The cryptocurrency community has shown exceptional innovation when it comes to coming up with robust ways to bootstrap projects and generate funds. Today, most crypto startups require an initial investment to establish a solid financial foundation before starting any project. This investment can be realized through a fundraising activity that is all about bringing people from different jurisdictions together, which is crucial given the origins of blockchain. The engagement of skilled parties such as specialized crypto funds or angel investors may provide direction, hence increasing the project’s momentum and propelling it ahead.
There are two efficient crowdfunding models which are gaining traction on the blockchain, allowing crypto projects to launch their native token or coin — the initial coin offering (ICO) and the initial DEX offering (IDO).
Initial coin offerings or ICOs were the former methods for early-stage cryptocurrency projects to raise funds. According to Coindesk, an ICO occurs when a blockchain-based project issues a limited number of its native digital tokens to early investors in exchange for other cryptocurrencies such as Bitcoin or Ether. As a form of digital crowdfunding, ICOs enable blockchain startups to acquire capital without giving up equity and build a community of motivated consumers who want the project to succeed for their presale tokens to increase its value.
In late 2017, initial coin offerings (ICOs) became popular, in which teams raised funds by selling a portion of their total token supply to the public and this rapidly became the primary use case for ETH-based coins. Initial coin offerings (ICOs) soon became an instant success in the cryptocurrency field, with investors flocking to the chance and raising an estimated $4.9 billion by the end of 2017.
Choosing a cryptocurrency exchange to list a coin was a major problem for many developers and investors. Given the listing issue, maturity of the crypto space, and the growing popularity of decentralized exchanges such as Uniswap and PancakeSwap, a new approach to raising funds has emerged with the introduction of the initial DEX Offering (IDO). Recently, IDOs become a favorable way to distribute tokens and raise capital in the DeFi ecosystem due to their flexibility, high liquidity, and transparency.
According to CoinMarketCap, an initial DEX offering (IDO) pertains to the launching of a cryptocurrency on a decentralized exchange that aims to raise capital and launch a project. Unlike its predecessors, ICOs and IEOs, which sold tokens before listing, IDOs immediately list them on a decentralized exchange (DEX). In other words, an IDO occurs when a blockchain startup first lists a coin on a DEX to source funds from retail investors. IDOs can provide a much more cost-effective approach for token sale and listing. As a model, an IDO facilitates quick liquidity in a DEX by utilizing accessible liquidity pools with little to no slippage. Similar to IEOs, it also enables instantaneous trading accompanied by lower listing costs.
In June 2019, Raven Protocol became the first-ever IDO to materialize, which was listed in Binance’s decentralized exchange, or Binance DEX. The project team set a particular price for the token and traders could purchase it until the hard cap was met. As a result, the first few IDOs took place in this manner on other major platforms like BZX, lending, margin trading protocol, UMA, and Synthetix assets.
Participating in an IDO varies depending on the launchpad. Regardless of the launchpad, there are a few parameters that most projects must meet. Coin Telegraph provides several procedures on how to launch an IDO consisting of the following: (1) devise a business strategy; (2) create marketing collateral; (3) visit a DEX launchpad; (4) create the cryptocurrency, and (5) launch the token to start raising funds immediately.
IDOs are the newest fundraising model for cryptocurrency projects. Although they have some limitations, such as limited scalability and barriers to entry, overcoming these concerns would be a challenging task. However, equipped with the necessary information and funding education in DeFi, nothing can break an investor’s confidence.
To expand its suite of products available in the Decentralized Finance (DeFi) environment, Coinswap Space regularly implements an Initial Dex Offering (IDO) to promote open and fair fundraising, benefiting the developers and investors in terms of instant liquidity and immediate trading.