You may be aware of the initial coin offering (ICO) boom that occurred in 2016 and 2017. But did you know that in recent years, a hot new trend has grabbed the world of crypto investing by storm?
The initial DEX offering, similar to the initial coin offering in both name and function, provided enormous rewards for both speculators and long-term blockchain investors. However, IDOs differ from typical ICOs in key ways, and it’s critical to understand exactly what you’re getting into before committing a significant portion of your portfolio to IDOs.
What is an initial DEX offering?
An initial DEX offering (IDO) is a method used to collect funds by pooling investment capital from ordinary investors. The IDO was established to address the flaws of the “traditional” ICO crypto financing approach. DEXs can be thought of as decentralized liquidity exchanges because an IDO operates with a decentralized exchange (DEX) rather than a centralized exchange (CEX).
IDOs are the newest format for crypto ventures seeking investor funding. They are, however, not without restrictions. DEXs, for example, are less scalable. It is not unusual for ICOs and IEOs to raise more than $1 billion. This is unheard of for DEXs.
Because DeFi platforms have a high learning curve, a lack of understanding of how cryptocurrency works may be a barrier to entry for the ordinary crypto trader. To effectively address this situation, DeFi education must be funded.
Nothing can break an investor’s confidence if they have the appropriate information. The ability of DEXs to obtain funding for such enterprises will be a challenge.
How do IDOs work?
IDOs function because DEXs can provide instant token liquidity. This is why DEXs tend to lavishly reward liquidity pool suppliers. DEXs can operate without any unforeseen interruptions for their users’ thanks to liquidity.
Most initiatives give liquidity to the DEX by allocating a portion of the funds to aid in trading. This method has become commonplace. A proof-of-stake (PoS) consensus mechanism is also used in several applications. The PoS consensus was created to help protect networks. In this situation, however, the method is primarily utilized to prevent investors from selling too quickly.
The PoS consensus requires investors to keep their capital in the supported token within their wallet. In exchange, investors receive compensation for their “stake” in the network.
With the project’s debut, investors can instantly begin trading the project token. When the IDO becomes online, early investors will be able to sell their tokens at a greater price. Early investors can get a large bag of tokens at a reduced price.
The token value rises once the public auction begins. When the first sale occurs, the price will begin to rise.
Because it is sufficient liquidity for trading pairs on a liquid exchange, the gas prices for executing a new smart contract are insignificant. Smart contracts aid in the management of the asset token and liquidity pool. In addition, unlike traditional fundraising strategies, IDOs can issue tokens immediately.
Furthermore, any viable idea can qualify for funding. By skirting the arduous regulatory process, numerous projects have gained access to retail investors. The same can be true for avoiding the hefty costs of initial public offerings (IPOs) (IEOs).
However, a lack of due process has resulted in the introduction of several low-quality initiatives. Such enterprises may sometimes be open scams, in which project founders take investor funds and then disappear.
Investors are not required to wait for long periods of time for their chosen coins to be listed on an exchange. The listing usually happens right after the IDO is finished. This timing allows investors to profit from their investments considerably faster than with ICOs
That isn’t to suggest that DEXs are all good. Yes, they are more trustworthy because they are trustless (They do not require a human mediator). However, DEXs are still vulnerable to technical attacks. For example, news of potential exploits in which hackers have fled with investor funds is not unusual.
Advantages of an IDO
The decentralized platform is one of the most notable advantages of an Initial DEX Offering. This eliminates the requirement for approval and the associated expensive fees. Other benefits include the following.
Following the offering, the IDO will deposit the proceeds into a liquidity pool. This will result in an active market, and users will be able to trade immediately.
No need for Sign-ups
You don’t need any personal information to join an IDO or establish a project because it’s a decentralized exchange. All you need is a cryptocurrency wallet with adequate funds.
Initial DEX Offering crypto is typically inexpensive and safe. Developers are also known to implement purchase limits in order to prevent a single investor from dominating the market.
Disadvantages 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
There is no KYC (Know your customer) or any relevant policy because no sign-up is required. Anyone can join and own a piece of the project without revealing their identity or how they acquired the funds.
Before investing in a project, conduct thorough research and select a reliable platform.
It is Simple to Establish an IDO
Because the fees are so low, nearly anyone with basic technical knowledge can create a token and launch an IDO. It can be difficult to determine who you’re dealing with. If a project makes unrealistic promises or sounds too good, it might be a cautionary sign.
How to Launch an IDO
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: Create a Business Plan
Create a plan that makes sense for the token offering to be issued on a DEX. The strategy should contain the problem that the project wants to tackle, funding allocation, which blockchain the project will run on, the general marketing approach, and how to drive the project post-IDO and keep the enthusiasm going.
Step 2: Create marketing collateral
A website and a white paper are at the absolute least required marketing collateral for an IDO launch. A visually appealing, well-branded website may do wonders for investor confidence.
A superb website can help investors who have already bought into the project logically press the emotional levers. The website can also help to make the project look more professional. Many initiatives, especially those without a website, may struggle to build a brand image.
A superb white paper, on the other hand, adds specificity and facts to the investment experience. This brings the investor closer to the end of the pipeline.
Because the objective of a white paper is to educate rather than sell, there is no hard-sell copy in the white paper itself. Instead, the white paper includes statistical data, graphs, tables, and other graphics. The white paper employs statistics to persuade the investor that the project is a good 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
“Can I establish my own cryptocurrency?” users may wonder. Here’s the solution: Anyone with a little technical knowledge and good marketing skills can figure out how to establish a crypto coin.
The procedure of creating a cryptocurrency has become simple. Users can utilize an app like CoinTool here to have the software handle all of the work. And how long does it take to develop a cryptocurrency? Users may be able to tell through CoinTool that it does not take long.
The difficulty is not in the production of tokens. Anyone can figure out how to create a cryptocurrency. The task is to persuade investors to invest in the project by determining real-world value and utility.
Following the successful conclusion of the IDO and Token Generation Event (TGE), the token is listed for trading on the DEX. Listing takes place through an automated market maker (AMM) such as Sushiswap or PancakeSwap.
Step 5: Launch the Token to Start Raising Funds
The following is a brief breakdown for those who are asking how to start a crypto token. A token pool is created by the project team. A token pool is where investors pay in advance for their tokens.
The investors will receive their tokens after the TGE, which will take place shortly after the IDO. Instead of setting a fixed price, the issuer can run an auction, resulting in a price determined by supply and demand.
Some projects may also provide financial incentives to investors. This can help the project gain and maintain momentum. Users, on the other hand, can earn even more tokens by providing liquidity.
IDOs have become a typical fundraising mechanism for many new ventures in the crypto market due to their combination of ease of use, cost, and accessibility. In fact, token offers have grown into their own business.
To summarize, it is usually safer to participate in a sale via a Decentralized Liquidity Exchange rather than a project. Nonetheless, selecting the correct project is a critical component of IDO’s success. Nothing beats good, old-fashioned crypto research for this.