Thanks to the rapid growth of cryptocurrency, the Initial DEX Offering (IDO) has emerged as one of the more recent fundraising methods on the blockchain. The Initial Coin Offering (ICO) was the first cryptocurrency fundraising method, and it was prevalent during the crypto boom of 2017 and 2018. The majority of ICO projects promised massive profits, and many of them were huge successes.
However, because initial coin offerings (ICOs) are not yet regulated, the process can be confusing and alarming. Several initial coin offering (ICO) projects turned out to be scams run by market manipulators. As a result, ICOs have tarnished the reputation of the cryptocurrency industry and discouraged new investors from joining.
The Initial Exchange Offering (IEO) was created in response to the declining reputation of ICOs. The IEO model was first released in early 2019 and has since become a popular launching of new crypto projects. An IEO is similar to an ICO in that it involves the distribution of new crypto tokens to a group of investors or the general public. The distinction is that the fundraising organization must collaborate with a cryptocurrency exchange to act as the facilitator for the token sale and distribution. However, since such a requirement can be burdensome for some investors, they began looking for another option.
While some crypto exchanges are still working to solve the IEO problem, a new method known as the Initial DEX Offering (IDO) has emerged in recent years and has begun to gain traction. This approach aims to address the issues with ICOs and IEO by providing a more sophisticated crypto fundraising model.
What is An Initial DEX Offering?
The Initial DEX Offering, or IDO, raises funds for blockchain projects that involve the public distribution of crypto tokens. The most significant difference between IDO and its predecessors is that the tokens are sold on a decentralized exchange or DEX. The programs are not linked to any centralized exchange. For this reason, they can provide unique benefits and lower entry barriers for both projects and retail investors. Naturally, IDOs are best used for DeFi and privacy projects, as well as Non-Fungible Tokens (NFTs).
Let’s assume a project employs an IDO. In that case, it means it’s launching a coin or token through a decentralized liquidity exchange like Uniswap. This kind of exchange primarily assists users in making critical decisions about digital assets essential to the product or service’s success. This type of exchange is based mainly on liquidity pools, allowing traders to swap tokens such as crypto and stablecoins. This is not a significant concern because the growing number of decentralized exchanges on the market provides more opportunities for startups and businesses to launch tokens and gain immediate liquidity. Thanks to the decentralized nature of IDOs, this new fundraising method can address the shortcomings of previous methods while also expanding the crypto market. Business entrepreneurs can use IDOs to launch a blockchain product beyond third-party fraud while eliminating hacker and human error issues.
How do IDOs work?
An IDO can be broken down into two phases. The first phase takes place on a launchpad – this is a platform dedicated to incubating, promoting, and facilitating fundraising for brand-new cryptocurrency projects. Launchpads can provide infrastructure for high-impact, high-growth early project development and project launches because of their professional network and large community base. For investors, holding the launchpad’s native token grants access to projects before they are available on decentralized exchanges on the open market. Launchpad community members have exclusive access to tokens at a floor price set by the first public funding round through the platform.
Launchpads can also be broken into two categories; generalist launchpads and ecosystem-specific launchpads. Individual projects unrelated to one another and uncategorized according to their role within a blockchain ecosystem are launched by generalist launchpads. These launchpads predominated when IDOs were mainly confined to Ethereum. Each project that launches stands alone, with few pre-existing connections to other launches based on its own merits. Ecosystem-specific launchpads, on the other hand, incubate their projects with the goal of eventually functioning as part of a more extensive network of projects on a shared blockchain. The overarching goal is to increase the chances of each project’s long-term success by leveraging synergy and network effects.
The token’s migration to a decentralized exchange, such as Uniswap on the Ethereum network or Acala on Kusama, marks the second phase of an IDO. At this point, the token becomes publicly tradable and available to the entire retail market, which frequently buys the newly launched token as quickly as possible, driving up the price to triple digits. This is the most exciting part for launchpad participants because it includes all of the profits of buying in first.
Benefits of launching an IDO
1) Instant liquidity
The liquidity of a token is essential. If a token does not provide immediate liquidity, this can be disastrous for its value. At all price levels, a liquidity pool provides liquidity without slippage. To facilitate token swapping in the liquidity pool, the tokens need to have some value – this ensures that they will gain liquidity.
2) Instant trading
Investors begin trading a project’s token as soon as it launches. During the IDO, early token purchasers can sell their tokens for a higher price. The price of a token starts to change when the first investor buys one.
3) Lower costs
With ICOs and IEO, the project creators must first pay exchange fees. After that, they must wait for the exchange to approve the project before it can officially be listed. The team does not have to pay high fees when using IDOs. Furthermore, since the exchange is entirely decentralized and self-regulated, there is no need to seek permission from anyone. If the token of a project uses a liquidity exchange, deploying a new smart contract only costs a few dollars in gas fees. Smart contracts also control the asset token and liquidity pool.
4) Effective means for fair and secure fundraising
The next benefit of using an IDO is that it is impartial. Tokens are typically pre-mined and sometimes pre-sold to private investors in ICOs and IEOs, which effectively prevents small investors from participating right away. These private investors will then resell the tokens to the general public, giving them an advantage over smaller participants.
On the other hand, IDO launchpads usually limit the number of tokens available to prevent whales and bots from locking out small investors. This ensures that all investors have access to a healthy and fair token.
In contrast to traditional fundraising methods, an IDO launch allows for immediate token generation and liquidity. Initially, private investors purchase a large number of tokens at a reduced price. Furthermore, when the token goes on sale to the general public, its value rises.
Risks of launching an IDO
1) More precautions are needed
Due to the lack of a control mechanism on decentralized exchanges, traders must only use reputable launchpad platforms that provide anti-scam vetting and Know-Your-Customer (KYC) checks. Due to its decentralized nature, a DEX lacks this security feature. To reduce the risk, some DEXs provide marketing assistance similar to that offered by centralized exchanges. Nonetheless, it’s always a good idea to look into the tokenomics and security of a project before investing.
2) Oversubscription on IDOs
In comparison to other methods, IDOs are more focused on minor token sales. As a result, large and well-known IDO projects are frequently oversubscribed, making participation by small investors difficult. This is why many IDO launchpad platforms use pre-arranged whitelists to limit the number of participants. Investors can choose to participate in the lottery or invest in the launchpad’s tokens first.
How To Launch An IDO
IDOs seem to be the newest and fairest way to go about crypto fundraising. Let us now look at the steps you need to take when you’re launching an IDO.
Step 1: Devise a business strategy
Create a strategy that makes sense for the token offering to release on a DEX. The strategy should include the problem that the project aims to solve, funding allocation, and the blockchain that the project will run on. You also need to develop a general marketing strategy and a plan outlining how you will lead the project after the IDO and keep the momentum going.
Step 2: Creating marketing collateral
Both a website and a professionally written white paper are required marketing collateral for an IDO launch. If you don’t produce any other content, you should at the very least have these two. You can boost investor confidence significantly with a well-branded, visually appealing website. A great website can help to convert potential investors who are already curious about the project by pushing their emotional levers. The website can also help to give the project a more professional appearance. Many projects, especially those without a website, struggle to establish a brand image.
Furthermore, an excellent white paper adds specificity and facts to the investors’ experience. This brings the investor closer to the end of the pipeline. The purpose of a white paper is to sell by educating, so there is no blatant sales copy in the document itself. Additionally, the white paper presents statistical data, diagrams, tables, and other visual aids. Ultimately, your white paper should employ these statistics to persuade the investor that the project is a good investment.
In addition to having a white paper and a website, you need other content like press releases and news articles. Guest posts are also essential for your overall marketing strategy, especially if you want to get the word out there about your IDO. While you can create this content on your own, you can also hire a PR agency that can help you develop relevant and newsworthy content. However, if you decide to go down this route, you need to choose an agency with prior knowledge of the crypto industry and experience creating content for clients in this industry.
Pressfarm is a PR agency that has experience working with crypto companies to create quality content that these companies can publish on their owned channels and distribute to media professionals within their niche. Using relevant information that you submit when you sign up, the team at Pressfarm can create professional press releases, fascinating guest posts, and branded media kits for you.
In addition to creating this content, the experts at Pressfarm can distribute this content widely. By sharing this content with the right media outlets, startup directories, and professional networks, the Pressfarm team can boost your online visibility. The goal of this distribution strategy is to make it easier for members of your target audience to find you through organic searches on various search engines, including Google, Yahoo, and Bing!
You can also use custom media lists built by Pressfarm’s account executive to connect with the best crypto journalists. Combined with a database of 1 million+ journalists, bloggers, and influencers. These media lists can help you to keep doing media outreach long after Pressfarm has run your PR campaign.
If you’re a crypto brand, then partnering with a PR agency that has a track record of success with crypto products can make all the difference. One of Pressfarm’s PR packages could be just the right thing for you.
Step 3: Visit a DEX launchpad
We looked into launchpads previously, but it is vital to check out the options available before actually creating the cryptocurrency. Your IDO should approve as long as your project meets the platform’s requirements (typically consensus and whitelisting).
Step 4: Create the cryptocurrency
You might be wondering if you can launch your own cryptocurrency. Here’s the answer: Anyone with a bit of technical know-how and decent marketing skills can launch a crypto coin. The procedure for launching a cryptocurrency has become very simple. You can use an app like Control and set the app up to do all of the heavy lifting for you. If you’re worried about the process of generating tokens, keep in mind that almost anyone can learn how to create a cryptocurrency. The real challenge is persuading investors to invest in the project by determining its real-world value and utility. The DEX lists the token for trading after the IDO and Token Generation Event (TGE) are completed successfully. You can use an automated market maker (AMM) such as Sushiswap or PancakeSwap to list items.
Step 5: Launch the token to start raising funds immediately
The following is a basic breakdown of the steps you should go through when launching a crypto token. The project team creates a token pool. A token pool is a place where investors pre-pay for their tokens. Investors will receive their tokens after the TGE, which will happen shortly after the IDO. Instead of setting a fixed price, the issuer can hold an auction, resulting in a price determined by supply and demand. Investors may be enticed to provide liquidity in some projects. This will assist the project in gaining and maintaining momentum. Users, on the other hand, can earn even more tokens by providing liquidity.
The IDO model was born from the desire to address the shortcomings of previous models such as the ICO, STO, and IEO. Since an IDO is a decentralized exchange platform, obtaining permission to hold a fundraising event is not necessary. In fact, this occurs on its own. The benefits of an IDO are enormous. This paradigm, however, has several flaws. Rapid price fluctuation is the most common of these. IDOs, like any other strategy, have their own set of advantages and disadvantages. Although it is still in its early stages of development, the IDO model could be the next big thing in crypto fundraising. After all, it facilitates the removal of token price fluctuations as well as the implementation of KYC standards. IDOs have got a promising future ahead of them because blockchain researchers are always trying to incorporate control mechanisms into the existing IDO architecture.