While trading in crypto and doing market analysis You might have came across various terms like IDO and IDO have wandered what they exactly are or how to they diffrentiate from each other don’t worry in this article we will make it very clear that what are these 2 terms
ICO
An initial coin offering (ICO) is the cryptocurrencyindustry’s equivalent of an initial public offering (IPO). A company seeking to raise money to create a new coin, app, or service can launch an ICO as a way to raise funds.
Interested investors can buy into an initial coin offering to receive a new cryptocurrency tokenissued by the company. This token may have some utility related to the product or service that the company is offering or represent a stake in the company or project.
How an Initial Coin Offering (ICO) Works
When a cryptocurrency project wants to raise money through an ICO, the project organizers’ first step is determining how they will structure the coin. ICOs can be structured in a few different ways, including:
Static supply and static price: A company can set a specific funding goal or limit, which means that each token sold in the ICO has a preset price, and the total token supply is fixed.
Static supply and dynamic price: An ICO can have a static supply of tokens and a dynamic funding goal—this means that the amount of funds received in the ICO determines the overall price per token.
Dynamic supply and static price: Some ICOs have a dynamic token supply but a static price, meaning that the amount of funding received determines the supply.
Who Can Launch an ICO?
Anyone can launch an ICO. With very little regulation of ICOs in the U.S. currently, anyone who can access the proper technology is free to launch a new cryptocurrency.
But this lack of regulation also means that someone might do whatever it takes to make you believe they have a legitimate ICO and abscond with the money. Of all the possible funding avenues, an ICO is probably one of the easiest to set up as a scam.
IDO
Initial DEX offering (IDO) is one of the many creative fundraising methods in the crypto industry. Initial coin offerings (ICOs) were one of the first fundraising methods in the crypto industry. An ICO is an unregulated approach to crowdfunding from retail investors. Lack of control and investor security were challenging with ICOs. The project team did not have to do due diligence without control mechanisms. But many ICO projects were just scams. These scams led to negative publicity in the crypto industry and discouraged many new crypto investors.
DeFi, or decentralized finance, aims to solve this issue through alternative fundraising methods. One such method is the decentralized exchange method (DEX). DEXs offer investors a different and more secure fundraising model. In this blog, we have got everything covered with respect to Initial DEX Offerings(IDO).
How do IDOs work on DEXs?
Immediate liquidity provided by DEXs is one of the main reasons IDOs work. Liquidity pool providers get big rewards from DEXs. Most projects give liquidity to DEXs by allocating a cut of the funds. Many projects in IDOs also use the proof-of-stake (PoS) consensus mechanism to discourage crypto investors from selling too soon. The PoS system involves investors holding their capital, and in return, investors accrue rewards for their stake in the blockchain network.
Once the IDO goes live, early investors can sell their crypto tokens at a higher price. The value of a crypto token can increase once the public sale goes live. The gas fees in a liquid exchange are minimal. Smart contracts manage the asset tokens and liquidity pools. Unlike traditional fundraising methods, IDOs can mint crypto tokens instantly. Crypto investors do not have to wait for a long period to get their crypto tokens listed in IDOs. This timing enables crypto investors to cash in on their investments faster than ICOs.
Advantages of Using IDOs over Traditional Fundraising Methods
Fundraisers: Through launchpads, a percentage of the token supply is available to the public in IDOs. The project is mainly the fundraiser in case of an ICO.
Crypto token listing: In the case of ICOs, the token listing happens on centralised exchanges where users can buy the token with Fiat or any other crypto. IDO listing allows crypto tokens to be listed on decentralised exchanges. Liquidity pools enable buy and sell activity for an IDO.
Project vetting process: Projects should meet the launchpad’s requirements in IDOs. There is no strict vetting process for ICOs.
Conclusion : So basically IDO is more decentralized and is more secure as it is offered on a Dex and covers many Negative aspects of the traditional methods