When it comes to acquiring funding for new ventures, the cryptocurrency market is highly inventive. Raising funds in the traditional financial sector is confined to taking out loans or seeking venture capitalists’ assistance (VCs). In the long run, however, this technique hurts the founders of new projects.
The cryptocurrency field is broad, and new initiatives may generate funds while engaging with the community thanks to the various fundraising options accessible. Tokens issued by blockchain and crypto businesses can be exchanged for fiat currency or other cryptocurrencies. The funds raised will be used to expand the initiative.
An initial coin offering (ICO), an initial exchange offering (IEO), and an initial DEX offering are three prominent ways for crypto ventures to raise funding (IDO). Each of these strategies is described here, along with its benefits and drawbacks.
Initial Coin Offering (ICO)
An Initial Coin Offering (ICO) is a type of crowd sale. An ICO is akin to a stock market Initial Public Offering (IPO). Initial Coin Offerings (ICOs) were the first means for crypto and blockchain firms to raise capital from investors.
An ICO is when a corporation sells its blockchain-based token to the public, and anybody can buy it using popular cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH) or stablecoins like Tether (USDT). The company’s tokens can be traded on a decentralized exchange (DEX) or a centralized exchange later (CEX).
The first ICO, Mastercoin, took place in 2013, and it was the first of its kind. The platform was able to raise approximately $600,000 as a result of the procedure. In 2014, Ethereum, the second-largest blockchain network by market capitalization, also held an ICO. In just 42 days, the ICO raised $18 million.
The best thing about ICOs is that they allow businesses to obtain funding without having to go through the lengthy governmental approval procedure. While this is beneficial to the project, the investor faces enormous risks. The following are the benefits and drawbacks of ICOs as a funding method:
Pros
One of the most significant advantages of ICOs is that they make it incredibly simple for a business to raise capital. Furthermore, they bring significant profits to the ICO managers. These managers create tokens in accordance with the ICO’s terms and distribute them to individual investors.
An ICO can offer a project with the capital it needs to reach new heights if it is viable and has potential. This was the situation with Ethereum, where the proceeds were used to help the project flourish. Those who put money into the ICO and have held on to the tokens for a long time have reaped significant rewards.
Cons
Because ICOs are unregulated, they are extremely dangerous for investors. Investors will be attracted to participate in an ICO by promises of high returns. Most initiatives, however, turn out to be fake, and the developers escape with investor funds.
The Securities and Exchange Commission of the United States has issued a warning about the risks that initial coin offerings (ICOs) can pose to investors. However, because of the huge potential for profit, some people have invested in enterprises that never truly took off or were abandoned. As a result, before investing in an ICO, conduct a comprehensive background study on the project to determine its viability.
Initial Exchange Offering (IEO)
In many aspects, an Initial Exchange Offering is similar to an ICO. There is one significant difference, however: an ICO is held on a cryptocurrency exchange platform. Companies that support the trade of digital assets are known as exchange platforms.
In this procedure, the cryptocurrency exchange platform will act as a third party. The project will engage the services of an exchange, which are typically provided for a charge, and the exchange will float the tokens on the project’s behalf. An IEO, like an ICO, allows investors to purchase tokens before they are formally launched in the market, allowing for significant gains.
Because the cryptocurrency exchange will facilitate this process, projects who wish to raise cash using this technique must ensure that they supply all of the information necessary to make their initiatives appear more authentic. The project must submit a proposal to the exchange that will sponsor it, which will be thoroughly vetted. To maintain their reputation, exchanges must conduct due diligence.
IEOs provides a number of advantages to projects, one of which is the ability to attract a large number of investors. Because they’ve been approved by exchanges, the token will be placed on the exchange once the presale is over, improving its liquidity as soon as it hits the market.
Pros
The most significant advantage is that the initiatives must pass due diligence. This reduces the chances of a bitcoin investor becoming a victim of a scam enterprise.
Another advantage is that a coin that is listed through an IEO will have more liquidity on the exchange where it is listed. The coin will have access to a wide user base almost quickly, enhancing its value as demand develops. Furthermore, listing on the exchange will serve as a marketing tool.
Cons
An IEO is less risky than an ICO, but there is a cost. An IEO is more centralized, limiting your token access to a single exchange. To take part in the IEO, you must first register on the exchange site. This may not be appropriate for investors who favor the crypto market’s full decentralization.
Even if the project has been approved, it is still vulnerable to the crypto market’s volatility. Furthermore, the SEC has warned that some IEOs can be as dangerous as ICOs if they do not follow federal securities regulations.
Initial DEX Offering (IDO)
One of the most recent tactics established in the crypto and blockchain space to assist projects to generate cash is an Initial DEX Offering. IDOs enable blockchain-based projects to raise cash by selling their tokens on decentralized marketplaces (DEXs).
Despite being a recent creation, IDOs have grown in popularity as a crowdfunding platform for decentralized finance (DeFi) and decentralized applications (DApps).
RAVEN hosted the first IDO in June 2019 on the Binance DEX. The IDO was a success, and others, such as the Universal Market Access Protocol IDO and the SushiSwap IDO, have subsequently sprung up in the market.
DEXs are used by projects that desire to raise funding using an IDO. DEXs have a higher decentralization level than CEXs. Uniswap and PancakeSwap are two of the most popular DEXs. However, the market has a greater number of these exchanges.
To build a liquidity pool, the projects use multiple currency such as Bitcoin, Ether, and USDT. The coin can then be purchased by anyone with a Web3 wallet supported by the exchange. The best part about DEXs is that they don’t require any identity or Know Your Customer (KYC) requirements.
IDOs differ from IEOs and ICOs in a number of ways. In an IDO, the project will not be the owner of any of the tokens raised throughout the fundraising process. Furthermore, IDOs are decentralized in the sense that they are not bound by any strict set of rules and regulations.
Because of their diversity, IDOs have seen tremendous development in recent months. This new funding approach has been replacing traditional money in the blockchain sector since the inaugural IDO by RAVEN.
Pros
IDOs have a number of advantages, one of which is that they increase liquidity for decentralized exchanges (DEXs). In the crypto realm, decentralized exchanges manage smaller trade volumes than centralized exchanges. DEXs want to close this gap by using IDOs to obtain control of a big portion of the crypto trading volume.
Furthermore, IDOs allow crypto and blockchain companies to raise cash in a more decentralized manner. IDOs are also compatible with DeFi protocols and liquidity pools, allowing them to participate in one of the burgeoning and popular areas of the blockchain industry.
Cons
In the crowdfunding world, the IDO strategy is still relatively new. It has yet to garner the kind of traction that initial coin offerings (ICOs) and initial exchange offerings (IEOs) have had in recent years. This might be a disadvantage for initiatives looking to generate financing through IDOs because the approach normally results in less cash being raised.
On the investor’s side, there is a lack of understanding about IDOs. DEX launchpads can be difficult to grasp for the typical investor. These launchpads are usually technological, and individuals without sufficient knowledge may find them difficult to use.
Conclusion
In the crypto sector, new ventures are continuously blooming. Most of these projects require finance, and ICOs, IEOs, and IDOs provide the ideal opportunity to raise the necessary amounts.
Crowdfunding, on the other hand, carries major risks for the investor. In comparison to the traditional financial sector, the digital asset sector is less regulated. There’s always the possibility that some of the ventures seeking funding aren’t legitimate, and investors lose money. Expert suggest that to raise money in crypto space you need to contact with the best crypto launchpad development company which gives you best launchpad development servicesas per your business needs. As a result, doing your homework before investing in these crowdfunding platforms is a good idea.
