The cryptocurrency market continues to actively develop and offer new ways to invest funds and implement projects. Digital assets with established ecosystems have begun to play a particularly important role in shaping the crypto market as a platform for finding financing. Namely, cryptocurrencies that influence the development of the DeFi and NFT sectors include ETH, SOL, ADA, and DOT.
Thanks to the growth of these altcoins, a promising way to attract funding has emerged. This mechanism is called IDO (Initial DEX Offering), and it allows a company to issue new tokens provided with a liquidity pool on a DEX (decentralized digital asset exchange). The scheme was created and gained popularity due to the rapid development of the DeFi industry, and a wide array of IDO launchpad platforms is available for investors and developers now.
Unlike ICO and IEO, the purchase of tokens by investors and listing take place almost simultaneously within an IDO. This is due to the fact that a decentralized cryptocurrency exchange does not conduct a thorough inspection but immediately starts token trading.
How does the investment process go?
Raising funds with the help of IDO is performed based on smart contracts of liquidity pools. Liquidity pools are repositories of assets available for all users of a DeFi platform. Smart contracts are responsible for the basic algorithms of decentralized platforms, thanks to which the exchange of assets takes place without the participation of market players. This is the main difference between DeFi platforms and centralized exchanges, such as Binance and Coinbase.
Who can conduct an IDO?
Any user of a DEX platform can do this. You just need to create a new token, register it, and provide a liquidity pool. It is worth noting that the projects are initially sorted to ensure the safety of users. However, the checking process is arranged much simpler compared to the centralized cryptocurrency rating system.
However, not every user can become an IDO member since big exchanges, such as Uniswap, Bancor, Binance DEX, Polkastarter, or SushiSwap, have certain limits on the number of tokens and investors. The restrictions are necessary to reduce the level of manipulation and achieve the main goal of IDO.
Given that IDO is becoming a very effective method of raising funds for DeFi projects, this procedure may transform into a kind of standard. However, it should be noted that the United States plans to introduce legal regulation of decentralized platforms, and, therefore, it is likely that IDO algorithms will soon adapt to new realities.