ICO vs IDO: Which is the Best Crowdfunding in 2023?

Investments have been a huge factor in determining the flow of the Web3 ecosystem, as most Web3 firms today were ideas on paper not a long while back. Various initial offering mechanisms have been popular at different times, even though only a few remain unscathed through the brutally volatile crypto market. Some such investment mechanisms thriving to date include ICO (Initial Coin Offering) and IDO (Initial DEX Offering). Both these mechanisms have been advantageous, although IDOs have been adopted widely in recent times. We will see why such changes have occurred as we discuss further.

What is ICO (Initial Coin Offering)?

Initial Coin Offering (ICO) is the first-ever crypto fundraising mechanism that came into existence, and it had a huge success at one time. For a crypto project to list for an ICO, it is enough to provide its whitepaper describing its working in detail, after which it can conduct token sales. The ICO tokens will become the project’s native tokens once it becomes functional. Investors who believe in the project’s concept can buy these tokens in exchange for fiat or crypto tender that becomes the capital required for the project. Just like cryptocurrencies, investors should believe in the value of the project and hope that the tokens they bought will increase in value with time.

The first-ever ICO sale occurred in July 2013 for the project Mastercoin, after which several projects, including the Ethereum network, raised funds through ICOs. But, it was in 2017 that initial coin offerings became immensely popular as hundreds of projects found the potential to raise funds quickly and cheaply. Many popular Web3 firms today gathered capital through ICO token campaigns. Such ease in raising money meant malicious scammers took ICOs to their advantage through rug pulls and “pump and dump” schemes that soon reduced the popularity of ICOs. Today, ICOs are yet in use with additional regulations, but most projects have been increasingly adopting other means of crypto fundraising.

What is IDO (Initial Dex Offering)?

Initial DEX Offering (IDO) is another crypto fundraising mechanism that has been fairly recent and in widespread use currently. The mechanism utilizes decentralized crypto exchanges (DEXs) for token distribution and liquidity, which enhances investor belief. Initial DEX offerings also provide benefits such as low listing costs, community vetting, quick allocation, high liquidity, and instant tradability at low slippage. It was also IDOs that popularized business platforms called ✅“Launchpads,”✅ which are one-stop solutions to mingle investors and crypto projects with various novel features.

The first-ever IDO occurred in June 2019 for the project Raven Protocol, and ever since, many crypto projects have opted IDOs to raise capital. Popular IDO projects so far include Compound, SushiSwap, bZx Protocol, and ExeedMe.

Difference between ICO and IDO

ICO (Initial Coin Offering)

🔹 Fundraising is done by token sales on blockchain platforms by projects.

🔹 Project teams should promote the ICO tokens on their own.

🔹 Projects should ensure liquidity on centralized exchanges by transferring enough tokens.

🔹 Trust protocols are not mandatory and hence scams might occur.

🔹 Security loopholes might be present as token sales occur on the project’s platform.

🔹 Intermediary costs are absent, but a fee for launching on a CEX is incurred.

🔹 ICOs are regulated in several regions and unregulated elsewhere.

IDO (Initial Dex Offering)

🔸 Fundraising is done by token sales on DEXs by crypto projects.

🔸 Project teams and DEXs promote the IDO project’s tokens.

🔸 Liquidity and tradability are immediately available on DEXs, based on the total volume of tokens.

🔸 KYC and AML protocols are used here, thus enabling trust among investors.

🔸 High security is ensured as DEXs are highly decentralized, and information cannot be accessed immediately.

🔸 Zero exchange fees, and it is enough to pay the transaction (gas) fees for the blockchain.

🔸 IDOs are unregulated and run on community trust.

Where are ICOs and IDOs Heading in the Future?

After all that we had seen above, you might be tempted to think that ICOs have become extinct, which is not the case. Even though ICOs and IDOs exist currently, the usage of IDOs has increased manifolds than ICOs, similar to the latter’s prime in 2017. The simplicity of ICOs for projects might make them viable for revival, although it needs more stringent regulations to be laid out. IDOs, on the other hand, have been thriving healthily, with more projects utilizing the mechanism, and the trend is expected to continue for a long time.

Conclusion

We have seen the differences between two of the most popular crypto fundraising mechanisms. While the current patterns suggest that IDOs are ideal for crypto crowdfunding campaigns, ICOs can be equally good with some patch works. Yet, IDOs could comfortably trump ICOs due to the former’s nature as a decentralized finance (DeFi)-based mechanism, toward which today’s Web3 community is advancing. As a project owner, you should consider a capital-raising mechanism based on your preferences, although IDOs can ensure popular support that helps to build a community around your venture.