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What is an IDO? Initial DEX Offering Explained
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Crowdfunding used to be a simple concept. You invest in a project and receive special perks at its launch. That was the deal.
The advancement of cryptocurrency has changed that. We’re now funding virtual money before it’s even created to make massive profits from the latecomers. The competition has evolved and we call it Initial DEX Offering (IDO.)
The benefits of the Initial DEX Offering are undeniable, but there are also risks. This article will walk you through the pros and cons as well as what is an Initial DEX Offering and how it works.
What is an Initial DEX Offering?
An IDO is a crowdfunding method for cryptocurrency using a decentralized exchange (DEX).
It has many cousins, the most popular of which is ICO, Initial Coin Offering. An ICO is similar to an IDO in many ways in terms of process.
Someone came up with an idea for a new crypto. They begin to market it to potential investors, usually with a ready and attractive whitepaper. While the campaign runs strong, the developers connect with a crypto exchange and pitch their project. Since it’s a centralized platform, the fees for running an ICO can reach terrifying heights. Some have reportedly cost over $3 million.
An Initial DEX Offering does all of that except through a decentralized exchange. A DEX is run by the public, so there is very little cost for running a token offering. You also don’t need to pitch it to anyone and hope for approval.
Sounds like a dream, but there’s more.
How Does an IDO Work?
Similar to an ICO, a developer needs to come up with a project and create a token for it.
Keep in mind that the IDO is different from the coin it sells. The Initial DEX Offering crypto is what investors will use to trade or pay for utility within the project once it launches.
Once a whitepaper for the token is established, the project will get listed on the DEX. The tokens become available for a cheap price. Users then start funding the project in return for these tokens. The idea here is their prices may skyrocket at the project’s conception. Hence, profit.
The funds collected during the IDO end up in a liquidity pool. Once the project is live, the liquidity pool will open for trading. Investors who bought the token early can start trading immediately.
Benefits of an IDO
One of the outstanding benefits of an Initial DEX Offering is the decentralized platform. That eliminates the need for permission and high fees. Other advantages include the following.
After the offering, the IDO will deposit the accumulated funds into a liquidity pool. This will create an active market and users can begin trading right away.
No need for sign-ups
Since it’s a decentralized exchange, you don’t need any personal information to join an IDO or start a project. All it takes is a crypto wallet with enough money.
Initial DEX Offering crypto is usually affordable and secure. The developers are known to also impose purchase limits to prevent market domination by a single investor.
Downsides of an IDO
Something at this scale almost always comes with risks. IDOs come with some inherent disadvantages, but they aren’t too severe.
Lack of control
As no sign-up is required, there is no KYC (Know your customer) or any relevant policy present. Anyone can become a member and own a part of the project without revealing who they are or how they’d accrued the funds they spent.
Make sure to do your research before investing in a project and choose a reputable platform.
It’s easy to start an IDO
Due to the low costs, almost anyone with basic technical skills can create a token and start an IDO. It can be tough to figure out who exactly you’re dealing with. If a project promises too much or sounds too good, it might be a cautionary sign.
Token offerings are becoming more of an industry by themselves within the crypto space. Soon, it will become the optimal way to promote your coin, NFT, or even ideas involving cryptocurrency.
Initial DEX Offering has managed to solve most of the problems of its previous incarnation, ICO. It’s now a go-to method for kickstarting a project and garnering investor attention.If you want to invest in cryptocurrency and don't know where to start - join Liquid! Founded in 2014, Liquid is one of the world's largest cryptocurrency-fiat exchange platforms serving millions of customers worldwide.