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What is IDO?
Что такое IDO_
Cryptocurrency
13.12.2021
Updated 13.01.2022
10:31

Understanding the essence of IDO is vital to anyone related to earning on investments in the cryptocurrency field and blockchain. In this article, we will tell you about all the pros and cons of this phenomenon. We will also cover the question of how this method of fund-raising differs from its predecessors and why it is attracting more and more investors.

What IDO is in simple words

Such a phenomenon as IDO (Initial Dex Offering) is the youngest model of crowdfunding implementation within the crypto market. The growth of its popularity, demand, and implementation at various exchanges started in 2020 and has been continuing till now. Due to its differences, it stands out more than similar ICO and IEO, which has attracted the attention of the whole community to it.

IDO is such a method of pre-sale of tokens (for investments in a crypto project) that is implemented with the help of a decentralized trading platform. Using liquidity pools within the DEX, traders get a fast and easy tool to purchase new promising assets.

IDO is characterized by minimal requirements and threshold for a potential investor. In most cases, there may not be any requirements. That provides an opportunity to attract good money for the development of a new project. And small private investors get good chances to multiply XXXs in the future when the project implements its ‘to the Moon’.

Experts claim that the current state of affairs will lead to the situation that IDO in particular will become the new trend in the cryptocurrency world. The only subjects that may impede the popularization of this crowdfunding model are regulators.

The evolutionary path from ICO to IDO 

While everything remains stable and conservative in the market of stocks and securities (with their IPO – Initial Public Offering of stocks), the cryptocurrency market was and is pretty volatile and dynamic on all fronts:

This process can boldly be called the evolution towards the development of not the final, but currently the best type of crowdfunding in the cryptocurrency market.

Initially, ICO attracted users by its simplicity. It was a tempting tool both for crypto projects and for investors:

The absence of control and requirements have eventually made ICO a haven for fraudsters. Only a year later, after the emergence of this tool, 4 of 5 Initial Coin Offering were fraudulent. All of that has led to lots of judicial proceedings and the engagement of regulators to solve this problem.

STO is what appeared as a result of the appearance of regulators to solve the scam issue in ICO. Crowdfunding based on the Security Token Sale scheme assumed:

Many fair projects came to the conclusion that STO is a good choice to disassociate from the ICO’s spoiled reputation. And this scheme actually worked for some time. But in the long run, it became clear that STO is an option that is way too complex.

The registration in accordance with all the rules is too difficult, and not every project is capable of it. One more stop signal is that participation in such crowdfunding was available to proven investors and funds only.

IEO is a new model of crowdsale in the cryptocurrency world, where DEXes take most of the liabilities. This subject is engaged in:

That is very convenient for crypto projects that have just started, but it requires patience and completion of a deep check. During this stage, everything is being checked: starting from the White Paper and experience of developers, usefulness and investment attractiveness of the coin, and finishing the project it is connected to.

IDO is the novelty being in top of trends. Predecessors in the form of EIO created too many expenses, often fully locked trading at external exchanges or formed requirements that were too difficult to overcome. Besides that, it created a dependence on the centralized platform, which completely destroys the concept of most blockchain assets.

In order to eliminate all of these disadvantages, the concept, normal characteristics of IEO were copied and transferred to the reality of decentralized exchanges (DEX). That is how the IDO model this article is dedicated to has emerged.

Almost any user of a decentralized exchange can launch his presale using the IDO. What is required is only to activate the contract, register the token, and create liquidity for the pool.

With the help of IDO, the team of the project to have created the token gets rid of:

That is what DEX itself will be responsible for.

How IDO works: full description of the mechanism

Today one can launch IDO at many leading decentralized exchanges. Usually, the procedure can be launched both independently (manually) and using the help of advanced AI systems for automatization. But often, projects pass the following stages:

  1. The first one requires you to come up with a complex analysis of the assets as well as the startup related to it. A good solution would be to launch the website and the White Paper with a technical description of all important characteristics. Sometimes, it is possible to launch an alpha or demo version of the product for a visible demonstration of functions and possibilities.
  2. During the second stage, all of the above parameters and tools are directed to representatives of a decentralized exchange for their complex check and getting a verdict. Data processing will be taken either by a professional group of specialized DEX specialists or an independent third-party auditor.

If the conclusion turns out to be positive, the project will be moved to the launchpad of the exchange, where it can start attracting the capital of users.

  1. After that, the third stage – presale – goes. Investors (sponsors and venture capitalists) start buying tokens at a slightly reduced price, which is due to some degree of investment risk into a young project. However, they purchase not tokens themselves but IOUs on them. And actual coins will be received by investors the moment coins are generated when the actual procedure of Initial Dex Offering is over.
  2. At the fourth stage, public offering via the combination ‘cryptocurrency + stablecoin’ for the IDO token takes place. In doing so, two methods are used: either a sale by parties with the gradual growth of the price tag (the profit is implemented for those who joined at the earliest stage possible) or a sale via the auction scheme.
  3. After that, the long-awaited listing of the coin at the decentralized platform is implemented.

Main advantages and disadvantages of IDO

Like any other tool in the market, IDO features both a list of advantages and noticeable disadvantages. To understand the mechanism, we need to look at both sides of the coin.

Such characteristics can boldly be referred to as IDO advantages:

Despite the fact IDO is mostly a positive phenomenon with unique properties, this model does have disadvantages that everyone should be aware of: