Most Popular Token Sale Models: ICO, IEO, IDO, STO, & IFO

Let’s explore the evolution of token sale models

TL;DR:

• ICO is directly managed by the issuer website and a part of the token supply is sold to the public; the project conducts the fundraising, marketing, and token listing on various exchanges; projects are not vetted; tokens are not available immediately to investors.
• IEO is managed through the exchange launchpad and part of the token supply is sold through CEX (Centralised Exchange), which does the project vetting prior to the tokens listing; tokens are immediately available; CEX does management and marketing.
• IDO is managed through a decentralized exchange and a part of the token supply is sold to the public through a DEX launchpad; the tokens are automatically listed on the DEX; the launchpad is in charge of the fundraising; projects are vetted and need to follow the launchpad standards; tokens are either immediately available or after a certain vesting period; both the project and the launchpad do the management and marketing.
• A Security Token Offering is the process of selling financial instruments to the general public in the form of digital tokens. The token is a digital instrument that represents an underlying real asset, i.e. security (e.g. share, bond, derivative, property, the title of the property, etc.), and it perfectly mimics the behavior; a company can issue security tokens by following the standard procedure for issuing financial instruments to the public.
• Initial Farm Offering is a new fundraising concept allows users to raise funds for their projects by participating in yield farming events on decentralized exchanges.

Traditional equity markets are cumbersome, rigid, slow, and mostly capital-inefficient hence it’s not surprising that investors from all over the world started investing in newly-developed digital assets as soon as they realized the potential of the crypto capital markets. Crypto assets have unquestionably revolutionized and democratized the global economy.

In the context of token sales, it is critical to define every aspect of it in order to provide trust and transparency while mitigating risk as much as possible. The project creators must understand all of the details of the token utility, and the terms and structures of sale, and have a general understanding of crypto-economics. Let’s start with one of the earliest coin/token sale models, the initial coin offering.

The rise of the token market ushered in the ICO (Initial Coin Offering) as a new token distribution method back in early 2013. The organizers were in charge of all activities during the token sale, including collecting funds from investors, KYC (Know Your Customer), issuing tokens, creating contracts, listing on exchanges, and marketing.

MasterCoin was the first to take advantage of this new funding mechanism in 2013. It received community backing to launch a new generation of alt currencies (“alts” in crypto jargon) on the Bitcoin blockchain. The plan was to use the Bitcoin blockchain to enable new protocols, i.e. new currencies, on top of MasterCoin.

Later, MasterCoin rebranded its protocol and named it Omni, which was the foundation for USDT before expanding across other protocols. This strategy was quickly followed by Ethereum in 2014 when more than 2700 BTC were raised in the first 12 hours of the pre-sale.

New opportunities were unleashed with the promising power of blockchain and the relatively novel ERC-20 token standard, which facilitated innovators to launch new token projects on Ethereum. Billions of dollars were poured into the ICO markets in 2017 and 2018 into Ethereum-based projects and later into other new blockchains that had the ambition to rival Ethereum.

Some of the projects from that period continued to develop; others just sank into the vast ocean of ill-planned and ill-managed crypto experiments. There were many frauds too, which made many developer teams move to more regulated mechanisms, like Simple Agreement for Future Tokens (SAFT). While Protocol Labs developed SAFT for accredited investors to participate in token sales, other participants turned to private fundraising via equity or other tools in private sales.

ICO is directly managed by the issuer website and a part of the token supply is sold to the public; the project conducts the fundraising, marketing, and token listing on various exchanges; projects are not vetted; tokens are not available immediately to investors.

After the well-known crypto crash in 2018, ICOs persisted, but new mechanisms emerged in the form of IEOs. In contrast to an ICO, the entire process in an IEO is managed by a centralized crypto exchange that seeks to raise funds by listing tokens on its exchange. This allowed project developers to ensure post-launch liquidity for their tokens, and exchanges to reward the most devoted participants with allocations to select pre-launch tokens.

The careful examination of crypto projects in the IEO token sale model has positively affected investors’ and crypto community’s trust. Token creators had to pay a fee to list their tokens on such exchanges, which could be quite costly at times.

IEO is managed through the exchange launchpad and part of the token supply is sold through CEX (Centralised Exchange), which does the project vetting prior to the tokens listing; tokens are immediately available; CEX does management and marketing.

The evolution of token sales continued with the rise of DEX (Decentralized Exchanges), which many projects found appealing due to their decentralized nature. They could raise funds without the complication and clumsiness of centralized exchanges.

The Raven protocol was the first to launch an IDO, which is an open-source fork of the Bitcoin code. The Raven protocol was listed on Binance DEX in 2019, and the RAVEN/BNB pair was available for trading.

Tokens are listed on the DEX immediately, and the process is simple, attracting many projects to launch there. The IDO mechanism consists of platforms that raise funds for projects and investors who can purchase tokens prior to their listing on a DEX. These platforms are generally called launchpads. Launchpads are a place for crypto-based projects to pre-sell their tokens to early-stage investors before they are listed on a centralized or decentralized exchange. A token can be listed on a DEX for little or no cost.

Launchpads are initial token offering platforms similar to investment banking that manages and operates to raise capital for corporates in traditional economic systems.

IDO is managed through a decentralized exchange and a part of the token supply is sold to the public through a DEX launchpad; the tokens are generally automatically listed on the DEX; the launchpad is in charge of the fundraising; projects are vetted and need to follow the launchpad standards; tokens are either immediately available or after a certain vesting period; both the project and the launchpad do the management and marketing.

STOs (security token offerings) were created in the aftermath of the 2018 ICO (initial coin offering) bubble burst. In the crypto space, increasing security and reducing scams is one of the top priorities; as a result, the STO was created, which gives investors access to security tokens for governance and verified project ownership.

A Security Token Offering is the process of selling financial instruments to the general public in the form of digital tokens. The token is a digital instrument that represents an underlying real asset, i.e. security (e.g. share, bond, derivative, property, the title of the property, etc.), and it perfectly mimics the behavior; a company can issue security tokens by following the standard procedure for issuing financial instruments to the public. Hence, STOs are digital representations of real-world assets such as bonds, stocks, and even gold.

These tokens function similarly to bonds and stocks in that they provide ownership of an asset via blockchain technology, which an ICO does not. STO is the regulated version of ICO; they function similarly. Their complete transparency can explain why security tokens are used on the blockchain. Tokenized real assets can be divided and distributed to investors. They also offer global capital access, better terms than traditional capital raising, and a low entry cost.

This new fundraising concept allows users to raise funds for their projects by participating in farming events on decentralized exchanges. Investors will be able to reap profitable returns on their investments in the future thanks to IFO’s innovative approach as users can participate in pre-sale events and receive tokens before the projects are listed. They must provide liquidity before participating in IFO events in order to purchase IFO tokens. After a thorough check and analysis, IFO hosting is processed, and smart contracts execute transactions without delay.

PancakeSwap is a fantastic example of IFO, utilizing this unique fundraising event for upcoming projects. The IFO process benefits both new projects and Pancakeswap (PCS) users; the IFO allocates farming rewards to PCS users while also providing new projects with an incentivized liquidity pool on PCS. This system generates sustainable yields for PCS users while also creating initial liquidity for the respective token. Furthermore, if the sale is successful, half of the funds raised are burned in CAKE.

Originally published at https://openpad.substack.com on July 25, 2022.