Initial DEX Offering: A Guide on Launching a Crypto

Jul 21, 2022
05:07
2 min reading

Choise.com team

What is IDO in Crypto?
The Benefits of the IDO Model
Launch an IDO: Step-By-Step Guide
Why Initial DEX Offering is a Key to Success?
FAQ

With the crypto economy being fully community-driven, any project needs a way to distribute tokens and attract investments. Initial DEX offering (IDO) is the most efficient format of crowdfunding in the blockchain industry. In this guide you will find the IDO meaning in crypto, the benefits companies reap from the crypto IDO model, and ways to successfully implement the model.

What is IDO in Crypto?

IDO (Initial Decentralized Offering) is a way to raise funds by selling cryptocurrency on a decentralized exchange. A team creates tokens and offers them to people through a fundraising campaign that is organized on a launchpad (special platform for running IDOs. The decentralized exchange acts as an intermediary between the team and the investors – it enables the latter to trade tokens.

IDO often appears as an improved version of ICO, the main advantage of which is the guaranteed release of tokens on the exchange. Since the ICO is carried out on the platform of the project, there is a chance that the coin will never be listed on exchanges, and the project team will misuse participants’ funds. Hence, IDOs have become a more preferable option because of a lower risk of scam.

How Do Crypto IDOs Work?

IDOs serve to receive funding for further development of a project: this sort of fundraising has fewer restrictions than traditional methods. During an IDO, tokens are immediately listed on the DEX after the TGE (token generation event), which means they can be traded on this exchange right away.

Note. Investors who participate in IDOs receive tokens at a fixed price set in advance. After the listing of the coin, the rate will change depending on supply and demand.

One part of the funds raised during the IDO is transferred to the project team to fuel further development. The other part is often used to create a liquidity pool – it ensures that there is enough volume for performing transactions on the exchange.

It should be noted that anyone can initiate an IDO, not only well-established companies. However, in order to be listed on a decentralized exchange, the project should comply with the rules of the initial DEX offering platforms (launchpads) and the DEX. For example, they can require a whitelist and smart contract audits.

On a governmental level, there are no official requirements to IDOs because the legal adoption is slow. In the US though, the FATF is planning to consider decentralized exchanges as VASP (Virtual Asset Service Providers) which means they will be obliged to implement AML/KYC rules.

IDO vs. IEO vs. ICO

The crypto initial DEX offering model emerged from ICO and IEO fundraising methods that take roots in IPO (Initial Public Offering), the traditional approach when companies receive funds from the participants of the stock market, including venture capitalists and business angels. Once cryptocurrencies became mainstream, the IPO model turned into ICO (Initial Coin Offering): anyone could invest in a project by purchasing its tokens. In 2017, crypto projects gathered investments worth $4.9 bln dollars, however, many of them turned out to be scams and Ponzi schemes, which deterred crypto enthusiasts.

Eventually, crypto teams switched to running IEOs (Initial Exchange Offerings). This model guarantees that users’ savings will be hosted on centralized exchanges (CEXs), raising the investors’ trust. Such projects as Polygon and Elrond got kickstarted thanks to successful IEOs. However, centralized exchanges perform meticulous research of every candidate: strict demands and high entry barriers prevented many promising projects from getting into the scene.

Appearing in 2019, decentralized exchanges became a great chance for crypto projects to receive investments. They allowed teams to list tokens and launch trading immediately without complications related to CEXs. The Raven protocol was the first project to receive money through this fundraising model. With launchpads gaining traction, IDO (initial DEX offering) has turned into the new standard of crowdfunding in crypto.

Investing in IDO

After familiarizing with what is initial DEX offering, it’s time to discuss how to select the IDOs worth investment. Not all coins are created equal, and no decentralized exchange can guarantee full protection against scammers. This is why any upcoming initial DEX offering should be thoroughly examined before you decide to invest your hard-earned money in it. Here is the rundown of aspects to watch for:

Project objectives. Find out whether the team has ambitious goals and their idea brings novelty to the crypto industry.
Launchpad. Invest only through well-known initial DEX offering platforms (they do a serious audit of projects and estimate their potential).
Team. Make sure that developers are well-known people in the blockchain industry (e.g. they have previously participated in other successful projects). Anonymous teams are more likely to stand behind a scam.
Community. Crypto projects that manage to build a vibrant and devoted community stand have more chances to attract investments and maintain a sufficient trading volume down the road.

Lastly, if the project is mentioned by large investment funds and investors, then it is worth taking a closer look at. Businessmen usually have a better understanding of what can make waves on the market.

The Benefits of the IDO Model

Here are the main reasons why IDO is the preferable fundraising option in the blockchain industry:

Lower Costs. While centralized exchanges charge thousands of dollars for coin listing, DEXs are a much more affordable solution. Sometimes, IDO teams only need to pay gas for deploying a new smart contract.
Immediate Liquidity. DEX users get access to the liquidity pool and can exchange the new token for other without facing harsh transaction volume limitations.
No Sign-Ups. Project users only need a cryptocurrency wallet and funds to participate in the IDO. Since DEXs do not have KYC/AML requirements, investors’ personalities are not disclosed, which is a considerable advantage for many people in the crypto niche.
Easy and Fast Launch. With the IDO approach, small startups don’t need a centralized exchange or any special permission to launch fundraising. Instead of solving legal issues, they can focus on the project’s core goals, tokenomics and marketing.
Immediate Trading. The coin becomes available for trading right after listing on the DEX, meaning users can quickly sell it or convert into other cryptocurrencies.
High Safety and Security. IDOs often come with anti-whale measures, so no single investor can buy a large share of tokens at a lower price for reselling. Besides, DEXs cannot manipulate users’ funds because of use of non-custodial wallets for making transactions (the wallet owner keeps the private key).

Launch an IDO: Step-By-Step Guide

Step 1. Create a Business Strategy

To start with, you should develop a product, identify your goals, and figure out how you will achieve them. Any crypto project should have a roadmap to follow, a development plan and technical description (whitepaper).

Step 2. Choose a DEX Launchpad

Make sure you work with reliable and trustworthy platforms, such as Polkastarter, Binance, Coinlist, Daomarket, Avalaunch and Solanium.

Step 3. Sign Up and Pass the KYC

As a rule, Launchpads require project information for verification. If the startup is approved, it is allowed to perform an IDO and sell tokens on a DEX.

Step 4. Create the Cryptocurrency

It is not enough to introduce a smart contract – your token should possess some utility. The more perks it provides to users, the better. Do not forget about tokenomics (the plan of token distribution).

Step 5. Pre-sale

At this stage, coins are sold at a minimum price to the biggest private investors. As a rule, IDO teams impose maximum purchase limits in order to avoid whales from manipulating coin prices later on.

Step 6. Public Sale of the Token

The next stage of the IDO is a public sale when tokens can be acquired by regular users. Minimum and maximum purchase limits apply as well. In order to distribute tokens correctly, projects organize whitelists for participants.

Step 7. Launch the Tokens to Raise Funds

Coins sold during the private and public rounds stay locked until TGE. Once trading is launched, the team starts receiving profit.

Why Initial DEX Offering is a Key to Success?

Thanks to its minimal requirements, the IDO model provides easy access to the DEX and immediate liquidity for crypto startups. This is generally a safe way to perform a fundraising campaign without allocating too much budget for coin listing and legal preparations. With DEXs winning the trust of the crypto community and becoming a more preferable option for coin trading, IDO is a surefire way to attract investors and potential users.

FAQ

Where Are IDOs Headed in the Future?

Most likely, DEXes will start introducing a sort of KYC for project teams and users to enforce investor protection measures and diminish the risk of scams. The popularity of IDOs is projected to soar despite the fact that crypto still poses a steep learning curve for beginners – awareness and the level of education in the DeFi industry grow.

Where Do I Find information on IDOs?

The IDO crypto list of upcoming campaigns is often posted on DeFi-related websites, for example, ICODrops, CryptoCompare, or CoinCodex.

Is IDO a Sure-Win Investment?

Like any other startup investment, the IDO provides no warranties to participants. Sometimes tokens continue to sale cheaper than their initial price which was charged during private or public sale rounds.

What is a Refundable IDO?

It is an innovative service which was first introduced by DuckDAO. It allows investors to observe the token’s performance on the market while being eligible to return the token within the first 24 hours after a public DEX listing and receive their money back.

What Are the Examples of Successful IDOs?

The most successful IDOs include Bloktopia, GameFi, PulsePad, Orion Protocol, and Ethernity.

How Can I Participate in IDOs on Binance?

To participate in IDOs on BSCPad, you need to have a crypto wallet that supports BSC (Binance Smart Chain) blockchain, buy at least 1,000 BSCPAD tokens (to get a guaranteed whitelisting, you need to have a minimum of 10,000 BSCPAD in your wallet). Then you need to pass KYC (it should be completed at least 24 hours before the IDO) and stake your BSCPAD tokens at least 3 hours before the IDO.