The cryptocurrency community has been particularly creative when it comes to finding new ways to bootstrap projects and raise funds.
In late 2017 and 2018, we saw the appearance of initial coin offerings (ICOs), where teams would raise money by selling a part of their total token supply to the public. This created an absolute euphoria as these freshly minted coins would multiply in value once they were listed on an exchange and open for trading.
ICOs were mainly deployed through Ethereum’s ERC-20 protocol standard, and they quickly became the leading use case for ETH-based tokens. The first ICOs in 2016 raised just a few million, but a year after that, the average sum was between $20 and $30 million. Soon after that, bigger projects like Bancor raised over $150 million.
The hype was so strong back then that some projects managed to raise whopping sums. The best example for the peak is perhaps EOS – the project received more than $4 billion in funding throughout its long-lasting token sale.
Like everything that becomes too hyped too fast, the ICO bubble burst in 2018, but it didn’t take long for us to see a new model with a few key differences. Towards the end of the first quarter of 2019, initial exchange offerings (IEOs) made their grand entrance.
Largely spearheaded by the Binance Launchpad, these IEOs followed the crowdfunding model of ICOs, but the projects were vetted a lot more carefully. Since they were launched on popular exchanges such as Binance, KuCoin, Huobi, OKEx, and so forth, the exchange teams did extensive due diligence, hence why IEOs weren’t so plentiful as ICOs – there was a higher barrier to entry. Aside from the fundraising, IEOs also benefited from getting listed on the exchange, which managed their token sale. One of the biggest pains of ICOs investors back in 2018 is whether or which exchange will agree to list their token while the variety of ICOs was huge.
Some of the more popular projects that are currently multi-million and even multi-billion dollar enterprises started off as IEOs. These include Elrond, Matic Network (now Polygon), Celer Network, WazirX, and Band Protocol.
In light of the listing concerns, together with the growing popularity of decentralized exchanges such as Uniswap (Ethereum) and PancakeSwap (BSC), anyone can list a new token and start providing liquidity to it. So it was just a matter of time until token sales would take advantage of this.
So, in 2021, a new kid on the block rendered the above rather obsolete. Initial DEX offerings (IDOs) have taken center stage, so let’s have an in-depth look at what they are and everything you should know about them.
What is an Initial DEX Offering or IDO?
It’s worth noting that the original concept of initial DEX offerings has shifted tremendously over the years, and, in its current most popular form, it has little to do with what it was intended to be back when the first IDO took place.
In its essence, an initial DEX offering is a successor to ICOs and IEOs in that it aims to raise money and bootstrap a project. However, unlike ICOs and IEOs where the tokens are sold prior to the listing, with IDOs, they are listed immediately on a decentralized exchange (DEX) – hence, the name.
The first-ever IDO to take place happened in June 2019 – Raven Protocol. The team behind the protocol chose to use Binance’s decentralized exchange – the Binance DEX. They put up the token there at a specific price, and traders could buy it until the hard cap was reached. This is how the first few IDOs took place on the majority of platforms.
This particular way of fundraising had, in theory, a few powerful benefits, including:
- Fast trading
- Immediate liquidity
- Open and fair fundraising
However, investors weren’t satisfied. The reason was that these token sales would essentially get bought up in a matter of seconds, leaving little chance for the average Joe investors to get a share and…