Blockchain
What is a cryptocurrency Initial DEX Offering or IDO?
The cryptocurrency sector is known for its fundraising prowess: in 2023, $10.7 billion was raised from venture capitalists, three times more than the previous year.
Of course, you don’t have to be a venture capitalist to invest in cryptocurrency. There are many different types of crowdfunding methods at play in cryptocurrency, and one of the most common forms is an initial disbursement offering, or IDO.
What is an Initial DEX Offering?
An initial DEX offering is a method that cryptocurrency projects use to raise funds through decentralized exchanges, also called DEXs. These are cryptocurrency exchanges where users can buy and sell cryptocurrency, but unlike a traditional exchange, there is no centralized authority or team in charge of the project.
Cryptocurrency trades are handled automatically via smart contracts, and a DEX’s community provides the necessary liquidity by staking their funds for rewards. An IDO allows cryptocurrency projects to list their project’s token on one of these DEXs, with the proceeds from sales going to fund the project. Users typically purchase these tokens in the hopes that they will increase in value as the project grows.
Of course, this practice of purchasing an asset in the hopes that the associated project will increase in value and then distribute dividends to the investor falls into murky regulatory territory, as the US SEC often treats IDO tokens as securities.
However, IDOs are a popular fundraising vehicle. A recently established IDO launchpad called Enjinstarter has seen significant ROI for its usershighlighting the use case of IDO in cryptography.
How does an IDO work?
IDOs work by selling tokens on a decentralized exchange to fund a crypto project.
Here’s a step-by-step breakdown:
- Project Lists Token on Decentralized Exchange, Announces Sale
- Users can find the sale on an IDO launchpad or simply by visiting a decentralized exchange
- Users purchase the token directly from the launchpad or DEX by connecting their crypto wallet to the platform.
- The proceeds from the token sale are then added to the project’s funds.
- In some cases, users may receive rewards for purchasing tokens, such as an airdrop reward in the future
- IDOs also help increase the circulation and popularity of a crypto token.
An additional benefit for the project team is that it is typically cheaper to list a token on a DEX than on a centralized exchange, which charges fees. It is worth noting that IDO tokens sold outside of launchpads are often sold after the main IDO has taken place, potentially offering less favorable prices for investors.
For this reason, IDO launchpads are the most commonly used.
An initial DEX offering can be a great way to raise funds if there are no regulatory issues. However, this is not always the case.
Are IDOs legal?
Whether an IDO is legal or not depends on the project and the regulators in each jurisdiction where the tokens are sold. Regulators tend to evaluate IDOs on a case-by-case basis. If a project can demonstrate that a token has utility beyond simply generating revenue for the project and potentially enriching investors as the project grows, the token will not be classified as a security.
Otherwise, regulators may deem the project team to be selling securities, and if they are not registered to do so, this is illegal and punitive action may be taken against the team and potentially investors as well.
What are the main IDO platforms?
Here is a list of the most popular IDO platforms and launchpads where people can participate in IDOs.
Ox
Oxbull is currently the highest valued IDO platform with $29.54 million in 24/7 volume and a total ROI of 5.78x at the time of writing. Oxbull is a technology incubator that offers a variety of services including IDO hosting.
Fjord Foundry
Fjord Foundry is the second most popular IDO launchpad with a 1.35x return on investment to date. The company connects investors with potential cryptocurrency projects to facilitate initial DEX offerings.
DAO Creator
Designed as a launch pad for cryptocurrency founders, this project currently has an ROI of 0.77x and a 24-hour volume of $197 million.
Monkey Terminal
Ape Terminal is another leading IDO crypto platform. This IDO project launchpad has a 3.38x ROI at the time of writing.
Polka Starter
Polkastarter is a blockchain IDO launchpad specifically focused on raising funds for projects in the Polka dot network ecosystem.
How to find new cryptocurrency IDOs
Checking out any of the launchpads mentioned above is a great way to find IDOs that you might be interested in. From there, you can purchase IDO crypto tokens and build your wallet.
Before taking action, it is a good idea to check the regulatory and legal status of any project you are interested in, as investors could be held liable for purchasing unlicensed securities if a regulator rules against a crypto project.
You can also find new IDO crypto projects in online communities on Telegram, Reddit, and Discord. As always, be very careful when mentioning or asking about crypto projects on social media, as online scams are always present in the industry.
You will find many projects on any IDO cryptocurrency list that you might be interested in. Experienced investors usually read the whitepaper of any project, including IDO projects, before making an investment, as well as evaluate the reputation and viability of the project online.
Frequent questions
What are the benefits of IDO fundraising?
IDOs are typically cheaper for crypto projects to set up, due to the lower fees paid to decentralized exchanges. In many cases, there are no fees, while a token listing on a centralized exchange can be extremely expensive. End users do not necessarily have an advantage in going with an IDO over any other type of crypto fundraising.
IDO vs ICO: What is the difference between ICO and IDO in the cryptocurrency industry?
An ICO is an initial coin offering. This method, or perhaps just the use of this term, has fallen out of fashion due to the numerous scams that occurred at the height of ICO fundraising in 2018. The US SEC determined that at one point, two-thirds of ICO projects did not have a working product and were likely scams. The only distinction between an IDO and an ICO is that IDOs list tokens on decentralized exchanges.
Disclosure: This article does not constitute investment advice. The content and materials on this page are for educational purposes only.