There are several methods used to raise funds in the blockchain industry. Initial coin offerings (ICO) were the most popular method used by cryptocurrency projects starting out in the sector. Initial exchange offerings (IEO) also became popular and raked in millions for many projects.

Finally, as decentralized finance (DeFi) became more widespread, decentralized exchanges created the initial DEX offering (IDO), a similar yet different method for crypto developers looking to use a unique and open crowdfunding model.

What Is an Initial DEX Offering (IDO)?

An initial DEX offering refers to the launch of a coin or token via a decentralized exchange. Buyers sell their existing cryptocurrency (normally coins like BTC or ETH) and purchase the newly created cryptocurrency. This funding model is permissionless, trustless, secure, and transparent.

How Do IDOs Work?

An IDO uses a decentralized exchange (DEX) to sell new tokens at their initial sales price. It begins with a crypto project developer providing their tokens to the DEX hosting the IDO, where intending participants may decide to commit their funds. After this, the DEX uses a smart contract to conduct the final token sale and distribution over a blockchain network.

Although the IDO process may vary depending on the DEX involved, the following are a few common steps:

1. The developer undergoes extensive vetting before the DEX accepts to host the IDO. After the DEX agrees, the developer supplies the exchange with the tokens at a fixed price to sell to eligible users.
2. In some cases, there is a whitelist of allowed participants. Participants then lock their funds, or purchase and receive the new tokens.
3. Participants receive the corresponding amount of tokens they purchased and the trading for the token is available for multiple trading pairs.

How to Launch an IDO

Here is a step-by-step approach to launching an IDO on a DEX:

Step 1: Design a Business Strategy and Create a Marketing Campaign

The first step is to create a business strategy that includes fund allocation, maximum supply, the intended blockchain network, and liquidity. This step also includes creating a marketing structure to attract potential participants, including a comprehensive website and a whitepaper.

Step 2: Find an Appropriate DEX Launchpad

The project then finds a launchpad that satisfies its intentions and works to meet the launchpad's requirements.

Step 3: Create the Cryptocurrency

Developers may create the token at this point, considering specifics such as utility, total supply, and initial price. Upon successful approval of the IDO and Token Generation Event (TGE), the DEX lists the token for trading.

Step 4: Distribute Cryptocurrency

Participants receive the tokens during the IDO. The DEX makes the final fund distribution through automated smart contracts.

Benefits of an IDO

The following are a few benefits of an IDO:

Immediate Liquidity

Insufficient liquidity can be detrimental to the value of any new crypto project. Therefore, IDOs lock up funds to ensure adequate post-launch liquidity, with reduced slippage and volatility for end users.

Open and Fair Fundraising

Other token methods see private financiers buying large amounts of tokens for cheap and reselling them for profits. However, reliable IDO platforms typically do not allow a single entity to purchase large quantities of the token to prevent market manipulation.

Immediate Trading

Tokens are available for trading on the DEX immediately after the launch. Participants can quickly start selling off tokens to lock in gains if the price increases during and after the token launch.

Affordable and Accessible

IDOs are often easier and cheaper for small projects looking to launch tokens. Using centralized exchanges requires an extensive process and is generally more expensive.

Community Governance

Most IDO launchpads operate via community governance instead of being controlled by central authorities that determine what projects list on the exchange. This gives a lot of power to end users.

Downsides of IDOs

Although IDOs have many advantages, the following are a few downsides:

No Stable Price

Since liquidity is immediately available after the IDO, token exchange starts instantly. Consequently, only a few people aside from the IDO participants can purchase the token at the initial listed price.

Expensive Participation Criteria

Although most IDO platforms feature a public round, the intense competition makes it difficult to secure purchases sometimes.

Differences Between an IDO, IEO, and ICO?

The main differences between the three fundraising methods are as follows:

Successful Projects Launched From IDOs

Some successful crypto projects that launched their tokens via IDOs include:

Raven Protocol IDO

Raven Protocol, a decentralized deep-learning training protocol comprising deep neural networks, successfully held its IDO on Binance DEX in 2019. Raven aims to provide cost-efficient and quick blockchain solutions to transform the AI and machine learning sector. The protocol uses its native RAVEN token to reward contributors who share their computer resources.

Universal Market Access Protocol IDO

Universal Market Access (UMA) is a decentralized protocol that enables anyone to design trustless synthetic crypto assets on the Ethereum network. UMA focuses primarily on the derivatives markets and aims to remove all the technical and financial barriers to derivatives trading. The project held its IDO on Uniswap in April 2020.

SushiSwap IDO

Another successful token offering was the SushiSwap IDO. SushiSwap is a decentralized crypto exchange that facilitates token swaps and yield farming through an Automated Market Maker (AMM) smart contract.

Should You Partake in IDOs?

The initial DEX Offering (IDO) approach addresses several issues plaguing its predecessors. The benefits of IDOs, including affordability, accessibility, and ease of use, are evident since the entire process is decentralized and permissionless. All of these unique benefits have made IDOs a favorable fundraising method for numerous DeFi projects in the crypto space.

AtomicDEX — HODL, Trade, and Launch IDOs

AtomicDEX offers a non-custodial wallet, cross-chain/cross-protocol bridge, and cross-chain/cross-protocol decentralized exchange rolled into one app. The app supports cryptocurrencies such as BTC, ETH, BNB, MATIC, and more. Best of all, it's compatible with dozens of blockchain protocols.

In 2021, Tokel (TKL) — a cryptocurrency project that utilizes Komodo Smart Chain (KSC) technology for NFTs and token creation — used AtomicDEX to host the first-ever peer-to-peer, atomic swap-based IDO.

AtomicDEX also makes it easy for any project to create a permissionless IDO by launching P2P orders for any ERC-20, BEP-20, or QRC-20 token.