What are IDOs in cryptocurrency and whether it is worth investing in them

IEO or initial exchange offering is a sale that is conducted by a cryptocurrency exchange. This tokensale is very similar to an ICO. The main difference is that the specialists of the exchange thoroughly audit the project.

If the audit finds traces of fraud, obvious technical errors in the code or facts indicating the “rawness” of the startup, it is rejected. Exchanges care about their reputation and try not to get involved with outright scams.

Many experts from the world of cryptocurrency stated that this method is the most suitable for all parties to the agreement. But there are some inconvenient moments. IEO involves mandatory verification (KYS) for investors, and companies launching a new altcoin are required to pay exchanges a lot of money for listing.

IDO in crypto is the latest model of a tool for attracting finance. During its development, they tried to combine all the positive things from ICO, IEO and STO and avoid their disadvantages.

If you compare the above options for obtaining investments among themselves, you can identify significant differences. For example, in IDO there are no listing fees, and funds are accumulated on a decentralized exchange, such as Uniswap or Binance DEX:

Who organizes and how the process takes place

An interested visitor to a decentralized exchange can register a new virtual coin after activating a certain smart contract. After providing liquidity to the pool, the token issuer can organize a tokensale. If the project passes validation (to weed out scam), then the process of raising capital is launched directly. This can take place either on a decentralized exchange or on Launchpad platforms.

IDO Launchpad

Launchpad are specialized online platforms aimed at raising money to launch crypto projects. The difference between a launchpad and a classic initial decentralized offering is that such platforms are no longer connected to an exchange. They are represented by a community of investors who must own, circulate and deposit internal project tokens (for example, Polkastarter – POLS, Binance – BNB, DAOMaker – DAO Power, BSCstarter – START). Owning such coins allows you to participate in crowdsales, and in some cases vote in the funding of certain projects.

Investments in IDO

The main objectives of investment in any field are to maximize profits and minimize the risk of losing money. The opportunities offered by IDO cryptocurrencies are great. With the correct assessment of the next startup, it is possible to increase the initial capital several (sometimes tens or even hundreds) times in a relatively short time. If you choose luncheap platforms as an investment tool, it will significantly reduce the risks. Some projects provide insurance against the loss of invested assets, and in case of failure, the investor will simply not receive the expected profit, but will not lose the principal capital.

The cryptocurrency market is very young and subject to significant fluctuations. However, such conditions with a certain amount of luck and correct analytics allow you to get high profits.

Possible risks

Despite the fact that DeFi projects level out the participation of intermediaries, the danger of losing their capital lies in the very code of smart contracts, in which attackers find bugs (developer errors) or expose the entire network to a hacker attack.

Another risk factor for investors is the high probability that after listing, the price of the coin will not only fail to rise, but also sag significantly.

Tokens based on DeFi protocols are very dependent on the sharp fluctuations in the value of bitcoin and other liquid cryptocurrencies from the top ten. This volatility of coins makes them very risky.

Advantages and disadvantages of investing in IDO

As in any commercial project, participation in tokensale has its positive and negative sides.

Pros of Initial DEX Offering:

• Quick listing. Token holders usually don’t have to wait long for coins to start trading on an exchange. The listing happens as soon as the IDO of the crypto ends.
• Availability. The simplified validation process has made it possible for many more startups to raise the money they need.
• Transparency. This point is not unique in the cryptocurrency environment. But it is still convenient to be able to check token contracts and adjust your plans.

The disadvantages of releasing a project through IDO include:

• The downside of accessibility. Not quite clear criteria for verification lead to the emergence of bogus projects.
• Forced purchase by users of a significant number of startup tokens, which makes participation more expensive.
• Lack of coin price control mechanisms. This situation leads to the fact that using special software – a trading bot – it is possible to buy up more coins at the base price. This is what happened a year ago, during IDO BZRX

Summary

The result of the development of mechanisms for raising seed capital to promote cryptocurrency startups was the emergence of IDO. This led to the formation of startup platforms of a new type – Launchpad. Such platforms have a clear interface, decentralized functions and give more opportunities to developers and investors. The former can quickly and guaranteed raise money for their project, and the latter can get a high percentage profit without the risk of encountering scammers or fakes.

The start of token trading on a decentralized exchange does not guarantee an obligatory price rise.

A relative disadvantage of lunchepads is that to participate in allocation, which is not guaranteed, you have to buy a large number of internal coins, and the value of such investments can be significant (hundreds of thousands of dollars).

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