What is ICO/IDO?

Cryptocurrency and blockchain technology have transformed how businesses raise funds in today’s dynamic digital landscape. The Initial Coin Offering (ICO) and Initial Dex Offering (IDO) are popular fundraising methods enabling projects to secure capital by issuing tokens.

In this article, we will explore “What is ICO?”, and “What is IDO?”, their main differences, advantages, successful examples, and a lot more to help you make informed investment decisions.

What is ICO?

The Initial Coin Offering (or ICO) refers to a fundraising mechanism allowing companies or different projects to issue their own tokens, typically built on an already existing blockchain network such as Ethereum or Binance. These tokens may represent a wide variety of utilities within the project’s ecosystem. Usually, when investors take part in ICOs, they buy tokens with established cryptocurrencies (for instance, Bitcoin).

Advantages

One of the key advantages of ICOs is the broader exposure. That’s to say, when the ICO is conducted using an established platform, it may attract more potential investors.

Furthermore, ICOs offer greater control. This means issuers usually have more control over the overall fundraising process, like token pricing, token allocation strategies, etc.

The established investor base is another key benefit of ICOs, as the Initial Coin Offering has been around longer and can rely on a more substantial community of investors. With ICOs, there are more chances of attracting a wider audience of early adopters.

Disadvantages

The main disadvantage of ICOs is regulatory uncertainty, as the Initial Coin Offering may face regulatory-related obstacles in different jurisdictions, resulting in compliance burdens, as well as potential legal risks.

Market saturation is another drawback, which makes it challenging for many new projects to stand out.

Moreover, the decentralized nature of the Initial Coin Offering provides a lower level of investor protection. There is an increased risk of fraudulent activities.

Successful stories

Here are several successful ICO examples:

1) The ICO conducted by Ethereum in 2014 succeeded in raising funds to establish its blockchain network, serving as a foundation for today’s decentralized app ecosystem.

2) The EOS’s ICO managed to raise billions of dollars from 2017 to 2018, aimed at supporting its vision of developing scalable, as well as decentralized applications.

3) Filecoin’s ICO raised more than $257 million in 2017. It’s a decentralized storage network enabling users to rent out their storage space that’s not used.

4) Tezos conducted its ICO in 2017 and raised about $232 million. It’s popular for its self-amending blockchain, providing on-chain governance and protocol updates. Furthermore, there is no need for hard forks.

5) Chainlink’s ICO in 2017 raised around $32 million, becoming an essential element of the decentralized finance system, offering safe and decentralized oracles for smart contracts.

Fiction news: Rumor has it that Oprah Winfrey made a fortune by trading Dogecoin.

What is IDO?

The Initial Dex Offering (or IDO) is a fundraising method happening on decentralized exchanges (DEX). IDOs are conducted on decentralized platforms, such as Uniswap, providing a higher level of accessibility and inclusivity.

Advantages

A crucial benefit of IDOs is decentralization, as using decentralized exchanges can foster transparency and inclusivity without relying on any intermediaries or central authorities.

In addition, IDOs provide instant liquidity allowing investors to trade IDO tokens immediately after the coin offering.

The entry barriers are also lower. The restrictions associated with IDOs are fewer, encouraging a broader audience of investors to take part in early-stage projects.

Disadvantages

The main drawback is the limited exposure of decentralized exchanges resulting in lower investor participation. Also, the immediate listing of IDO tokens on decentralized exchanges may lead to price volatility, which may have a negative impact on investor confidence.

Moreover, project teams mostly have a lower level of control regarding token pricing and allocations because the process is decentralized.

Success stories

Explore a few successful IDO examples:

Uniswap conducted IDO using its own decentralized exchange and achieved significant success, promoting the process of swapping tokens seamlessly and fostering further growth of the decentralized ecosystem.
PancakeSwap’s IDO conducted on the Binance Smart Chain became popular, as it offers users an efficient and easy-to-use decentralized exchange platform.
Raven Protcol’s IDO in 2019 to enhance the AI and machine learning industries by using blockchain raised significant funds and gained exposure on the Binance DEX.
SushiSwap is a decentralized exchange built on Ethereum and launched through an initial dex offering. It became a widely used alternative to Uniswap, giving users the opportunity to migrate more than $1.14 billion worth of digital assets from Uniswap to SushiSwap.
The Universal Market Access conducted a successful Initial Dex Offering and experienced growth in recent years. It lets decentralized finance developers create various synthetic assets on the Ethereum blockchain network.

ICOs versus IDOs

Fundraising process	IDOs are typically conducted using decentralized exchanges, while ICOs are mainly facilitated by the project team or centralized and established platforms.
Investor requirements	ICOs usually have certain investment thresholds or in some cases, may require accreditation, whereas IDOs have fewer restrictions in this context.
Token liquidity	In general, ICO tokens are listed on exchanges after the offering. In other words, the liquidity depends on the market demand and the success of the project. In contrast, IDO tokens offer instant liquidity because of the decentralized nature of the process.
Token pricing and allocation	On the one hand, ICOs mostly set fixed token prices and have full control over allocation strategies. On the other hand, IDOs use mechanisms like liquidity pools where investors usually contribute their funds to get tokens. In this case, the price is very dynamic and depends on the pool’s size.

Scam stories

In 2017, ICOs became highly popular worldwide and large amounts of money were raised. However, scams also became quite common, for example, some tokens turned out to be completely worthless, while certain projects just vanished taking the investors’ funds.

Dive into recent examples of scams related to coin offerings:

The Initial Coin Offering conducted in 2016 for BitConnect was presented as an open-source crypto that promised to provide 40% returns. However, it turned out to be a scam, costing investors about $2.4 billion.
Investors lost $8 million in 2017 because of PlexCorps’ fraudulent ICOs.
In 2022, the creator of Crowd Machine Compute Tokens was charged for making false statements related to its ICO conducted in 2018. It raised $40.7 million.
The CEO of Titanium Blockchain has been sentenced to 4 years in prison because of fraudulent activities concerning TBIS ICO, which managed to raise about $21 million.

How to select the right coin offering?

If you want to choose a trustworthy coin offering, you need to prioritize in-depth evaluation and due diligence. Take these essential steps to select the right coin offering:

To begin with, assess the experience of the project team and advisors. It’s recommended to choose those individuals who have a track record of success and domain knowledge as well.
Don’t forget to evaluate the project roadmap in a proper way to have a clear idea of the timeline and progress of development. You should keep in mind that having an achievable roadmap is important for the project's success.
A crucial step is analyzing the token economics of the project. You should take into consideration factors, like token supply and distribution.
You need to focus on the project’s community engagement and market sentiment, as a supportive community is crucial for the project’s success.
Make sure that the project compiles with the applicable regulations and offers a higher level of transparency.
Always look for various sources to verify the legitimacy of any project to prevent any potential scams.
Examine the sale process of the token. Observe how transparent the sale process is, dig deeper into how much has been raised, and find out how much time is left. In most cases, the progress concerning the scam project is obscured.

Final thoughts

Coin offerings have enhanced the methods projects use for fundraising in the crypto industry. However, the choice between ICOs and IDOs depends on different factors, like investor preferences, project objectives, and regulatory considerations.

We hope you already have a clear idea of these fundraising mechanisms and can make informed investment decisions in the dynamic crypto ecosystem. Also, don’t forget to conduct research and evaluate the project carefully to minimize any potential scams.

If you missed our last blog post, check it out here: "What is Binance Web3 Wallet?" Next up, we’ll be exploring "How to buy Vone tokens?"