A crypto IDO, or Initial Dex Offering is a type of token offering that is facilitated through a Decentralized Exchange (DEX) or a launchpad platform. An IDO is one of many strategic crowdfunding techniques that enable cryptocurrency projects to launch their native tokens.

In this article, we explore what a crypto IDO entails, the various different types of token offerings and how you can invest in an IDO. Read on to find out more!

What Is A Crypto Token Offering?

Just like any start up, crypto projects need ways to raise funds. A token offering is a type of crowd fundraising method where a project sells their native tokens. Investors purchase these tokens or coins either for their utility or for speculation.

The funds raised through a token offering go towards a project’s expansion plans. This can include anything from development, to marketing, to a new product or feature.

There are various different types of token offerings. Some include:

• Initial Dex Offering (IDO)
• Initial Exchange Offering (IEO)
• Initial Coin Offering (ICO)

What Is The Difference Between an IDO, an IEO and an ICO?

Initial Dex Offerings (IDOs)

An Initial Dex Offering is a token offering launched on a Decentralized Exchange (DEX). A project launches their newly created crypto token to the public through an IDO. This not only gives individual investors the opportunity to buy the coins early, but it also provides the project with much needed capital to expand.

IDOs offerings are the successor to ICOs and IEOs. Unlike ICOs and IEOs, IDOs provide new crypto projects with a relatively quick and affordable way to sell their crypto tokens to investors while ensuring maximum security through the use of smart contracts.

Raven Protocol’s token (RAVEN) was the first ever IDO to happen in 2019 through Binance’s Decentralized Exchange (DEX) – the Binance DEX.

Initial Exchange Offerings (IEOs)

An IEO is another fundraising method used by crypto companies and projects. In an IEO, the token sale is facilitated and supervised by a Centralized Exchange (CEX). In an IEO, the tokens are exclusively available to the exchanges registered users. This means you have to be registered with the exchange to purchase tokens.

To protect users and their reputation, crypto exchanges carefully scrutinize and conduct some form of investigation into a project before agreeing to an IEO. This provides some form of security for investors.

IEOs were first introduced in early 2019, but have since lost their appeal to IDOs. The first large IEO was BitTorrent (BTT) which was launched by TRON on the Binance Launchpad in 2019. Other projects to launch via an IEO include the likes of Polygon and Elrond.

Initial Coin Offerings (ICOs)

An ICO is the crypto equivalent of an Initial Public Offering (IPO) in the stock market. Crypto projects used ICOs to raise capital to fund their projects through token sales. This process differs from IDOs and IEOs in that the sale is not facilitated by an exchange. The sale is facilitated directly through the project. The process of participating in an ICO usually involves sending money to a specific wallet. Investors would then provide their own address to receive the crypto purchased from the project.

While many successful projects have launched through ICOs, this method is not a common method anymore because of security risks.

How Does A Crypto IDO Work?

To protect investors, a Decentralized Exchange (DEX) is used to facilitate an IDO token sale. Unlike ICOs, with IDOs investors do not need to send funds directly to a crypto project. A DEX is used to facilitate this process, providing investors with full assurance.

Through the use of a smart contract run by a DEX, a crypto project doesn’t need to send tokens directly to investors. Additionally, investors can commit funds via the DEX to the same smart contact. Once the IDO is complete, the smart contract will distribute the tokens to investors.

While each IDO is unique and have their own rules, most IDOs follow this process:

Project Vetting

Prior to a project being able to run an IDO, the DEX team must first complete its due diligence. This prevents (the majority of) fraudulent enterprises from using the platform and safeguards the interests of investors.

Token Pricing

After a project has been reviewed and approved, the number of tokens that will be available and their price will be determined. This number is fixed and will not change.

Investor Whitelist

Whitelisting is often required for users before they may be considered for an allocation. If investors want to be added to the list, they may be required to complete various duties including, following certain pages on Twitter and, retweeting certain Tweets and joining particular Telegram or Discord groups.

Liquidity Pools

A portion of the funds raised by the project are used to create a liquidity pool. This ensures that there is trade liquidity from the very beginning. The remaining funds will then be released to the project. At the same time, the new tokens are distributed to the investors.

Trading Begins

As soon as all funds have been issued, the liquidity pools are open for trading and the token price will be determined by the market.

What Are The Advantages of IDOs?

Below are some of the advantages of IDOs:

• Trust & transparency: Smart contracts used in an IDO guarantee trust and transparency.
• No KYC: Users only need their wallet and funds to participate in an IDO. Unlike with centralized exchanges, there’s no need for an investor’s personal information.
• Affordable fundraising: For many crypto startups, IDOs provide an affordable fundraising method. It’s often cheaper for smaller projects to launch their token through a DEX instead of a CEX.
• No slippage: IDOs provide immediate liquidity post-sale. Liquidity pools are used to provide guaranteed liquidity without slippage. Liquidity pools also help reduce the volatility.
• Quick trading: Once an IDO has been completed, investors can immediately trade the tokens.

What Are The Disadvantages of IDOs?

Below are some of the disadvantages of IDOs:

• Fraud risks: Some argue that IDO project vetting procedures are not as good as those done through a larger regulated exchange. This could potentially present a higher chance of scammers.
• No KYC: No KYC can also be a disadvantage. KYC can help prevent things like money laundering.
• Price manipulation: IDOs can often be the victims of pump and dump scams. Furthermore, whales can buy a large amount of tokens and manipulate the token prices as there is no limit.

What Do I Need To Participate In An IDO?

Every IDO will generally have different requirements, but here are the basics of what you’ll need to participate in an IDO:

1. Get a wallet: Before you can participate in an IDO, you’ll need a  DeFi-compatible crypto wallet to connect to a DEX. A Metamask wallet may be a good option. You’ll also need some crypto to buy the new tokens and pay for the transaction fees. These fees are usually minimal. The crypto you’ll need will depend on the IDO.
2. Complete the whitelisting: Some IDOs require users to complete certain tasks before being able to participate. Some projects may require you to follow their Twitter accounts, retweet certain Tweets, watch videos and join their social channels. Make sure you’ve completed all of these tasks otherwise you may not be able to participate.
3. Follow the instructions: You’ll likely be given a list of instructions to follow in preparation for the IDO. Once the IDO is complete, your new tokens will be transferred to your wallet. In some cases, IDOs may require you to stake your tokens for a specific period. Always make sure you read these fine details before deciding to participate in an IDO.

How To Avoid IDO Scammers

Unfortunately, no matter where you are in the crypto space, there will likely be scammers trying to steal your crypto. Here’s how you can avoid IDO scammers:

1. Do Your Own Research (DYOR): The first thing you should do before buying any cryptocurrency is make sure the project and token is not a scam. Instead of taking someone’s word and going with the flow, you need to DYOR. Research the project, read the White Paper and take a deep dive into the team. If there is little information on the team or the project’s objectives seem far-fetched, it may be a good idea to look for something more trustworthy.
2. Only use trusted links: Scammers will often try to take advantage of the hype around an IDO. They will often create fake links to subscription pages. Always ensure you are using a trusted link when subscribing to an IDO. You should also beware of phishing attempts by scammers. They often send fake links via email or text message prompting you to click a link. Any tokens you transfer via a fake page will be gone forever.
3. Use a trusted DEX or Launchpad: There are many trustworthy DEXs available. Some trusted DEXs include: PancakeSwap, Uniswap and Curve. Using a trusted DEX will help you avoid scammers and ensure you receive your tokens after the sale is completed.
4. Check the Terms and Conditions: Each IDO is different. Don’t make the mistake of thinking each one is the same. There may be something hidden in the Terms and Conditions that could point to a potential scam.
5. Only invest what you can afford to lose: The best thing you can do to protect yourself from scammers is to only invest what you can afford to lose. Cryptocurrencies are notoriously volatile, especially just after a token sale. It’s easy to get caught up in the moment and invest more than you should. You can do as much research as possible, but still fall victim to a scam. Only investing what you can afford to lose could be the thing that saves your portfolio.

Where Can I Find IDOs?

The best place to stay updated and find an IDO is directly from the project. Most projects announce upcoming IDOs on their Telegram, Discord and Twitter channels. If you’re interested in a specific crypto project you can get involved in the community by joining their social channels and stay up to date with all the latest news.

Most DEXs also have a list of upcoming IDOs for users to participate in. CoinMarketCap has also created a list of upcoming and ongoing token offerings. While not all of these are IDOs, it’s easy to identify which ones are by looking at the “stage” section. You can also find a list of the top launchpads here.

Selecting the right project plays a significant role in being a part of a successful IDO. When it comes to finding and selecting the right IDO for you as an investor, there’s nothing better that to turn to good, old-fashioned research.

Future Of IDOs

There’s no doubt that IDOs were naturally the next step for crypto token offerings. While IDOs do address some issues relating to ICOs and IEOs, there is still room for some improvement. There are still various loopholes for whales and scammers to exploit in terms of price movement. By addressing these issues, investors can feel more confident when investing in IDOs. This will not only lead to greater trust and transparency, but projects could also benefit from a boost in raising funds with a new more secure and transparent token generation event or platform.

Decentralized models are no doubt here to stay and there’s a lot of excitement around the next steps. The future of IDOs needs to be focused on the development of safer and more transparent fundraising methods. This will give investors the confidence they need to invest in new projects.

To sum things up, IDOs have been incredibly successful in becoming one of the most used fundraising methods in the crypto market. This is largely due to the combination of increased security, ease-of-use, affordability and accessibility. Thus, it is often safer for investors to take part in a token sale that is hosted through a decentralized liquidity exchange rather than through a project themselves.

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