Initial DEX Offering (IDO)An Initial DEX Offering is a relatively new strategy in the crypto and blockchain space for assisting enterprises in raising funds. IDOs help blockchain-based projects raise funds by allowing them to sell their tokens on decentralized exchanges (DEXs). IDOs have increased in popularity as a financing tool for decentralized finance (DeFi) and decentralized applications despite their recent development (DApps). In June 2019, RAVEN hosted the inaugural IDO on the Binance DEX. The IDO was a success, and others have since emerged in the market, such as the Universal Market Access Protocol IDO and the SushiSwap IDO. DEXs are used by projects that want to employ an IDO to raise funds. DEXs have a greater degree of decentralization than CEXs. Uniswap
ProsIDOs have a number of advantages, one of which is that they increase liquidity for decentralized exchanges (DEXs). In the crypto realm, decentralized exchanges manage smaller trade volumes than centralized exchanges. DEXs want to close this gap by using IDOs to obtain control of a big portion of the crypto trading volume. Furthermore, IDOs allow crypto and blockchain companies to raise cash in a more decentralized manner. IDOs are also compatible with DeFi protocols and liquidity pools, allowing them to participate in one of the burgeoning and popular areas of the blockchain industry.
ConsIn the crowdfunding world, the IDO strategy is still relatively new. It has yet to garner the kind of traction that initial coin offerings (ICOs) and initial exchange offerings (IEOs) have had in recent years. This might be a disadvantage for initiatives looking to generate financing through IDOs because the approach normally results in less cash being raised. On the investor's side, there is a lack of understanding about IDOs. DEX launchpads can be difficult to grasp for the typical investor. These launchpads are usually technological, and individuals without sufficient knowledge may find them difficult to use.
How Does An IDO Work?To assist the token sale, an IDO uses a decentralized exchange (DEX). The DEX receives a crypto project's tokens, users contribute funds via the platform, and the DEX completes the ultimate distribution and transfer. These processes are fully automated and run on the blockchain using smart contracts. The rules and stages of an IDO are determined by the DEX that is running it, although there are a few popular approaches:
- A project is accepted to run an IDO on a DEX after a verification process. They provide a fixed amount of tokens for a certain price, and users exchange their funds for these tokens. The tokens will be distributed to investors during a token generation event (TGE) later.
- There is usually an investor whitelist. To join the list, you may be required to execute marketing chores or simply provide your wallet address.
- A portion of the cash raised will be utilized to establish a liquidity pool using the project's token. The remaining money are distributed to the team. After the TGE, investors can trade the token. The offered liquidity is usually locked for a set amount of time.
- The tokens are transferred to the user at the TGE, and the LP is made available for trading.