IDO and IEO: The Evolution of Crypto Fundraising

IDO and IEO: The Evolution of Crypto Fundraising

The ICO model marked the beginning of crypto fundraising. Mastercoin communication protocol completed the first ICO in 2013.  With this fundraising model, everyone could start issuing and selling tokens without revealing their identity, proving that the crypto startup was worthwhile or even without presenting it at all. Just establish a smart contract and sell your token for Bitcoin (BTC) or Ethereum (ETH) and be done with it. Simplicity and accessibility have become the pillars of ICOs' increasing popularity and interest, attracting money-flows, sellers, and investors hunting for quick bucks.

But here's the downside, the lack of the slightest oversight and regulations for the ICO procedure has attracted so many scammers. For example, SatisGroup LLC submitted a report to Bloomberg stating that over 80% of all ICO token sales in 2018 were frauds.

Predictably, defrauded investors started suing sellers, involving regulators, trying to return their hard-earned money somehow. Shortly speaking, by the end of 2018, the ICO method had exhausted itself, and crypto exchanges started looking for better alternatives. And they did it: first, the IEO (Initial Exchange Offering) method appeared, followed by the IDO (Initial DEX Offering) model. But how do they differ from ICO? Which of those models is worth investors' money and attention, and what are their main differences?

Let's figure it out!

What Is IEO?

IEO_IDO_2

The search for better alternatives to the less-than-perfect ICO model resulted in the emergence of IEO (Initial Exchange Offering), designed to reduce the number of scam projects.

So what is an IEO? In a nutshell, IEO is the fundraising model for crypto projects that grant privileged status to the company through a CEX that oversees the token sale.

But what is the advantage of IEO vs. ICO?

At its core, the mechanism of IEO is very similar to an ICO. However, here is the key difference: a centralized crypto exchange acts like a middleman between a startup project and an investor, conducting prior compliance activities, controlling the entire fundraising process, and taking its own responsibility and reputational risks. Therefore, an exchange must choose high-quality and noteworthy projects, offering them its audience, advertising channels, and infrastructure for IEO launch in return. Then, a CEX lists coins after the crowdsale, charging a fee in return.

Now that we have dipped our toes into the IEO process, let's dive deeper into how it actually works.

IEO Crypto: How Does it Work?

Considering the IEO process flow, everything starts with the project idea. Then blockchain projects pass through the following steps:

  • White paper drafting. Every crypto startup project develops a white paper at the start 

 of its crypto journey to convey its main idea. This document includes the product's technological features, history, architecture, the issues it aims to resolve, tokenomics, project goals, and the benefits for both investors and developers.

  • Establish negotiations with the IEO platform: A crypto startup project’s team needs to tie up with the best CEX, which will set the pace of the IEO competition and define the IEO startup’s success.
  • Vetting procedure and partnership establishment: Projects must go through a vetting process before being listed on CEX. The requirements are pretty high, which immediately eliminates a lot of scam projects and rug pools. The exchange evaluates key differentiators of the project, tokenomics, and the main targets. This process aims to identify  gaps, cornerstones, or other problems with a specific project. Exchanges thoroughly examine the white paper, financial data, marketing strategy, and additional open-source information to ensure everything is on point and the early-stage project is ready.
  • Token sale announcement: When everything is ready, the IEO platform announces a token sale. An IEO exchange usually lists tokens on its website and notifies investors about their availability for IEO sales. Marketing and promotional activities are essential at this stage.
  • Exchange listing: If the CEX decides to keep going forward with the IEO project, it happens in most cases, the startup will pay a specific number of utility tokens or commissions and a listing fee. It's a kind of financial compensation. Early-stage tokens will be offered in a couple of days after approval. Once listed, tokens require the constant support of a market maker that creates a conducive environment for traders and provides constant high liquidity for early-stage tokens to thrive.

Important note! Before gaining access to the IEO project, investors must follow the Anti Money Laundering (AML) steps and Know Your Customer (KYC) verification measures.

However, you need more than these steps to become an IEO participant, not only an investor. So, let's go through all the essential stages of launching the IEO project to find the starting point for launching IEO fundraising for your blockchain startup. 

How To Launch a Crypto IEO?

IEO_IDO_3

To successfully organize and launch an IEO, project developers need to complete a set of complex, and  costly, procedures and requirements before the first dollar can be raised.

Here are eleven essential stages that can’t be missed when launching your IEO:

1. Innovative business strategy. First, you need a clear and progressive business strategy before any launchpad, crypto or otherwise, will approve a raise. A CEX needs to see a clear IEO applicant's vision and development path to launch a new project, or they risk an adverse reaction from their crypto community.

2. Prototype or minimum viable product (MVP). Ain't nobody in the crypto industry believe in concepts or ideas not backed up by anything. The reason is the negative outcomes and low win rate of the ICO boom in 2017-2018. Therefore, a product prototype for the project applying for IEO is required. It will help investors more effectively comprehend your project, its validity, purposes, and ideas. So, it will be much easier to convince them to invest in your blockchain startup better than any white paper.

3. White paper and tokenomics. Project founders typically write the white paper. However, as mentioned before, this document should include tokenomics (an economic structure and business guide for using the token), a financial model of the project, benefits and utilities of the product or technology, a development roadmap, and a description of the partners and team.

4.  Website Development. A simple but well-designed website with an excellent UI/UX will allow you to provide potential investors and contributors with all of the necessary information and entice them to invest in your startup project.

5. Tie up with the best launchpad through crypto exchanges.
After MVP or prototyping, the next equally important step is to select a trustworthy crypto exchange. A safe and reliable platform will kickstart your project and define its future, build a reputation and increase the success of your IEO, so make sure you choose the best one.

6. Token and Smart Contracts Development. Before beginning the token development process, determine how many tokens to distribute and how to assess their value. Check out some steps to consider when creating your token

IEO_IDO_4

7. Set a project’s funding goal. Before IEO sales and CEX listing, you must define funding requirements to mitigate potential risks and avoid setbacks. The funding goal is discussed in the project's tokenomics and contains different points, including development,  marketing, and market making. Moreover, a clearly defined hard cap for IEO funding will give the impression of focusing on a practical goal and make investors believe in your blockchain project even more.

8. Do marketing and promo. The more successfully the project has been promoted, the more likely a CEX will accept it, as they always look for new liquidity and users. Thus, you must build a decent community around your brand and product. Social media marketing, PR, influencer, and paid marketing will help reveal your company's main ideas and vision, perspectives of your token, and the role of the project's team in the process. In addition, it is essential to interact with the community of blockchain enthusiasts to help them learn about all the best sides of your project and show your involvement.

9. IEO (token sale). At this stage, a company pays a listing fee and gives some of its tokens to the exchange. In return, an exchange takes on the responsibility of handling a bunch of aspects, such as marketing, raising funds, and vetting investors to make IEO successful.  

10. Exchange listing. After launchpad completion, an exchange distributes the corresponding number of tokens to IEO participants based on the launchpad's criteria. Exchange listing requirements vary from one platform to another. For example, some may require investors to hold a particular token, while others may require a minimum amount of trading volume for a specified period to qualify. Users may enter a specific window on some exchanges and click the tab "participate." After a while, during the distribution period, trading for the listed coin is open. Usually, right after listing, you may see exciting chart action in the form of green candles on the chart. However, what goes up, must come down, red candles shall appear, and the trading price for a newly listed coin will stable out.

11. Introduce a market maker: Partner with the crypto market maker(s) to accelerate the growth of your token and help investors and traders to execute their orders here and now at fair prices. Market makers, such as Bitquant Capital, will aid the token listing on CEX by implementing versatile trading strategies and providing much-needed liquidity for attracting new investors and traders.

Although the IEO fundraising model was better than the traditional ICO, it still has some disadvantages. For example, developers point out shortcomings like high charges, inability to trade on other exchanges, and in some cases, listing requirements that need to be more transparent and fair for early-stage projects. In addition, an IEO is dependent on CEXs, which is contrary to the base ethos of blockchain, which is to be decentralized. And so, the IDO emerged as a decentralized model to answer the issues presented by the ICO and IEO models.  

Let’s move on to the IDO meaning.

What Is IDO?

IEO_IDO_5

What is an IDO in crypto? IDO is an abbreviation for the Initial DEX Offering fundraising method. Along with the rising interest in DeFi, this crowdsale method became more widespread in 2019 and has since become a promising crypto fundraising option. Raven Protocol introduced the IDO, quickly becoming the new favorite in the crypto market with its advantages over ICOs and IEOs.

Initial DEX Offering is a fundraising model for early-stage blockchain projects where the IDO token or currency is issued through a DEX. Thanks to its "decentralization," IDOs can be launched absolutely by any project, from traditional coins to art or even music projects. Furthermore, unlike the ICO method, the IDO listing and initial token sale occur almost simultaneously.

The main difference between IDO and IEO is the application of a DEX instead of a CEX for the launchpad token crowdsale. And there is no due diligence. Instead, DEXs rely on liquidity pools that make it possible to quickly and easily swap, buy or sell tokens.

The best part is that IDO assumes a minimum, and perhaps zero, set of requirements. This significantly sets it apart from the IEO model. Due to its simplicity, it is gaining popularity worldwide among DeFi initiatives, opening the door for a lot of new projects and investors interested in putting their money in. 

IDO Crypto: How Does It Work?

The IDO works simply. In fact, this is the same IEO but with a decentralized nature. IDO blockchain startups are not required to be involved in infrastructure creation for the token implementation or take care of their exchange listing - crypto launchpad platforms, through which IDOs are frequently carried out, will do everything for you.

As for trading, it is well known that there are no order books or traditional market makers on DEXs. Instead, their functions fall on liquidity pools that serve as automated market makers (AMMs), providing liquidity to newly listed launchpad tokens within the pool and enabling rapid, simple, and fair trade execution. However, suppose you're going to launch trading on DEX. In that case, it is better to involve a market maker, which will assist with controlling and managing liquidity pools, providing additional liquidity if needed, and ensuring the smooth trading for your token on a chosen DEX. 

BITQUANT CAPITAL PRoVIDES FULL SUPPORT FOR TOKENS LISTED ON DEXs AND CEXs.

Find more information on our solutions page

Any DEX user can run an IDO with a subsequent token listing.  All you need to do is register a new coin, activate a smart contract, and provide liquidity to the pool. If a crypto startup’s token meets all the criteria and requirements of the launchpad platform, it is ready to go with IDO. Investors then buy IDO crypto before the listing at a lower price, expecting a positive ROI in the future. The main idea here is that the token prices can increase significantly after the project's launch and multiply your investment at times.

Right after the IDO and all these stages are complete, the token is listed on one or more DEXes. Most successfully launched projects in 2019–2021 were based on the ERC-20 token standard, built on the Ethereum blockchain, a pioneer in crypto fundraising, and considered safe and reliable. However, Ethereum is not the only blockchain where you can launch an IDO. Other equally popular blockchains, such as Solana, Polkadot, or Binance Smart Chain (BSC launchpad), offer lower network fees than the Ethereum blockchain. In 2021, Pancakeswap, which works on BSC-blockchain, became the top-performing DEX, with a rapidly growing number of users and listed projects due to its low fees and speed compared to the ERC-20 network. As for 2022, the trend moved to the Solana and Polygon blockchains, where crypto projects kickstarted their fundraising.

Let’s dive deeper into how to go live with your IDO crypto upcoming project.

How to Launch an IDO?

IEO_IDO_7

The launching process is quite similar to that of IEO. Developers also need to develop a project’s idea and main goals, create a white paper, promote the early-stage project and do all possible things to allow immediate trading to raise funds on top of everything. Let's take a step-by-step look at the process of the IDO launchpad.

The IDO algorithm consists of the following steps:

  1. Preparation stage. This stage will naturally start with the idea analyzing development to put it live. Typically, this entails a website, White & Yellow Paper creation. Startups may also offer product prototypes, minimum viable products (MVP), or demos.
  2. Tie up with the best launchpad platform and pass through the vetting process. At this stage, the DEX platform will verify and pick your project to approve your upcoming IDO, so make sure you meet all IDO requirements. This process is required to counter shady IDOs crypto and rug pools.
  3. Token creation. Nearly anyone with a bit of technical knowledge and good marketing skills can find out how to launch a cryptocurrency. With IDO's emergence, the procedure has become simple. The only difficulty you may face is how to convince investors about the value and utility of your project and convince them to invest in it.
  4. Do marketing and promo. Promote your project, attract investors, and help your crypto startup grow faster. In addition, it will aid in revealing the project, its goals, and utilities to the community.
  5. TGE /Exchange listing. Following the IDO and TGE procedures, the token is listed on a DEX that uses AMM services, such as Uniswap or Pancakeswap, that predefine asset prices algorithmically. The project team should set up liquidity pools where investors can swap tokens distributed in their wallets before swapping opens. DEXs don't charge any additional fees for exchange listings due to their decentralized nature. Thus, such a procedure is more in line with a cryptocurrency's decentralized and transparent nature.   

When we are done with IEO and IDO comprehensive reviews, let us compare them to give you a better idea of the main differences between IDO vs IEO.

IEO vs. IDO: Side-By-Side Comparison Table 

IEOIDO
Fundraising is conducted atCEXDEX/launchpad platform
Crowdsale counterpartCrypto exchangeProject’s developers
Smart contract managed byCrypto exchangeThe launchpad conducts a token sale
KYC/AML measuresNecessaryNot necessary. It can vary from project to project
Due diligence Crypto exchangeLaunchpad platform or nobody
BudgetHighLow/Moderate
Regulating authorityCEX regulates all transactions No rules for DEX
Trading and listing feesCEX charges listing fees and commissions from token emitters, as well as trading commissions from investorsThe emitter and trader pay fees only for the launch of the smart contract/or success fee % from money raised to the launchpad
Trading and liquidity opportunities The ability to trade tokens on CEX right after the token sale, but with some restrictions.The tokens are listed immediately after the IDO. There are no restrictions on trading on other exchanges.

Conclusion

Crypto fundraising has passed through various stages, becoming more and more perfect and attractive both for investors and developers. However, cryptocurrency investors still prefer to invest in IDOs rather than IEOs. The reason is apparent — the decentralized model was born to overcome the shortcomings of its predecessors and is accessible to anyone, even for projects with a tight budget. Nevertheless, if your budget is unlimited, you should look at the IEO method, which can be equally profitable for your seed project but more potent in marketing. Anyway, you will need the assistance of a market maker for a successful token launch via IEO & IDO.

Bitquant Capital will help you succeed with any fundraising model you choose. We use our technology and experience to help your IEO and IDO on the listing and after-listing stages.  We also help tokens get listed on reliable and reputable exchanges, providing much-needed liquidity and marketing services to attract investors. Our highly deployable algorithms allow us to embrace the CeFi and DeFi worlds and bring the best solutions for our customers and partners.

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