Apr 21, 2022
Is IDO still a promising land?
Talking about IDO, those who have participated in the market will know that, because the profits it brings to participants are often extremely large. But joining IDO is 100% sure to win?
In this article, together with MochiLab, let’s learn about what IDO is and the reasons why IDO has become so popular at present!
What is IDO?
IDO (or Initial DEX Offering) is a form of fundraising through a token sale on decentralized AMM (short for Automated Market Maker) platforms. IDOs will usually have 2 pools, one for the community, and the other for users holding platform tokens (POLS, DAO, …).
The IDO rules and stages depend on the workflow of different AMMs, but there are a few common methods:
- After the moderation process, a project is accepted for IDO on the DEX. The project offers tokens at a fixed price and users lock their coins in exchange for these tokens. Investors will receive an unblocked amount of TGE tokens first and the rest will be locked and then paid off over time.
- Usually, there is a whitelist of investors. They will have to complete the tasks and requirements of the project to be allowed to enter this priority list.
- A part of the funds raised will be used to create liquidity for the project’s tokens by adding Liquidity. The rest will be given to the development team. And now investors can trade their share of TGE tokens. Usually, the liquidity provided will be locked for a certain period of time.
- At TGE events, usually tokens will be transferred to users after the Liquidity add process has been completed. At this point, investors can start trading.
Pros and cons of IDO
Advantages
Almost any project can raise funds
The removal of IEO censorship procedures has allowed many projects access to crowdfunding. With IDO fundraising, companies, especially startups, do not need to meet complicated regulations to be allowed to raise funds.
Also, anyone can organize or participate in an IDO, not just private investors. In theory, this is more beneficial for the crypto industry.
Flexibility
Investors do not have to wait a long time for the token to be listed on the exchange. The listing usually takes place immediately after the IDO is completed, giving them the flexibility to monetize their investment faster than an ICO.
High and instant liquidity
Liquidity means the ease of conversion of an asset to money in the market. For a crypto asset, liquidity is one of the important factors that determine its value.
For IDO, after the fundraiser ends, investors have immediate access and trading of tokens. This is extremely convenient for creating new markets, improving asset liquidity, and increasing access to tokens for everyone.
Optimizing cost and time for the project
Unlike other forms of fundraising, IDO projects do not have to pay exchange fees and wait a long time for tokens to be listed. As a result, the project can maximize the cost and time of the token sale to the public.
Disadvantages
Chances of purchasing tokens in IDO sessions are very low
Due to the high profit potential that tokens sold in IDO rounds bring, the rate of competition among participants purchasing IDO also increases. However, redemption opportunities are limited, plus users are required to hold a large number of platform tokens to be eligible to participate in the IDO. So there are many cases of participating in IDO many times but have not been able to purchase tokens once.
The whitelist mechanism lacks transparency
Most of the projects implementing IDO today apply the whitelist mechanism. Whitelist can be understood as a list of individuals and organizations registered to participate in a special event of a project using a whitelist, specifically here participating in the IDO phase.
To join the whitelist you will have to complete KYC operations and perform a few required tasks such as holding platform tokens, providing liquidity, inviting friends via ref link, joining Telegram community, following Twitter, posting some posts… Then the project will randomly select people on the whitelist to buy IDO.
However, there are many people who use tools, bots, etc. to cheat when performing a whitelist to increase their chances of winning. In addition, some projects also do not select random users in the whitelist, but give preference to family, acquaintances, partners, etc. This makes the whitelist mechanism unfair and the chance of winning the whitelist becomes difficult. more difficult.
Risk of holding too many coins/tokens when participating in IDO
Some IDOs will require you to hold/lock a certain amount of platform tokens. Therefore, you will face the risk that if you do not buy IDO tokens and the price of the underlying token drops, you will have a double loss.
What are the differences between the past and now IDO?
In the early stages of the explosion, IDO helped investors purchase tokens that often multiplied very high capital, maybe multiple 10, 20 or even 200 times. Since most of the profits have been made, IDOs are always welcomed and awaited by investors.
This period is also associated with the explosive growth of the DeFi sector. When DEXs, decentralized AMMs were born and became very popular. It makes it very simple for anyone to access or exchange tokens. Along with being decentralized, so anyone can list their tokens on DEXs, this AMM makes IDO also flourish.
But the peak period of IDO has passed, at the time of writing this article, IDO is no longer a promised land, no longer a 100% sure win. Many IDO projects have been discharged and divided under the IDO price a lot, causing a large number of investors who have held or locked tokens to lose money when the token is due.
Summary
InMochi’s opinion, IDOs are seasonal events and change according to the state of the market. Usually, IDOs will have high profits when the market is going up, the psychology of all investors is quite happy and new money flows from outside the market, along with newbies. At this time, IDO bets will often be successful because they attract many fomo investors.
As for the market period sideways or down trend, it is necessary to consider carefully before participating in IDO. See if the project is really quality, because in this period only really quality projects, with a reputable and potential team behind can pull the project up after IDO. An increase in price means that investors are profitable, and poor quality projects will be eliminated and often prices will be reduced or the team withdraws, causing losses to investors.
Please observe the market carefully and the quality of the project before participating. We hope you are a successful investor.
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