In the planning of the blockchain project development process, there comes a moment when authors need to choose the way of funding their idea. They have a w several options to choose from. In this article, we will cross-sectionally discuss the funding forms – ICO, IEO, and IDO and point out the pros and cons of each. Ready for the next portion of knowledge from the crypto area? Let’s make those technical shortcuts clear for everyone!
Initial Coin Offering (ICO)
The mechanism of ICO working is based on selling the parts of the token pool in the initial stage of project development. Due to it, authors are getting extra capital for reinvestment and further project evolution. Investors have an excellent opportunity to buy an asset for the lowest price and multiply the profit in the future. ICO is realized via the token issuer’s website. The company is responsible for the KYC/AML procedure, conducting the marketing, and reaching out to the exchange listing at the right moment. For those who have used the classical stock exchange so far, the word may connote IPO – Initial Public Offer, but we need to remember those are two different things. ICO doesn’t make you a shareholder. It makes you the owner of the future value of the token – in an economic or functional context. The most significant benefit for investors – profits multiplication was mentioned before. There is also a risk. The project may be unsuccessful, and you can lose your money, but if everything goes well, the ICO can make your portfolio go green in a short time. Let’s calculate the hypothetical situation. You are buying ten thousand tokens for 5 cents on the initial stage of the project. After two years, the token value reaches 1 dollar. Congratulations! Your assets bought for five hundred dollars is worth ten thousand dollars today! Sounds unbelievable? The crypto market has seen even more sensational stories.
The profitable future is tempting, but we need to remember about risks. Anyone can conduct ICO if it is legal in their country. General ease o running ICOs generates a vast space for malpractices. Authors can disappear, or the business model can always fail. The market is discounting everything, but no one can foresee the future. As a curiosity, we can say a few words about the less risky model of funding – Security Token Offering. In STO, tokens are based on the actual asset that guarantees a real future value for him – a share in the profits or a predefined rate of return. This is an exciting solution for people who prefer to play safe.
Initial Exchange Offering (IEO)
The solution for ICO’s problem and the next step in crowd selling development was IEO. In this case, the mechanism of operation was based on transferring tokens for Centralized Exchange (CEX), which will provide KYC/AML procedure and let developers reduce marketing costs by reaching your users directly. CEX performed a whitepaper analysis of the project before the IEO and allowed for automatic listing after the crowd sale was completed. For investors, that option sounded great.
Successor to ICO and IEO – Initial DEX offering
What exactly is Initial Dex Offering? It is a solution for ICO and IEO problems that makes it one of the hottest topics in the crypto world. In the first phases of IDO concept development, tokens were immediately listed on DEXes, but there was a problem with bots that bought them within seconds. The issue was solved by external launchpads, which were responsible for the token distribution process from the organizational side. The main advantage of that solution is that launchpads are diligently examined DEXes meanwhile, the crowd selling is conducted decentralized. Acquiring authorization to purchase tokens is a process, which allows the demand to rise sustainably without the risk of immediate token price crash when it enters the exchange. IDOs on launchpads are not available for everyone. You need to pass the project’s author’s requirements to have the right to allocate a certain amount of money. This process is called whitelisting.
The outstanding feature of the crypto industry is the constant strive for improvement. When on the market appears a new solution like, e.g., IEO, then its problems are diagnosed by the market, and immediately there is a solution in the form of an alternative. At the moment, IDO collections on launchpads are the most incredible way to invest your money from the financial and organizational point of view. The only risk you take is a natural business one. From the technical side, it is ideal for people who want that decentralized system to provide them with a fair, safe, and effective tool for allocating funds. IDO has already achieved great success, but in the future, with the progression of the crypto industry itself, IDO has the potential to become a standard solution for project authors who want to come across the clients’ expectations.