for the exchange to approve the project before it can be listed. Projects using IDOs don’t have to pay exorbitant fees and don’t need authorization from anybody since they’re fully decentralized.
- Fast trading
IDO coins can be traded immediately. This allows investors to purchase tokens as soon as they are released and then resell them at a greater price later.
- Immediate liquidity
DEXs provide immediate token liquidity to IDOs, which allows them to operate smoothly without any unforeseen interruptions for users. As a result, investors may begin trading the project token as soon as the project is launched. When a project’s token gains immediate liquidity, the price of the token usually rises as well.
- Improved user experience
IDOs help customers save time by combining a secure wallet and trading platform support into a single interface. They can also handle many types of wallets, making the user experience a lot better.
Initial Dex Offerings: The bottom line
IDOs may be the newest and most popular method for crypto projects to distribute their tokens to the general public. However, they, like ICOs and IEOs, still have room for improvement, particularly in terms of scalability, the lack of a central control mechanism, and the market dominance of centralized exchanges.
Without a doubt, IDOs have a promising future ahead of them, but greater awareness is required since DeFi users comprise only a small portion of the entire crypto industry. Nonetheless, as DeFi advances, there’s little question that IDOs will overcome these obstacles.Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.