The First IDO launched on Binance DEX. Why Does It Get A Mixed Reputation?

While Initial lock-up Offering (ILO) keeps still going viral, there is another member has joined the team IxO.

Zhao Changpeng, the founder of Binance, announced that Raven Protocol will issue on its decentralized exchange (DEX) and he gave a new name for this way of issuing — IDO (Initial DEX Offering).

Obviously, IDO means that users can only buy the project on DEX for the first time.

However, it seems like IDO didn’t get much positive feedbacks form the public. Many users claimed that IDO was nothing but a scam.

So what’s the difference between the concept of IDO and IEO? Why is there so many people hate IDO?

What is IDO?

In general, the only difference between buying token through Binance DEX with BNB and through other centralized exchange is the process of issuing.

Is this the first of its kind? Not really. In April, TRON’s decentralized exchange Trxmarket announced to follow IEO’s steps and issue a DApp token called TronAce. The rule is basically the same as normal IEO, but users have to use TRX to snap it up and trade it in Trxmarket for profit. This is actually the prototype of IDO, but the trading volume of TrxMarket is too small to be compared with Binance DEX.

There are 11 nodes in Binance DEX. All the IDO projects that want to be issued on DEX must be voted to pass through these 11 nodes. Tokens can only be traded on DEX after passing the votes.

The only way users can purchase IDO tokens on DEX is through Binance’s own token BNB. After the IDO project is approved to trade on DEX, there will be a BEP2 token /BNB trading pair on DEX. Each time users bought IDO tokens with BNB, they effectively participating in an issue. Which is Initial DEX Offering.

On June 17, Raven Protocol, a decentralized deep learning Protocol, launched IDO, which is claimed as the first time in history. After getting the consent of the Binance’s node, 300 million Raven Protocol tokens were released on the Binance DEX.

Besides the need of approval from the node, IDO follows basically the same rule as IEO. As soon as the RAVEN/BNB deal comes out, users will be able to grab it. In terms of the final effect, the Raven Protocol was up 10 times from 0.00005BNB to 0.0005BNB at its peak. Just like the IEO project, the price will shoot up at the beginning, and then back down, as if nothing special.

There is one precondition that the decentralized exchange operates on the basis of blockchain decentralization, which means everyone can look every transaction in the chain up. This is the biggest difference between IEO and IDO — you can really feel the existence of the dealer. This is the first time in this field to see the contrary situation of dealers and players

Prominent investor ZhuSu twittered that Binance’s IDO was interesting. Someone bought all 300 million RAVEN, then sold it for ten times as much. BlockBeats did a research about this IDO transaction and found it’s not as simple as it looks.

What happened to Binance’s first IDO?

According to the announcement from project proponent, the opening time of IDO should be 5 p.m. on June 17. We selected the time of the k-chart as one minute, and found that a large number of users flooding in at 17:08, which was nearly 10 minutes later than the normal announcement time. What’s more suspicious is that at 17:07, one minute before users flooded in, there were several transactions of buying RAVEN. The transaction volume reached 300 million, which was exactly the total amount of IDO token sales stipulated by the project.

Raven Protocol once said that the maximum number of IDO purchased per account was 100 BNB, or 2 million ravens before the IDO issuing. They also indicated that unlike centralized exchanges, DEX does not have the strict settings to limit how much each account purchase so how it works mainly depends on self-policing on the part of its users.

Many users analyzed this sentence as: If someone gets all 300 million, don’t blame the project proponent. And this kind of situation actually happened for real.

Let’s take a look at this transaction, at 17:06, when the price of RAVEN was still 0.00051BNB, this account spent 4,131 BNB — equivalent to 81 million RAVEN, which did not comply with the 2 million per account policy at all.

One minute later, at 17:07, this account was selling all of its RAVEN stocks at 10 times of its original price which is 40,500 BNB (RAVEN=0.0005BNB), at a rate of 230 RMB at the time. If the transaction went through successful, it would earn 8.36 million RMB in one minute.

There is not only one account like this. BlockBeats found that there were at least four accounts that were doing the same stuff.

What is the real user experience like? Someone twittered about his IDO experience which in short, is just being duped.

Combined with the description above, BlockBeats speculates that this may be a setup from Raven Protocol team. When there were no transaction on DEX, the Raven Protocol team was likely to purchase Ravens with several their own accounts and sell them for 10 times as much. Opened the transaction access at this time so the users can only make transactions with 10 times of its original price. BlockBeats has consulted with Bowen, co-founder of DDEX which is the largest decentralized exchange in ETH, and he said the speculation was actually possible to be done through DEX.

What should investors pay attention to about IDO?

Raven Protocol did not admit that they deceived users and they only responded that this was their first IDO, from which they have learned a lot. Through this IDO, BlockBeats has also discovered some risks and opportunities.

The biggest difference between IEO and IDO is that IDO users can view all transactions, get to know the amounts and price of other people’s purchases, and of course may discover which account is the dealer. Understand the dealer’s operation and cost is very important to all the game players.

During IDO operating time, most of the transactions were about IDO projects. Users are able to check the transactions in the browser and speculate the possible market situation. IDO is a bit more transparent than IEO, so it’s possible to spot anomalies like Raven Protocol.

If IDO plays fair next time, you can actually be a dealer as long as you are quick and with enough capital. This time of IDO has proved that DEX cannot limit the number of transactions on an account at all. If you’re lucky enough, you will get the chance to purchase the entire amount of circulation and become market makers.

Even though there are not many positive feedbacks on IDO this time, Binance is still going to hold another one. Binance has already announced that it would select 3 high-quality projects on DEX within 3 months and directly issue them on BNB for free. This act has attracted many opportunities for Binance because it would save a lot of money on issuing fees for project proponents. But if next time, there are still as many disgruntled IDO users as this time, the chances for project proponents financing through IDO may be less and less.