Differences between ICOs and IDO
Understanding the key differences between ICOs and IDOs
Fundraising is an integral element of any investment, and the launch of new crypto projects, coins, and assets is no exception. Today, the pre-sale of tokens has become extremely attractive to investors and has transformed the field of crypto ventures more broadly.
With that in mind, ICOs and IDOs are two of the main vehicles for crypto fundraising, and we introduce both approaches in this article, before reviewing their pros and cons to help you decide which is the most attractive proposition for you.
Introducing Initial Coin Offerings (ICOs)
An initial coin offering (ICO) is a method of fundraising for a crypto token, usually done via a centralized exchange or investment platform. It enables investors to acquire crypto assets in exchange for their initial investment in a new project, via the purchase of a digital token.
An ICO is often compared to an IPO on the stock market for fiat currency investors and there are lots of similarities. However, one of the main differences is that ICOs are less regulated than IPOs. In fact, ICOs are only subject to regulation if they are launched as security tokens, as opposed to utility tokens.
If a crypto project attempts to fundraise via an ICO, the organizers need to determine how to structure the coin. They also need to attach a whitepaper to the project, which indicates everything investors need to know about the coin or asset. The paper also indicates how much needs to be raised for the project and indicates how and where to purchase tokens.
Introducing Initial Dex Offerings (IDOs)
An initial DEX offering (IDO) is also a way of fundraising for a crypto project. However, the main difference is that it is a decentralized method of crowdfunding and is not usually done via a centralized exchange.
Rather, the people behind the project launch the currency or token on a decentralized exchange with a liquidity pool, enabling people within the community to freely exchange coins and tokens.
Instant liquidity is key to IDOs, making them a great option for individuals looking for access to quick funding for a project launch.
IDOs present a viable alternative to ICOs and they enable crypto entrepreneurs to avoid third-party sites, which is likely to reduce the fees attached to the project.
Another key benefit of IDOs is that they are usually traded from key to key, offering more transparency when it comes to the execution of transactions.
The pros and cons of ICOs
ICOs and IDOs have very different starting points, but they both look to achieve the same goal as fundraising options for crypto projects. Let’s take a closer look at some of the pros and cons of both ICOs and IDOs to get a feel for which is a better fit for certain projects:
✅ Cryptocurrencies don’t need a material existence to be traded and have much more liquidity than many assets. They can also be traded at all times of the day and night without restriction.
✅ Other than the whitepaper, ICOs don’t require a great deal of paperwork, particularly when compared to IPOs. This makes it much easier for project founders and those seeking to invest.
✅ Historically, ICOs in the crypto space start with a low value and increase progressively over a relatively short period of time. As a result, they offer decent short-term returns to investors, even though a high degree of risk is attached.
❌ As there’s a lot of competition with ICOs, they are volatile. Lots of potentially unseen factors can influence the performance of an ICO.
❌ The relative lack of regulation means that ICOs are open to fraud. The onus falls on you – the investor – to do your homework to make sure you can trust the people behind the new project.
The pros and cons of IDOs
IDOs have increased in popularity in recent times, as many people now see them as a good alternative to ICOs. Here are some of the pros and cons of this type of fundraising:
✅ Using the IDO fundraising approach, businesses and startups don’t need to approach a centralized exchange. They also don’t need approval, making it something that lots of businesses can launch independently on any DEX platform.
✅ One of the best aspects of IDOs is that these coins can usually be traded immediately and without any delays. As a result, investors can get their hands on tokens as soon as they are released, which gives them the chance to sell them later at a much higher cost.
✅ IDOs offer instant liquidity, meaning they can be traded on the market instantly. As a result, this can significantly improve the price of the token.
❌ The main drawback of IDOs is the absence of governance and regulation. Scam tokens are more likely to launch in this space, and it’s more likely that would-be investors fall foul to IDO scams than those launched on regulated, centralized exchanges.
❌ The absence of purchasing restrictions in IDO means that a small number of investors can own a big number of tokens. These investors are commonly known as “whales” and they can significantly affect the value of the tokens.
Final words
Although they both have the same objective – to fundraise for crypto projects – ICOs and IDOs are significantly different from one another.
In fact, IDOs emerged because of some of the issues with ICOs and the fact that they are enacted on centralized exchanges.
The fact that IDOs are decentralized and provide instant liquidity is extremely important and is likely to fuel the growth of such options among crypto fundraisers into the future.
