What is an IDO?
An Initial DEX Offering (IDO) is a fundraising method through which a project launches a token through a DEX, or in other words, a Decentralized exchange. We must always keep in mind that when we talk about an IDO we must remember that the concept of liquidity pools, which is already known by all Reental users due to the liquidity it provides to the tokenized real estate tokens. white label ido launchpad platform can be created for a huge variety of projects, from a cryptocurrency to the creation of the token for a startup that offers tokenized real estate.
The process of an IDO is similar to an IEO or Initial Exchange Offering and is that both processes have the objective of raising capital to start a project, in addition to allowing immediate trade and also a possible raising of extra funds. This methodology of raising funds allows companies to accelerate their growth and investors have a liquid market.
The concept of IDO is relatively new, since the first of all was presented in June 2019 by Raven Protocol and was listed on Binance DEX, however it still has some way to go to evolve and correct certain points to benefit investors.
How it works:
In general, the operation of an IDO is relatively simple. Projects use launch pads or launchpads where investors can go to buy the project’s token. Although it is a decentralized platform, the project that is preparing to launch its IDO must be aligned with the requirements of the specific platform.
In the process of launching a token, there is usually a pre-sale phase, where investors have the advantage of purchasing the token at a discount a few months before its launch.
Once the different phases stipulated by the company have been completed, the launched token will be immediately listed on a DEX, or decentralized exchange as we have explained previously. It must be taken into account that the vast majority of tokens are based on the ERC20 standard, which means that these projects are built on the Ethereum network or on networks compatible with the EVM (Ethereum virtual machine). However, with the emergence of new networks, it is something that is constantly evolving and many tokens are multichain.
Now let’s look at its advantages and disadvantages.
Advantages:
Decentralization itself: Considering that there is no need for a centralized exchange or permission to start fundraising, anyone can organize and also participate in an IDO.
Its immediate liquidity: IDOs provide immediate access to liquidity and trading, which differentiates them from ICOs and IEOs, which involve an initial waiting period.
Low cost: If a project uses the liquidity of a decentralized exchange for its initial offer, without any intermediary, only gas fees are paid to activate the protocol of the new smart contract programmed for the project.
Reliable transactions: Considering that DEXs work based on smart contracts, which execute transactions and record them in the blockchain technology, which guarantees great security. They also do not hold investor funds, so they are not as popular targets for hackers.
IDOs also have some disadvantages.
Disadvantages
Lack of control mechanisms: Those organizing the fundraising have no control over who buys tokens or the number of investors.
There is no possibility of integration with Know Your Customer (KYC) capabilities, as no personally identifiable information is recorded for investors.
As we have seen, it is a really interesting instrument for many projects to be able to finance themselves and thus provide great services to their clients and investors, the latter can normally enjoy some advantage over the rest of the later investors.
Conclusion:
The challenges that come with an IDO cannot be ignored, but the benefits of IDOs outweigh these challenges, and IDO launch platforms have been working to overcome these challenges in the near future. Considering the growth of DeFi and DEXs in recent years, it is safe to say that the future of IDOs is bright and DeFi projects are better positioned to benefit from IDOs compared to ICOs or IEOs.
