APY Wallet IDOs
What Is an Initial DEX Offering (IDO)?
An initial DEX offering, or IDO, is a new and exciting type of decentralized and permissionless crowdfunding platform, which is opening up a new way of fundraising in the crypto space.
If a project is launching an IDO, it means the project is launching a coin or token via a decentralized liquidity exchange. This is a type of crypto asset exchange that depends on liquidity pools where traders can swap tokens, including crypto coins and stablecoins. For instance, USDT/ETH is a liquidity pair.
How do crypto IDOs work?
Smart contracts that function as automated market makers (AMMs) raise funds. They enable traders to directly exchange assets from the liquidity pool. Bonding curves are a sophisticated pricing mechanism that determines the precise exchange rate.
Based on the ratio of assets in the pool, the price increases when coins are purchased and decreases when investors decide to sell. The traders maintain the pricing structure. Traders “freeze” their assets in the pool, creating liquidity, and receive compensation in return.
It’s important to note that the pricing of the assets in the pool may also differ simultaneously from those on centralized exchanges.
IDO — a Better Crypto Fundraising Model?
IDOs are the successor of other crypto fundraising models, including initial coin offerings (ICOs), security token offerings (STOs) and initial exchange offerings (IEOs). Offering better and immediate liquidity at every price level due to its mechanics, IDOs are an excellent choice for new projects and startups keen to launch a token and access immediate funds.
Unlike the aforementioned fundraising methods, IDOs are generally c
onsidered a fair way to launch a new cryptocurrency project by avoiding pre-mines, which is an issuance system that favors project founders over community members.
Why Do We Need IDOs?
When ICOs and token sales became popular in 2017, raising an estimated $4.9 billion by the end of the year, many projects were attempting to solve problems using the blockchain. While many have gone on to succeed, with far more failing, it’s hard to avoid the fact that there are several issues with ICOs: they’re centralized and vulnerable. Other notable weaknesses of ICOs include third-party discrimination, vulnerability to theft and human error and a lack of privacy.
With the decentralized nature of IDOs, this new fundraising model is attempting to solve the issues of ICOs while adding new possibilities to the crypto market. By crowdfunding with IDOs, entrepreneurs can release a blockchain product that goes beyond malicious third-party influencers, while eliminating any issues regarding hackers and human error. Not only that, but token buyers and holders’ coins are instantly secured on their wallet and private keys.
Advantages of an IDO
An initial DEX offering has many clear advantages compared to initial exchange offerings (IEO) and initial coin offerings (ICO).
Let’s list a few of those here:
When raising funds for a project through an IEO or ICO, projects are first required to pay exchange fees and wait for a project to receive approval by the exchange before it’s listed. With IDOs, projects don’t have to pay high fees and don’t require anyone’s permission as it’s a completely decentralized offering.
Additionally, instead of waiting for an exchange to approve a project, vocal community members are the ones who vet projects and tokens, which opens the door for small projects and massive collaborations.
Compared to IEOs and ICOs, which involve an initial waiting period, IDOs provide immediate access to liquidity and trading. Added to that, IDOs help streamline users by delivering a secure wallet and trading platform support that’s built into one interface.
How to invest in an IDO?
When you select a project, you will see all the details and ways to participate. Of course, each project and platform has its unique features, so before participating, you should research and check which features are most suitable for your purposes.
In order to take part in an IDO, users need to be on the project’s whitelist and hold a crypto wallet. The following are the steps to participate in an IDO:
1. Whitelisting for the IDO launchpad must be obtained
IDOs must set a cap on the number of participants and the total number of tokens they can purchase because they are much smaller than IEOs and ICOs.
An investor typically needs to own a certain number of launchpad tokens to be included in a whitelist, and those with more exceptional holdings are more likely to be accepted. In order to boost liquidity, non-token holders may stake their tokens. They also have the option to take part in a whitelist lottery that several launchpads are hosting
2. Integrate web3 wallet with know your customer checks
KYC checks are generally part of the whitelisting process, and investors will need a web3 wallet like MetaMask. Unfortunately, most IDOs do not allow investors from banned nations, including citizens of the United States or those like Iran, Iraq, Cuba, North Korea, or Venezuela.
Where Are IDOs Headed in the Future?
IDOs are the newest way for crypto projects to get their tokens out to the public, but just with ICOs, IEOs and STOs, improvements are still needed. This is evidenced by UMA’s IDO. With IDOs, though, a decentralized exchange means there is a lack of control mechanism. When it comes to fundraising, it’s important to have some form of control to remove token price changes or have KYC regulations, which are noted in ICOs, IEOs, and STOs.
Another improvement that should be focused on is scalability. Right now, only decentralized finance (DeFi) projects have raised money through IDOs; however, that’s not to say other projects within the crypto space can’t use this form of crowdfunding. Of course, for these projects to take off, they’ll need some interest from existing DeFi users to invest in a project’s token.
Why? Simply because using DeFi platforms is a learning curve, which may be a barrier to the average crypto trader. Another improvement would be to boost awareness and education of DeFi as this industry grows.
The concept behind crypto is to open the doors of finance by making it decentralized. IDOs are one step to making this happen, but who’s to say if a new project is the next best thing or a rug pull waiting to happen? Consequently, it’s difficult to say if a particular coin is worth X amount.
Another factor to consider is that despite the rising interest in IDOs, centralized exchanges such as Binance or Coinbase still have control over the market. Investors aren’t asking when the next IDO listing is taking place. Right now, they’re interested in when Coinbase is going to list a specific coin. Of course, this will most likely change as awareness grows around decentralized exchanges (DEXs) and DeFi in general.
The future of IDOs could be bright, but more awareness is needed. Not only that, but DeFi users are only a small DeFi as this industry grows.
