When it comes to creating innovative ways to kickstart projects and raise capital, the crypto community has been incredibly innovative, creating 3 main methods to boost funds: ICO, IDO, and IEO. The 3 abbreviations are some of the most familiar terms in the crypto world as they all refer to fundraising blockchain platforms.
Although ICO, IEO, and IDO have the same purpose, each method has its own operation along with pros and cons. This article will define these 3 forms and help you quickly visualize the difference.
Disclaimer: Please take note that the information in this article is NOT investment advice and is published solely to inform. If you are considering investing in any of these 3 procedures, please be cautious to avoid fraud or potential losses.
1. Initial Coin Offering (ICO)
An ICO (initial coin offering) serves the same objective as an IPO (initial public offering) in the stock market since it is a method of raising funds by issuing cryptocurrency for the first time on the market at a reduced price. ICOs are a useful approach to attract investors and boost the demand for a novel cryptocurrency.
While IPOs usually apply to established companies with the sale of part of the company’s ownership, or shares, to raise capital; investors in ICOs will not have any ownership of the company. Furthermore, the project can raise capital from the crowdfunding community even though the product has not been fully developed.
Here are some of the biggest ICOs:
- Sirin Labs hit $158 million in December 2017
- Filecoin raised $257 million in September 2017
- HDAC brought $258 million in December 2017
One of the benefits of the ICO is its simplicity. Compared to the time-consuming and complicated procedure of purchasing shares, buying tokens in ICOs is relatively simple. One factor contributing to this can be limited regulation.
Companies can swiftly obtain money and have it available, making it simpler to create traction for the firm at an early stage.
Depending on the particular ICO, a large network behind it, such as the Ethereum network, could attract further attention and possible appreciation in value.
Due to the inherently volatile nature of cryptocurrencies, most ICOs investors are less patient than their regular equities counterparts. Additionally, ICOs are not well-regulated and there is no way for investors to be verified or protected should. These should make you consider your risk appetite before investing.
While investors might anticipate great returns on investment in the future, the lack of liability means that there is no assurance that the firms mentioned will be able to keep their promises.
|Read more: STOs And ICOs: Analysis and Comparison|
2. Initial Exchange Offering (IEO)
An IEO (Initial Exchange Offering) is conducted through cryptocurrency platforms and exchanges. In contrast to ICOs, which allow crypto projects to engage with investors directly, IEOs always include a third-party centralized crypto exchange. Startups who seek to publish an IEO on a centralized exchange (such as Binance, Okex, etc.) must pay a listing fee as well as a percentage of the tokens traded. Furthermore, projects are closely reviewed in IEOs, and the obstacle for projects participating in an IEO can be difficult to overcome. Hence, there is more confidence among investors and a greater crypto community participating in IEOs compared to other models.
Some significant IEOs:
- Green Metaverse Token achieved an impressive 144.74x ROI (Return on investment) over its IEO price.
- Axie Infinity hit a massive 230.50x ROI.
Compared to ICO, the presence of an intermediary, the exchange holding the IEO, can be assuring. To clarify this point, in order to prevent its credibility from being hampered, the exchange must conduct a complete evaluation of a token sale. Moreover, thanks to tighter regulation, reliable exchange platforms are bound to safeguard investors from potential fraud.
Unlike ICOs, investors engage directly in the exchange and purchase straight into their accounts instead of transferring funds into smart contracts.
The assuring presence of a centralized exchange can sometimes be problematic as IEOs feature far stricter restrictions for investors in order to participate in the token sale, thereby excluding some possible investor groups and increasing the value of a token through artificial scarcity.
Another drawback of IEOs is transparency which is not usually considered, given the credibility of the exchange. Despite the screening process and the restrictions, investors still need to do their research extensively regarding the regulation that the exchange set.
3. Initial DEX Offering (IDO)
An IDO, or Initial DEX Offering, is a type of fundraising in which the token is issued through a decentralized exchange (DEX), and draws capital from retail investors. IDO is seen as the successor of other fundraising models such as the ICO, STO, and IEO as it is the latest model. IDOs provide businesses with a mechanism for getting their crypto communities engaged in a platform that both scales their products and allows them to make sound business decisions about their assets.
Similar to ICO (Initial Coin Offerings), investors do not own equity of the firm that hosts the IDO. In contrast to ICO, which peaked in 2017-2018, IDOs often have a relatively low market valuation when they launch, which can be a few million or less.
Some noticeable IDOs include:
- Velhalla achieved nearly 190x multiplier from its IDO price
- Unizen achieved a massive 127x return for IDO participants
- WagyuSwap achieved a whopping 85x return.
The primary benefit of IDOs is open and impartial fundraising. Companies, particularly startups, do not require a centralized exchange and approval to launch a fundraising event using the IDO fundraising strategy. In addition, anybody, not only private investors, may establish or participate in IDO.
Secondly, it is especially fast to trade as IDO may be executed directly on the blockchain platform by the project’s development team via transactions from the issuer themselves.
With the inherent price changes of crypto assets and loose regulation, which is even more limited than ICOs, investors participating IDOs are bound to face extreme volatility. When the first traders acquire tokens, the price inevitably skyrockets since just a few will be able to obtain the token initially. As a result, there is an immediate price fluctuation.
Another setback is the inadequate data. At the moment, IDO models have no influence on how many tokens are purchased, thus the project cannot estimate the precise capital that has been raised.
Ultimately, ICO, IDO and IEO have their own merits and setbacks, especially when it comes to the crucial information of a given project such as its founders’ expertise or the underlying technology. Some can be safer than others, but that does not translate into absolute assurance.
It is the investors’ duty to research the project and to invest responsibly. The best way is to educate yourself and to be more informed. Synodus can help you with that through our comprehensive blog collection.
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