In recent years, funding using crypto assets (virtual currencies) has become popular. There are multiple ways to do this, but the one that has increased rapidly in 2022 is “IDO”. But, what is Initial DEX offering (IDO)?
In the past, when it came to raising funds, it was common to obtain loans from banks or issue shares. These methods require the intermediation of a third party and are not possible unless certain qualifications and conditions are met. In that respect, IDO can be held by anyone using a dedicated platform, and there is no need to pay interest, dividends, or even repayments. Moreover, since it utilizes blockchain technology backed by smart contracts, it also has the advantage of being much cheaper than before and the speed of raising funds is much faster. These merits are primed to attract more attention to IDO.
So, this time Basic knowledge about What is Initial DEX offering (IDO), differences from ICO, IEO, IDO procedures, etc. will be explained in detail.
WHAT IS INITIAL DEX OFFERING(IDO)?
IDO is an abbreviation for “Initial DEX Offering”, which means an event to raise funds by issuing cryptographic assets on DEX (Distributed Exchange).
To hold an IDO, you need a purpose for fundraising. The point is how to attract a large number of funds from investors by skillfully appealing to the purpose, market size, and future potential of newly issued crypto assets.
It looks like an IPO (initial public offering). An IPO is a way for an unlisted company to list its shares and raise funds. Unlike stocks, IDOs do not have voting rights, dividends, shareholder benefits, etc., but the idea of raising funds in the form of crypto assets by notifying them before they are traded on virtual currency exchanges is similar to that of IPOs. It can be said that when newly issued cryptographic assets start trading in the market, they can soar from several times to dozens of times in a short period, and investors can earn huge profits. Conversely, if the price drops significantly, you will lose a lot.
In DEX, there is no review by a specific administrator, so anyone can hold an IDO, regardless of whether they are an organization or an individual, as long as they are planning some kind of project. Of course, if the project itself is not attractive, investors will not be interested, and IDO may end up failing.
WHAT IS THE DIFFERENCE BETWEEN IDO AND ICO?
A word similar to IDO is “ICO”.ICO stands for “Initial Coin Offering” and is one of the fundraising methods using unique crypto assets like IDO… ICOs appeared around the time of the cryptocurrency boom in 2017, and are used to raise funds by appealing to investors with the promise of planned projects. It is sometimes called a “token sale” or “token auction” for easy understanding and takes a style in which cryptocurrency issuers and investors directly trade.
Since there is no examination, it is easy to enter, and since crypto assets can be purchased cheaply before they are listed on the virtual currency exchange, a lot of funds have been invested by speculators who expect the price to rise after listing.
THERE IS ALSO AN IEO
When the difficulty of raising funds through ICO became apparent, the next thing that appeared was “IEO (Initial Exchange Offering)”. IEO is a method of raising funds through a centralized exchange (cryptocurrency exchange).
Reflecting on the frequent occurrence of fraudulent acts in ICOs due to the lack of administrators, in IEOs, exchanges examine the contents of newly issued cryptographic assets and projects, and only stocks that pass through them are allowed to raise funds.
WHY IDO IS ACTIVELY USED?
IDO is more advanced than IEO and has attracted investors’ attention. It began to be held little by little in 2020 and has exploded since the beginning of 2022. Let’s dig into why.
IEOs are a great way to raise funds, but the vetting process has raised the barriers to entry for token issuers. The investment side also has to clear the conditions such as opening an account as mentioned above, so it is undeniable that the market lacks excitement. Therefore, there was a need for a system that could attract a wide range of investors without screening. On the other hand, risky mechanisms like ICOs cannot gain investor confidence.
IDO was developed based on this trend. DEX used in IDO is a Defi (decentralized finance) that allows users to directly lend and remit without revealing their identity 24 hours a day, 365 days a year, without going through a centralized entity such as a bank or securities company. By using Ethereum smart contracts, it is possible to provide services that are connected to various external sources such as finance, securities, insurance, and market data even on the blockchain. This is Defi, and DEX (Distributed Exchange) exists as one of these innovative smart contracts.
Remittances are fast, anyone can participate without showing an ID, and all transactions are recorded on the blockchain, ensuring high transparency. This convenience and reliability of IDO utilizing DEX are very attractive to both token issuers and investors.
STEPS TO IDO
The most important thing in conducting an IDO is whether you can present an attractive project that attracts the interest of many investors. White papers are often used by investors as a basis for making investment decisions. Issue a white paper that describes the concept and roadmap of the project, the size and price of the token to be issued, the name, and what kind of technology will be adopted, and appeal to the future with persuasive content. If you can, you can expect a higher success rate for IDOs.
FUTURE OF IDO
As of December 2022, multiple IDOs are being held in a week, and it is not uncommon for token prices to be dozens of times higher after the start of the token sale.
The fact that IDO is active means that there are many more projects. Some of the projects are sloppy, and it’s hard to say that all of them have been successful. However, cryptocurrency funding is directly used for various projects on the blockchain, and among them, the Metaverse (virtual space) is noteworthy.
The future market size of the Metaverse is said to be in trillions, and it is believed that NFTs that can be traded in the virtual space will account for at least a small part of it. Crypto assets such as Ethereum will be essential for this, and the role played by IDOs in procuring these funds will be immense.
On the other hand, however, crypto assets are prone to money laundering and fraud and are always at risk of abuse. In addition, DEX is not recognized by the Financial Services Agency and the legal system has not caught up, so even if you get into some kind of trouble, you will be responsible for everything. If these risks are mitigated and convenience and safety are ensured more than now, the need for IDO will surely increase.
Blockchain technology, which is speedy and does not incur fees, is rapidly expanding its use in all areas across industry boundaries. The crypto asset market is at the top of the list, and if these markets, such as NFT and Defi, which caused a big boom in 2022, continue to expand, it can be expected that the need for IDO will increase dramatically.