Crypto fundraising, or initial offerings, are an important part of any new project’s journey. They help the project to raise capital and increase awareness among the public. Investors can also benefit from buying in at a lower price. If the project succeeds in the future, huge gains can be made.
This article will track the evolution of crypto initial offerings over the years.
Types of Initial Offerings
Initial Coin Offering (ICO)
An ICO is a crowdfunding event where early-stage cryptocurrency projects sell a new crypto - their native tokens - to early investors. A set quantity of tokens and fixed price per token would be decided on before launch. Payment is usually made in other crypto like Bitcoin and Ethereum through the project directly.
You can think of an ICO as the crypto version of an Initial Public Offering (IPO), where a company goes public by selling their shares to the general public. Both are done to raise capital and public attention.
While it is extremely easy to hold ICOs, the lack of regulations and investor protection promoted an unhealthy culture of fraud, spurring governments to take action. In 2017, Chinese regulators banned all ICO sales, deeming them to be “illegal”. U.S. financial watchdog Securities & Exchange Commission (SEC) also announced it would classify tokens from ICOs as securities, allowing them to crackdown on ICOs that they deem to be misleading investors.
Pros
- Accessible; buyers can easily participate
- Buying at low prices during ICO could help investors earn huge profits
Cons
- Token price may be volatile after ICO; buyers may make a loss
- Lack of regulation have led to high numbers of fraud and exit scams
Today, ICOs are in the decline as projects favour alternative methods of fundraising.
Initial Exchange Offering (IEO)
Seen as the next step in crypto presales after ICOs, IEOs also offer sale of a token to raise funding from investors - but they take place on a crypto exchange. The exchange acts as the facilitator of the token sale and distribution.
Crypto firms may have to go through some level of due diligence conducted by the exchange before a token sale is confirmed. They are charged a fee and the exchange receives a portion of the tokens sold.
An IEO typically suggests that the tokens will be listed on the exchange right after the sale or in the near future.
Pros
- Token sales are more secure; most exchanges would vet the project carefully before conducting IEO
- Convenient for investors to access and purchase tokens
- Increased transparency and credibility
Cons
- May involve high costs for crypto projects
- IEOs may be an overly centralized fundraising method
While IEOs may be an effective way to reduce fraud, exchanges often act as gatekeepers and may impose restrictions such as disallowing token listings on other exchanges. This has sparked off a variation of IEO, the IDO.
Initial DEX Offering (IDO)
IDOs are like IEOs, but tokens are listed on a decentralized exchange (DEX).
Typically, crypto projects have to go to a DEX launchpad (a platform specifically to help launch new tokens) like Binance Launchpad. They would have to meet the launchpad’s requirements before they are approved for an IDO.
The project creates a pool where buyers can buy “IOUs” of the new token. In traditional finance, IOUs are informal acknowledgements of debt. Buyers pay in advance and receive their tokens after the IDO - usually a few hours later during what is known as the Token Generation Event.
IDO tokens will be immediately listed for trading on a DEX, dependent on the protocol standard. For example, APX, ApolloX’s native BEP-20 token, held an IDO on PancakeSwap, which is native to the BNB Chain (formerly Binance Smart Chain). APX is also listed for trading on PancakeSwap. An ERC-20 token would be listed on a DEX like Uniswap, native to the Ethereum blockchain.
Pros
- Cheaper listing costs
- Quick liquidity and immediate trading of token
- Allows for fair launch of token
Cons
- Token price increases quickly once sale starts; later buyers miss out on the lowest prices
- Project vetting process may be unclear; increases risk for investors
Initial Game Offering (IGO)
With a boom in the blockchain P2E gaming sector, IGOs are gaining popularity as well.
IGO launchpads aid the sale of in-game virtual items that are characteristic of blockchain games today. These virtual items could be tokens that are used as in-game currencies or digital assets NFTs like skins, avatars, game items and more, all of which are useful in the game.
Pros
- Investors get early access to gaming items; they could earn huge profits
- Developers continue to have 100% control over the game
Cons
- Value of assets is heavily dependent on the game’s success
- Risk of being stuck with assets if game is not fully developed
Where to find initial offerings?
Make use of websites like ICO/IDO listing sites e.g. cryptorank.io and launchpads like BSCPad and DAO Maker to find your next crypto presale. But you know the drill, always DYOR first!
The views expressed in this article are the author's alone and do not necessarily represent the views of ApolloX.
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Risk Reminder: Crypto trading carries a risk. All trading activities are done at your discretion and at your own risk. The information here should not be regarded as financial or investment advice from ApolloX. ApolloX will not be liable for any loss that might arise from your use of any financial product.
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