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Understanding crypto fundraising: ICO, IDO, IEO

Understanding crypto fundraising: ICO, IDO, IEO

What are Initial Coin Offerings?

ICOs are another form of cryptocurrency that businesses use in order to raise capital. Through ICO trading platforms, investors receive unique cryptocurrency “tokens” in exchange for their monetary investment in the business. It is a means of crowdfunding through the creation and sale of a digital token to fund project development.

This unique token functions like a unit of currency that gives investors access to certain features of a project run by the issuing company. These tokens are unique because they help fund open-source software projects that would otherwise be tough to finance with traditional structures.

Interested investors can buy into the offering and receive a new cryptocurrency token issued by the company. This token may have some utility in using the product or service the company is offering, or it may just represent a stake in the company or project.

What is Initial DEX offering?

Initial DEX offering or IDO is a new fundraising model that offers better liquidity of crypto assets, faster, open and fair trading. IDO model is the successor of fundraising models such as ICO, STO, and IEO.

Before we learn about IDO crypto, let’s brush up on our knowledge of the fundraising concept via token sales. If a company wants to raise funds to build new products or expand its business, it has multiple options. The traditional option is to go for financial loans or investments from banks and VCs.

However, since the success of cryptocurrencies – Bitcoin and Ethereum more companies had used it as an instrument for raising funds via token sales. Here companies create crypto tokens and issue them to the general public in exchange for Bitcoin, Ethereum, other major cryptocurrencies, and fiat currencies. This process is called fundraising via token issuance.

 

  • An IDO is a fundraising method in which the IDO coin is issued via decentralized liquidity exchange.
  • A decentralized liquidity exchange is a type of crypto asset exchange that relies on liquidity pools with which traders can swap tokens.
  • Liquidity pools are pairs of crypto assets and stable coins. For example, USDT/ETH is a liquidity pair. Traders can swap them between different crypto assets and stable coins based on market conditions. As the volatility of stablecoins is negligible, it offers a safe option for traders to manage the high volatility of crypto tokens and assets by swapping them with each other.
  • As a result, decentralized liquidity exchanges enable companies to launch a token and access immediate liquidity.

In an IDO, the IDO coin is issued via decentralized liquidity exchanges, such as Uniswap, Bancor, or Binance. Binance DEX hosted the first-ever IDO. According to them, a fundraising method enables protocols available for traders without being controlled by others. An IDO can be self-organized by anyone. So, it does not bear any assurance or guarantee as the issuer controls the event. IDO is gaining popularity as more businesses are considering it for fundraising.

What are Initial Exchange Offerings (IEOs):

In the meantime, the concept behind ICOs had begun evolving and Initial Exchange Offerings (IEOs) – token fundraising events on cryptocurrency exchanges – began to increase in popularity.

In contrast to ICOs, tokens in initial exchange offerings are not launched via the platform of a project, but via an intermediary exchange. Thus, not only issuers and investors are involved but rather three parties: issuers, investors and a cryptocurrency exchange. Investors buy tokens in the expectation to receive certain benefits on the platform, which are analogous to a loyalty program.

Initial exchange offerings bring a number of advantages. Depending on their reputation, exchanges can rely on an extensive user base. A listing on an exchange gives projects extensive reach, measures of legitimacy and credibility difficult to generate in other ways. Also, founders of the project issuing a token can expect the exchange to serve as a secondary market for the token after the IEO ends. In turn, IEOs increase trading volumes on an exchange.

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