An initial DEX offering or IDO is an innovative decentralized and permissionless crowdfunding platform revolutionizing the cryptocurrency world. When a project launches an IDO, it indicates launching a coin or token through a decentralized liquidity exchange. The cryptocurrency asset exchange uses liquidity pools to allow traders to trade tokens such as stablecoins and cryptocurrencies. An excellent example of liquidity paid is USDT/ETH. On the other hand, the ICO or initial coin offering was the first method of crypto funding. In 2017, it created controversy in the crypto space.
What is an ICO?
An initial coin offering (ICO) is a way of raising funds from individual investors which are not regulated by any authority. The lack of control and investor protections were the two most significant issues with ICOs. Project teams were not subjected to due diligence because there were no control measures. Almost any ICO project could guarantee significant returns, and many did. Several initial coin offering (ICO) ideas turned out to be either hasty money grabs or outright scams. They also tarnished the cryptocurrency business, discouraging many new investors from jumping on board. An initial DEX offering (IDO) is fundraising where investors invest their money. To overcome the flaws in the conventional ICO, the IDO is introduced to the crowdfunding paradigm. DEXs are decentralized liquidity exchanges because they work with an IDO rather than a centralized exchange. IDOs are the most recent approach for crypto companies seeking funding from investors. However, they are not without flaws. DEXs, for example, are less scalable.
With this decentralized fundraising strategy, IDOs aim to address the flaws of ICOs while expanding the crypto market’s possibilities. Entrepreneurs can create a blockchain product immune to malevolent third-party influencers, hackers, and human mistakes by crowdfunding with IDOs. Moreover, IDO tokens are transferred and secured in the investor’s wallet with their private keys.
How does IDO work?
IDOs function as DEXs and can give immediate token liquidity. These liquidity pool providers are repeatedly rewarded fees by DEXs. Due to these liquidity pool providers, DEXs can run without interruptions for their users. Most projects contribute liquidity to the DEX by allocating a portion of their funds to help with trade. This strategy has become a standard process. A proof-of-stake (PoS) consensus mechanism is used in many applications to keep networks safe. This technique restricts the investors from selling too quickly.
The PoS consensus requires that investors keep their money in their wallets in the supported cryptocurrency. Investors receive benefits in exchange for their “stake” in the network. Investors can start trading the project token the project launches. Early investors can sell their tokens for a higher price and purchase a large bag of tokens at a discounted price.
The token value rises after the public sale is launched. The price will continue to grow as soon as the first sale occurs. Gas fees for executing a new smart contract are negligible on a liquid exchange since trade pairs have lots of liquidity. Smart contracts manage the asset token and liquidity pool. IDOs, unlike traditional fundraising strategies, can issue tokens immediately.
However, a lack of proper process has resulted in many low-quality projects that can sometimes be frauds, with project owners stealing investors’ money and disappearing. Investors are not required to wait to list their preferred tokens on an exchange for long periods. The listing usually happens right after the IDO is finished. Compared to ICOs, this timing allows investors to cash in on their capital considerably faster.
Steps Involved in IDO:
Step 1: Plan a Business Strategy: Projects should create a plan for issuing the token offering on a DEX. The plan should contain how the project will solve the problems, fund allocation, the blockchain adopted for the project, a general marketing strategy, and how to lead the project after the IDO and keep the momentum going.
Step 2:’s Prepare Marketing collateral: A website and a white paper are required marketing collateral for an IDO launch at first. A well-branded and attractive website helps in boosting investor confidence. A smart website can enable investors who have already logically invested in the project to push the emotional levers. The website gives the project a professional appearance and helps build a brand image.
On the other hand, a superb white paper showcase specialties of the project with additional data to enhance the investors’ experience. A white paper’s objective is to sell through education, so there is no hard-sell copy in the document itself. On the other hand, the white paper includes statistical data, illustrations, tables, and other visual aids. The white paper employs statistics to persuade investors that the project is a good investment.
Step 3: Decide the Launchpad: If a project fulfills the platform’s terms and conditions like whitelisting, consensus, etc., IDO is approved for launch.
Step 4: Develop the cryptocurrency: Users can use an app like CoinTool and develop cryptocurrency using software. It has simplified the procedure for creating a coin. The challenge is to convince the investors to invest their funds in the project by projecting its actual worth and utility.The DEX lists the token for trading after completing the IDO and Token Generation Event (TGE). An automated market maker (AMM) such as Sushiswap or PancakeSwap is used to list items.
Step 5: Token launch for fundraising: Investors will receive their tokens immediately after the IDO. The issuer can run an auction instead of setting a fixed price, resulting in a price determined by supply and demand.
Investors may attract to contribute liquidity to the project, gaining and maintaining momentum. On the other hand, users can earn even more tokens by providing liquidity.
Final Thoughts: The future of IDOs is promising, but investors should analyze the project’s worthiness before investing.
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