INITIAL DEX OFFERING (IDO)
Initial Decentralized Offering (IDO) is a new fundraising model that blockchain projects use to sell their tokens through a decentralized exchange (DEX). DEX allows projects to stake tokens without huge fees. These protocols are permissionless, making it easier buying tokens for anyone in the world A decentralized exchange relies on liquidity pools rather than order books through which traders can exchange tokens.
Instead of selling their tokens directly to investors, crypto projects lend their tokens to a DEX-driven smart contract. At the same time, investors invest through the platform in the same smart contract. The DEX then makes the final distribution and transfer of the funds. These processes are fully automated and run by smart contracts on the blockchain.
Most IDOs follow a similar procedure:
Before projects can run IDO on DEX, the DEX team performs due diligence.
Once the project is accepted, it determines the number of tokens that will be offered at a fixed price.
Investors will have to register their wallet address, join the Discord community forum, or complete marketing tasks to be added to the list.
Whitelisted investors can then lock the funds they want to invest into a smart contract on the DEX. In return, they will receive project tokens upon release.
Liquidity pools and funds transfer
Part of the raised funds is placed in liquidity pools along with the project token on the DEX. This provides trading liquidity from day one. The remaining funds are allocated to the project. At the same time, the project tokens are transferred to the wallets of investors.
Start of trading
Once the funds have been exchanged between the parties, the liquidity pools are opened for trading and the price of the token is determined by the market. Depending on the project, some of the funds received by the project and the tokens transferred to investors may be locked up for a certain period, commonly referred to as the vesting period.
The methods used in ICO, IDO and IEO are completely different, although the results are basically the same. Here is a brief overview of the main differences:
|DEX checks the project||CEX checks the project||No verification process as the project handles the sale itself|
|DEX manages investor funds||CEX manages investor funds||The project operates with investors’ funds|
|DEX creates and runs smart contracts||CEX creates and launches smart contracts||The project creates and launches smart contracts|
|Liquidity pools open on DEX||The exchange lists the token||The project must find an exchange for storage|
The main stages of the implementation of the IDO project
Development of a business strategy
The strategy should include the problem the project aims to solve, the allocation of funds, the blockchain the project will run on, the overall marketing strategy, and how to lead the project after IDO and maintain that momentum.
Creation of marketing materials
The marketing support for the IDO launch includes the development of a website and a white paper. The white paper contains statistical data, charts, tables, and so on. The white paper uses facts to convince the investor that the project is worth the investment.
Creation of a cryptocurrency
The process of starting a cryptocurrency has become simple. The difficulty is not in generating tokens, but in convincing investors to invest their money in the project, evaluating the real value and usefulness. After the successful completion of the IDO and the generation of tokens, the DEX lists the token for trading. Listing occurs through an automated market maker.
Launching a token to start fundraising
At this stage, the project team creates a pool of tokens. A token pool is a place where investors pay in advance for their tokens. Instead of setting a fixed price, the issuer can hold an auction, thereby reaching a price determined by supply and demand.
Advantages of IDO
In recent years, the methods of offering coins and tokens to the crypto community have improved significantly. IEO and IDO are safer, fairer, more transparent. As a result, they have almost completely replaced traditional ICOs. Due to their decentralized nature, IDOs have a number of distinct advantages.
Unlike IEO, IDO does not require an account to participate. This guarantees privacy and low entry barriers.
Some IDOs take action against whales. This ensures that no single entity can purchase the bulk of the supply of tokens and then sell them to the rest of the token holders.
Fast trading is a good reason to launch IDO. Other benefits of Dex’s initial offerings include:
- immediate liquidity – the project token gets access to immediate liquidity, which can increase the price of the token.
- low fees – project teams only need to pay for gas to deploy a new smart contract. This smart contract controls the liquidity pool and the asset token.
- open and Fair Fundraising – The IDO model allows anyone to participate in fundraising.