What is an IDO and How to Participate in One

Crypto education

Decentralized finance (DeFi) exploded in 2020 and we’re still currently riding the waves of the boom. Previously, much of the crypto space was centralized for ease of use, but as blockchain technology has developed we have seen more of what the blockchain can do. With advancements in smart contract platforms, we are seeing more centralized finance tools pop up in the detralized sphere.

One of the newest tools - Initial DEX Offerings (IDO) - mirror Initial Exchange Offerings in the centralized world. Despite all of the types of offerings in the cryptocurrency space, most of them are centralized, but the IDO brings a new tool that is exclusive to DeFi, which we will be exploring in this article.

What is an Initial DEX Offering (IDO)?

IDO stands for Initial Decentralized Exchagne (DEX) Offering, which is when a project launches a token through a decentralized liquidity exchange. If you’re wondering what is a DEX, it is a decentralized exchange, which differs from a centralized exchange in that they are not owned and operated by one entity, instead they use automated smart contracts to facilitate peer-to-peer trading and execute trades without a middle man.

When a crypto project needs capital before they launch, they typically offer coins or tokens to investors in an initial offering. This is a way of fairly distributing tokens to those that want to participate in the network. Projects that use the IDO receive this funding from individual investors instead of venture capital firms and those who invest never own any equity in the project. Many IDOs can also set limits on the number of individuals that participate and the amount of tokens they’re allowed, which prevents whales from getting all of the tokens.

What is the difference between an IDO, IEO, and ICO?

An IDO differs from an IEO and an ICO in a few ways. Initial Exchange Offerings (IEOs) are when a project uses a centralized exchange platform to release their token. Initial Coin Offerings (ICOs) are like an initial public offering in the traditional finance world, a project issues its own token directly to people in order to raise funds.

IEOs make the token distribution process easier for projects because everything is handled by the exchange. For example, the exchange would handle KYC/AML and automatically prevent certain jurisdictions from participating. All that’s necessary is paying the exchange for their service, and once your tokens are distributed they become immediately available for exchange on the platform. The disadvantages are that exchange fees can be high and the project has little control in the parameters of the token sale.

ICOs allow the project full freedom on managing transactions and operations on their own platform. But this also means that it’s up to the project to make sure that the sale goes smoothly and everyone receives their tokens once it has ended. Then the project will need to find an exchange to list their token.

What are the advantages of IDOs?

  1. Instant Liquidity

Since tokens that are sold start trading on the host DEX immediately, IDOs provide instant liquidity with little to no slippage thanks to the available liquidity pools on the DEX. Instant liquidity for a token is important because if it cannot easily be sold for another token, it can be harder to find investors.

  1. Instant Trading

As soon as the first investor buys a token, the token is available for trading on the DEX. This instantaneous trading can allow users to immediately participate in the utility of the network by using the token to do things like staking, governance, and any other utility functions the token offers. This also allows for liquidity of the token because more people can access the token in liquid and stable markets.

  1. Lower Costs

IEOs and ICOs can incur huge costs when it comes to paying exchange listing fees or paying exchanges in tokens, but with decentralized exchanges the fees are not as high and there are no issues listing the token as there is no central authority to give permission.

  1. Investor Fairness

IDO launchpads often limit the amount of tokens you can purchase, effectively blocking whales and bots from locking out small investors. This encourages fairness among investors, and allows smaller investors the chance to get in on initial offerings.

  1. Opportunities for Smaller Projects

With centralized exchanges, projects usually must be vetted by the exchange before trading can begin with their token. Since there is no central authority with a decentralized exchange, projects don’t need to wait to be vetted in order to start trading their token and raising funds from the public. This can help out smaller projects that don’t have the funding yet to list on a bigger exchange.

What are the risks of IDOs?

  1. Risk of Scam

Since projects don’t need to be vetted to begin trading, this can lead to scams. The way you can combat this risk is by doing your research and only using a trustworthy launchpad platform. There are platforms that provide anti-scam vetting as well as KYC checks, but it’s also important to do your own research into a project before buying into their token.

  1. Difficulty Participating

It can actually be hard to get on a whitelist, which is a pre-arranged list of addresses that are eligible to participate in the IDO. The number of participants on the whitelist is limited, and if a project is popular it can make it harder to make it on the whitelist, especially for smaller investors who don’t have as high of a quantity of the launchpad’s native token - which is how you enter a whitelist.

How to Participate in an IDO

If you are interested in participating in an IDO, you will need to win a whitelist spot on a launchpad for decentralized exchange offerings. Since IDOs generally raise small amounts compared to IEOs and ICOs, they have to limit the number of buyers and the amount of the token that investors can buy.

To win a whitelist spot, you’ll need to choose which launchpad you would like and you’ll need to hold at least the minimum number required of the launchpad’s native token. Generally, the more tokens you hold the more entries you get. Usually you can only win once.

Getting on these whitelists usually requires KYC checks as well as needing a crypto wallet, and certain countries like the United States, Iran, Venezuela, and more have banned IDOs, so check with your local jurisdiction if it is even permitted.

Will Pontem Use an IDO?

As many of you know, Pontem Network plans to eventually launch our own tokens publicly in the future. But which coin distribution method will we use? We did an in-depth look at all the distribution methods in this article, but we didn’t mention that one of the methods we are considering for our own release is the IDO. While nothing is set in stone yet and we’re still exploring options, an IDO is one possibility we’re exploring.

IDOs are one step in building the DeFi world to include many of the tools you only see from centralized entities. Expanding DeFi options allows projects the ability to stay true to blockchain’s decentralized roots, and speed up crypto adoption by expanding what you can do with your crypto. It’s likely that IDOs are only the beginning of what we will see coming out of DeFi.

Follow Pontem Network on Twitter and Telegram to get the latest news of how we will distribute our tokens.

What’s a Rich Text element?

The rich text element allows you to create and format headings, paragraphs, blockquotes, images, and video all in one place instead of having to add and format them individually. Just double-click and easily create content.

Static and dynamic content editing

A rich text element can be used with static or dynamic content. For static content, just drop it into any page and begin editing. For dynamic content, add a rich text field to any collection and then connect a rich text element to that field in the settings panel. Voila!

How to customize formatting for each rich text

Headings, paragraphs, blockquotes, figures, images, and figure captions can all be styled after a class is added to the rich text element using the "When inside of" nested selector system.

  1. Blockchain fees. Most NFTs are issued on the Ethereum blockchain, where you have to pay for gas. NFT minting involves a complex smart contract and thus requires a lot more gas than simply sending crypto. Plus, the gas has been very expensive in the past few months, so you can expect to pay at least $50–100 in gas fees per NFT collection.
  2. Marketplace fees. While you can issue an NFT on your own, it will be hard to promote it and find buyers. That’s why most creators work with NFT marketplaces like OpenSea and Rarible. And while minting NFTs on OpenSea is technically gasless and free, there is a gas fee to initialize a seller account and accept a bid from a buyer — expect to pay around $150 in total. On Rarible, the costs can exceed $600.
  • Facebook has almost 3 billion monthly active users, giving Diem the largest potential audience of any blockchain project on earth;
  • The stablecoin will probably get integrated into transactions on Facebook, Instagram, Messenger, and Whatsapp (shopping, paying for ads, sending money to friends etc.);
  • Facebook can afford to hire the best developers and marketers, so the execution and promotion will be top-notch;
  • Diem’s programming language, Move, is safe, flexible, and well-suited for writing smart contracts;
  • It should be possible to add third-party dApps to the Diem ecosystem — think of WeChat with its thousands of mini programs, but on blockchain.

Copyright: 2021 Pontem Technology Ltd. All Right Reserved
Privacy Policy


Quarterly newsletter

Please tick the relevant boxes below if you agree to receive the following marketing materials:

Thank You for Joining Us!

Your have successfully subscribed to our newsletter.
Oops! Something went wrong while submitting the form.