What is an IDO – Initial DEX Offering? Complete explanation for beginners! =

We all dream of being an early investor in a project that goes at least x100. All too often we say ‘ what if ‘? What if I could buy Bitcoin at $10 or what if I could buy Ethereum at $25. But you haven’t lost your chances yet. Every day there are new projects that are launched on the market. And you too can be the first here.

To be the first to be involved in a new project, you need to be aware of the latest developments and opportunities. And these opportunities are often on launchpads and IDOs. Discover in this blog what an IDO is and how you can participate in an IDO!

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  • View quickly
  • What is an ID?
    • fundraising
    • Binance DEX
    • Difference between IDO and IEO
  • How does an ID work?
  • Benefits of an IDO?
    • Open fundraising
    • Liquidity
    • Cost
    • Whale proof
  • Disadvantages of an IDO?
    • Back pulls liquidity
    • Front running
    • Integrity check
  • Participate in an IDO?
    • White list
    • Launch Pads
      • Polka starter
      • MetaVPad
  • Conclusion

Would you like an animated explanation of what an ICO is and how it works? Then watch the video below. In this blog we look at the pros and cons of IDOs with a few examples:

 

What is an ID?

An IDO, an Initial DEX Offering, is a fundraising method in which a new coin or token is launched via a decentralized exchange (DEX). The difference with a central exchange, such as Bitvavo or Binance, is that you always manage your crypto coins yourself thanks to a software wallet such as MetaMask. At these central exchanges, your crypto is already with them.

With the arrival and development of DeFi, in addition to the Initial Coin Offering (ICO), Inital Exchange Offering (IEO), we now also see the IDO . As part of DeFi and peer-to-peer transactions, liquidity pools are essential to enable both existing trades and transactions with these new coins or tokens.

fundraising

Each new protocol seeks sufficient funding to develop itself further and of course to be able to launch. For a certain amount, often with a minimum and maximum amount, investors can express their confidence in the protocol to invest in this IDO as an early investor. In a favorable scenario, they can maximize their return on investment in this way.

Binance DEX

With the popularity of DeFi and the associated AMMs such as PancakeSwap and UniSwap, we sometimes forget that Binance also has its own DEX. With the rise of DeFi, Binance decided to launch its own DEX, hoping to compete with competing DEX’s and the latest developments of DeFi. At the time of writing, few people even know that Binance has its own DEX, let alone that trading takes place here. Still, the first IDO was listed on the Binance DEX, by Raven Protocol in June 2019.

Difference between IDO and IEO

Both an Initial DEX Offering (IDO) and an Initial Exchange Offering (IEO) have the common goal of raising as much money as possible to launch a new project. In this way, trading is possible thanks to the collected funds. With an IEO, investors must first buy tokens of the project, after which they are only launched on the open market. With an IDO, this token sale and its listing take place simultaneously . Perhaps the main difference between the two is that an IDO does not require any verification or KYC procedure as it is in a decentralized environment.

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How does an ID work?

An Initial Dex Offering or IDO usually takes place on a launchpad such as UniSwap and Polkastarter. Here the fundraising is organized based on different criteria. It is therefore the place to be as an early investor to invest in new projects at very competitive prices.

The project makes tokens available at a certain fixed price. When the protocol has raised sufficient funds and all criteria have been met, the token is immediately listed on the decentralized exchange and trading is immediately possible. Investors can also purchase IOUs. An IOU stands for Acknowledgment of Debt, meaning that investors invest in tokens up front, but don’t get them until later when they are released. The release of the tokens is also called ‘ Token Generation Event’ (TGE). From this moment on, the liquidity pools are open for trading.

In practice, these tokens are released gradually . For example, in the first month after launch, only 10% of the tokens are released, followed by 20% in the following month. By gradually releasing these tokens, the protocol aims to prevent extreme price action such as a pump and dump scenario.

Benefits of an IDO?

The biggest advantage of an IDO is that you as an early investor can of course buy these new tokens at an insanely low price to maximize your investment. But there are still plenty of other benefits:

Open fundraising

Because the fundraising takes place in the world of DeFi, there is no need for permission or approval from a central party anywhere. This allows anyone to launch or participate in an IDO . With an IDO, trading is possible immediately, unlike an IEO or one ICO, where your token is fixed for a certain period of time. This can also be done deliberately by the team to avoid a dump after launch.

Liquidity

In decentralized finance (DeFi), liquidity is necessary. Only with sufficient liquidity can we start trading. An IDO offers relatively fast liquidity as the funds are made available immediately. Part of this amount will be tied up in liquidity pools. This greatly reduces the risk of slippage.

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Cost

Launching a token or coin on a central exchange is anything but free. Often the team has to pay hundreds of thousands of dollars to be listed. In addition, there are no guarantees for this listing, a central exchange can decide for itself which tokens they want to list on their exchange or not. These central exchanges will therefore only list the largest protocols because much more trade takes place here. Central exchanges can exist because they get a certain percentage of every transaction that is made. That is why it is all the more interesting for them to only list promising and major protocols.

Listing on a decentralized exchange is also much cheaper, which is more interesting for the team, but smaller projects can now also be listed . This way they also get a fair chance.

Whale proof

Market manipulation is not new. With protocols of all kinds there are whales that want to manipulate your behavior in order to accumulate as many tokens as possible. With a small project, the impact and effect is usually greater. With an IDO, a maximum investment amount is therefore often imposed, so that everyone can act in a fair manner. This is how they want to minimize the risk of whale positions. Note: this is different for every project.

Disadvantages of an IDO?

In a decentralized environment you have many freedoms, but also many responsibilities. The lack of control can be positive, but it also has several pitfalls. That is why it is important to also consider the disadvantages of an IDO:

Back pulls liquidity

The advantage of direct trading when listing on a DEX is also a disadvantage. After the listing it can happen that a back pull takes place. Not from the DEX itself, but from the liquidity in the protocol . Due to the massive removal of liquidity, the price will also plummet and cause a major sell off. In addition, developers can also sabotage the project and run off with all the funds that have been raised.

Front running

Front-running means nothing more than stabbing in front. Just like when you’re waiting in line at the checkout and someone suddenly advances you. This can also happen with an IDO. By using bots, different parties can buy up the maximum at the lowest price much faster than we can. This, of course, immediately raises the price. Regular investors therefore pay much more than, while these bots sell everything again after the profits made. As a result, the price plummets again. Fortunately, there are launchpads and IDOs that solve this problem, such as Polkastarter.

Integrity check

When a project is listed on a central exchange, this is often accompanied by an extensive audit. Is the project legitimate, do they have good intentions and what does their future look like? With an IDO, it is much easier for smaller projects, even those with a lesser reputation, to launch their tokens. In this way, this advantage can also be a disadvantage.

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Participate in an IDO?

Everyone naturally wants to be the first to invest in a new project that can go x10 or x100. But often the price has already gone upside down several times immediately after the listing. Therefore, participation in an IDO can be interesting.

White list

Participating in an IDO is often done on the basis of a whitelist. You must complete a number of marketing tasks to be included in the list. Think of following certain Twitter accounts, joining a Discord or sharing information about the project. Once you are included in that whitelist, you can participate in an IDO as an early investor.

Launch Pads

An IDO can take place on a DEX but also on a launchpad. Crypto projects are increasingly opting for a launchpad to raise capital for the launch of their token. There are both centralized and decentralized launchpads here. With a centralized launchpad we speak of an IEO, Initial Exchange Offering.

Polka starter

In practice, many of these protocols are all ERC20 as Ethereum is still the largest network. However, we are already seeing change here. What sets Polkastarter apart from other launchpads is that it is built on Polkadot’s blockchain, not entirely surprising judging by the name. Polkadot is just focused on interoperability between different blockchains and networks.

As discussed earlier, Polkastarter wants to prevent front-running . They do this by, among other things, offering ultra-fast swaps based on fixed swap pools. These are fixed price pools. The token launch is on a fixed price basis, which will be maintained as long as tokens remain in this provided supply. This will also ensure reduced volatility.

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MetaVPad

With the development of the metaverse, a metaverse-oriented launchpad cannot be missed. MetaVPad is a launchpad partnered with venture capitalist BlueZilla. They provide advice on marketing and tokenomics, among other things. This partnership also gives potential investors more confidence, which means that MetaVPad also gets more attention.

Ironically, MetaVPad was also launched through an IDO. But certainly not without success. The native token METAV was on sale for $0.001 per coin. When the coin came on the public market, the price immediately rose to $0.444.

Conclusion

There are plenty of opportunities when launching a new token with an Initial DEX Offering (IDO). We saw DeFi explode in 2021 and this IDO is certainly important in that. The biggest advantage is that smaller projects now also get a fair chance, just like others they can now be listed on a decentralized exchange (DEX). But where there are many opportunities, there are usually also many dangers. It is possible to make huge amounts of money with an IDO, but this is not without risks.

In the world of DeFi where we trade peer-to-peer, we have to rely on the integrity of other traders. We are seeing liquidity back pulls becoming more common, leaving people with losses. Bots often take over from human actions, with front-running occurring more often. Fortunately, the world of crypto is evolving every day and we are all working together!

Do you have any questions about IDOs or about DeFi? Ask us in our AllesOverCrypto Facebook group where we now have more than 100,000 members! You can also easily find the answer to a question about crypto in our FAQs. Furthermore, you can also find a lot of information by googling your question + AllesOverCrypto.

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