You've probably heard about Initial Coin Offerings and Initial Token Offerings, but what is an Initial Decentralized Offering (IDO)? IDOs are a great way for projects to distribute their tokens. By allowing users to “farm” tokens instead of selling them, a project can achieve significant distribution, which should be a primary objective of all ICOs.
A typical IDO lets users lock funds in exchange for new tokens during the token generation event. Some of the raised funds are then added with the new token to an LP before being returned later to the project.
In this article, we will discuss what an IDO is and how to partake in an IDO successfully.
What is IDO’s
Initial DEX Offering (also called IDOs) are tokens that represent any asset class launched on a decentralized exchange (DEX). Just like in the traditional system where startups receive venture capital before launching, crypto projects issuing IDOs receive financing from individual investors. IDOs offer businesses a tool for engaging their communities in an economy that both enriches their products and services while allowing them to make smart business decisions regarding their assets.
How Does IDO’s Work
IDOs are a way for projects to distribute their tokens. In an IDO you have participants who invest in a project by sending in funds that are locked for a period of time. Some of the funds raised during the crowd sale are then added with a new token and minted. The newly created tokens are sent back to investors when the lock-up periods expire. Participants usually have higher discounts on the token price depending on how early they send funds into the IDO.
The rules and stages of an IDO depend on the DEX running it, but there are some common methods:
1. After a vetting process, a project is accepted to run an IDO on a DEX. They offer a supply of tokens for a fixed price, and users lock their funds in return for these tokens. Investors will receive the tokens during the token generation event (TGE) later.
2. Usually, there is an investor whitelist. You might have to complete marketing tasks to join the list or simply provide your wallet address.
3. Some of the funds raised are used to create a liquidity pool with the project's token. The rest of the funds are given to the team. Investors can then trade the token after the TGE. Typically, the provided liquidity is locked for a certain period.
4. At the TGE, the tokens are transferred to the user, and the LP opens for trading.
How to participate in IDO’s Successfully
One way to participate in an IDO is by making a predetermined purchase. You can choose a specific amount of money to invest and receive as many IDOs as possible for that amount during the public sale. You can buy IDO for the price that the project team sets it to. By doing this you give them a small boost of funding in exchange for new tokens.
To participate in IDOs, you need to own a compatible wallet like Trust Wallet. You will also need to ensure your deposit address is compatible with the IDO you are participating in. Projects give information about their wallets and deposit addresses for participation during the sale. If you’re a beginner, we have a guide on how to effectively use Trust Wallet.
Always do your own research on the project and invest via a trusted DEX. This includes looking closely at the IDO's mechanics and the project's team and tokenomics. As always, only invest what you are comfortable losing as token offerings involve high risk.
IDOs provide a cheap and simple way for projects to distribute their tokens. IDOs have been around for a while, but they are still evolving and providing new models like the Initial Farm Offering (IFO). We may also see increasing KYC requirements as the area becomes more regulated.