IDO which stands for Initial DEX Offering, is a cryptocurrency token offering or issuance, carried out on a Decentralized Exchange usually for the purpose of raising funds by a new cryptocurrency project. To appreciate the concept of IDOs, there are a few terms one needs to grasp. These include:
- DEX is a Decentralized Exchange where cryptocurrency transactions take place.
- Offering: refers to the issue of security by a company to the public usually for the purpose of raising money. This could be an Initial Public Offering (IPO), Bond offering etc. When this applies to cryptocurrency projects, it is referred to as a token offering.
Evolution of IDO
It is clear that IDOs are a fundraising mechanism for cryptocurrency projects. A quick summary of these evolution is below:
- ICO refers to Initial Coin Offering which was the first cryptocurrency fundraising and token issuance method. It became popular from the later part of 2017 to 2018. The whole process can be distilled into: a team defines a problem they would solve with blockchain; explain their proposed solution; market the project; offer tokens for sale with promise of utility/capital gain; people pay in the specified currency and that was an ICO. Listing usually came later on. Despite its profitability for early investors, its disadvantages ranging from rug pulls, centralization etc. in 2018, led to a bubble. The biggest ICO was EOS which raised over $ 4 billion dollars.
- IEO: After the decline of ICOs in 2018, crypto projects still needed to raise funds and in stepped the centralized exchanges with Initial Exchange Offering (IEO). It helped carry out most of the processes for fundraising for cryptocurrency projects after a stringent vetting process had been passed. The process was designed to reduce incidence of frauds. One of the well-known projects that used IEO is Polygon (Matic).
- IDO: In 2021 decentralized exchanges had become a well-established thing. There were a multitude of projects starting weekly and the barrier for IEOs by the Centralized exchanges became more stringent, and projects began to opt for IDOs. The first ever IDO was conducted by Raven protocol on the Binance DEX in June 2019. It has since evolved by leaps and bounds.
How an IDO works:
- The project:
- Submits a proposal to the DEX or launchpad.
- Finalize Backend work after approval.
- IDO is done, token distributed and listed.
- Users participate by:
- Finding Upcoming/ongoing IDOs.
- Getting a self-custodial wallet e.g., Metamask.
- Having gas fees and a specified token for the IDO in the wallet.
- Qualifying either by holding launchpad’s token, KYC/AML, doing marketing tasks, holding specified Liquidity Pool token etc
- Connecting to the Dapp and following the instructions.
Differences between IDO, IEO and ICO