Advantages and Disadvantages of Investing in an IDO

A token sale, or token offering, is a fundraising mechanism in which a company or organization creates and sells digital tokens or coins in exchange for cryptocurrency or fiat cash to investors and the general public. Token sales involve creating a new coin or token using a smart contract on a blockchain platform like Ethereum.

With over 22,000 cryptocurrencies in the market today, how are so many projects funded? There are several methods to fund a cryptocurrency project. Initial Coin Offerings (ICO), Initial Exchange Offerings (IEO), Initial Game Offerings (IGO), Initial DEX Offerings (IDO), and Initial Farm Offerings are all popular fundraising techniques (IFOs).

Funds from these models are used for R&D, marketing, and launching new goods and services.

Of all these fundraising methods, IDOs have quickly gained popularity as the preferred fundraising method. 83% of all token sales take place in the form of IDOs. While IEOs account for 13% and ICOs for 4%. 2022 has seen approximately $228 million raised on IDO platforms from 362 IDOs. The DeFi sector has raised the most funds on IDO platforms, followed by GameFi. 

What is an IDO in crypto?

An IDO, or Initial DEX Offering, collects cash for cryptocurrency projects by selling freshly created digital tokens on decentralized exchange (DEX) platforms.

In contrast to Initial Coin Offerings (ICO), which normally require raising funds through a centralized platform, IDOs enable cryptocurrency projects to raise funding through decentralized platforms, giving investors more accessibility, transparency, and security.

ICO Vs IEO Vs IDO

Let’s understand how an IDO differs from an ICO and an IEO:

How do crypto IDOs work?

For token sales, IDOs employ a DEX. The DEX receives tokens from cryptocurrency projects, and customers deposit funds through the platform. DEX is in charge of the ultimate distribution and transfer. Smart contracts handle the procedure automatically.

The DEX normally determines the rules of an IDO. However there are a few important steps:

Following a verification step, a project can launch an IDO on a DEX. They issue a predetermined amount of tokens at a predetermined price, and investors deposit monies in exchange for these tokens. Tokens are later distributed to investors during the token creation event (TGE).

Typically, an investor whitelist is present. To be added to the list, you may be asked to do marketing chores or enter your wallet address.

A portion of the money is utilized to establish a liquidity pool based on the project’s token. The remaining money is distributed to the team. Following the TGE, investors will be able to trade the token. The offered liquidity is frequently locked in for a specified time.

The tokens are transferred to the user at the TGE, and the LP is made accessible for trading.

Benefits of an IDO

Initial Dex Offerings (IDOs) have several benefits that make them attractive to cryptocurrency investors.

• One major advantage is that investors do not have to interact directly with the project; they can rely on the smart contract’s verification and authentication process. A reputable IDO platform with a successful sales track record can give investors some confidence in the offering.
• IDOs offer immediate liquidity after the sale without the risk of a pump-and-dump scheme. Part of the funds raised are put into liquidity pools, creating a liquid market for the token. This reduces slippage and volatility.
• Participating in an IDO is easy, as investors only need a wallet and funds to participate in the transaction, and no personal information is required. This makes it accessible to a wide range of people. However, the lack of Know Your Customer (KYC) or Anti-Money Laundering (AML) requirements may be a disadvantage.
• IDOs are a cost-effective and readily available option for small, unknown projects to issue tokens. Doing so through a DEX is often easier and less expensive than a large, centralized exchange.
• In addition, many IDOs have anti-whale measures in place, ensuring that no single investor can purchase excessive tokens.

Downsides of an IDO

Despite the benefits, there are also drawbacks to Initial Dex Offerings (IDOs) that investors should consider:

• Higher Risk: IDOs are considered to be riskier than traditional initial coin offerings (ICOs) or initial public offerings (IPOs). This is because IDOs are often launched by relatively new projects with limited track records, and there may be a lack of transparency regarding the team, their goals, and the use of funds.
• Limited token Availability: Unlike traditional offerings, the number of tokens available for purchase during an IDO is often limited. This can create a sense of urgency among investors, leading to a frenzy of buying that can drive up the token’s price.
• Limited Platform Choices: Most IDOs are conducted on a limited number of decentralized exchanges (DEXs), which can limit the options available to investors.

How to identify IDOs with potential?

When looking for the best IDO crypto to invest in, there are some key considerations to remember:

Utility: A strong IDO project should solve a problem or add genuine value to the market. While some meme coins may be exceptions, most successful IDOs have a clear utility.

Partners and investors Look into the project’s private funding rounds to see if any prominent individuals or organizations have invested. Significant investors can indicate a project’s potential for success.

Platform safety: It’s important to only select safe and trusted platforms for participating in IDOs. Some well-known and reputable launchpads for cryptocurrency IDOs include AdLunam, Binance, Bounce, BSCPad, CoinxPad, and DAOMaker.

How to invest in an IDO?

To participate in an IDO, investors typically need to be whitelisted on the launchpad. Whitelisting helps to cap the number of participants and the total number of tokens they can purchase, as IDOs are typically smaller than IEOs and ICOs.

To be included in a whitelist, investors usually need to own a certain number of launchpad tokens, and those with more tokens are more likely to be accepted. Non-token holders may also stake their tokens to boost liquidity or participate in a whitelist lottery offered by some launchpads.

KYC (Know Your Customer) checks are typically part of the whitelisting process for IDOs. Investors will need a web3 wallet like MetaMask to integrate with the launchpad and complete the KYC checks.

These checks are designed to verify an investor’s identity and ensure compliance with regulatory requirements.

By integrating a web3 wallet with KYC checks, launchpads can help to promote greater security and transparency in the IDO process.

AdLunam stands out as a creative alternative when it comes to IDO launchpads.

The platform includes a seed pad, an Engage to Earn “Proof of Attention” model, and the standard IDO launchpad service. AdLunam distributes tokens to investors according to their Attention Rank. The launchpad also enables new enterprises to raise funds for seed and private rounds. As a result, AdLunam is worth considering if you’re searching for an IDO launchpad with some extra perks.

Having said that, you should always Do Your Own Research (DYOR) and consider your risk tolerance before investing in an IDO.