ICO vs. IDO
ICO vs. IDO in Crypto Fundraising
To potential investors and traders, the world of cryptocurrency fundraising can be a little daunting and difficult to navigate. There are lots of things to consider and lots of ways to get involved in trades, so it’s not easy to know where to begin.
When it comes to investing in coins, there are two primary offerings that you need to be aware of relative to crypto fundraising – Initial Coin Offerings (ICOs) and Initial DEX Offerings (IDOs).
In this article, we offer a distinct definition of each type of offering, explore the pros and cons of each, and run through some of the key differences relating to centralization, accessibility, and transaction speed to help you decide which is most appealing to you.
Definitions, pros, & cons of each
Initial Coin Offerings (ICO) are available on traditional centralized exchanges. In the world of real-money assets and investments, this would be like buying stock on a regulated stock market like the NASDAQ. To participate in trades and buy offerings, you need to create an account at the platform in question, and may be asked to provide KYC documentation to prove your identity.
Initial DEX Offerings (IDO) are totally different from ICOs. They use platforms known as decentralized exchanges (DEX), which remove middlemen from trades and enable investors and traders to deal on a peer-to-peer basis. Rather than creating an account on a trading platform, you can connect your crypto wallet directly to the DEX to buy coins, which results in faster and more cost-effective transactions.
| Pros | Cons | |
| ICOs | ✅ Easy to buy ✅ Widely available | ❌ Account creation required ❌ Fees attached to trades |
| IDOs | ✅ Peer-to-peer trading ✅ Cheaper & faster transactions | ❌ More selective than ICOs ❌ Knowledge of crypto & Web3 required |
The distinction between centralized and decentralized trading
The key distinction between ICOs and IDOs is that the former are centralized and the latter are decentralized. Therefore, more regulation is attached to ICOs traded on centralized platforms, while IDOs are traded outside the scope and remit of most financial regulations.
Of course, there are benefits and drawbacks to both centralized and decentralized trading in the crypto space, and every investor has a different perspective on which is best. But it’s important to recognize that the key distinction between ICOs and IDOs is that one is centralized and the other is decentralized before proceeding any further.
Accessibility of ICOs and IDOs
In the early days of cryptocurrency and Web3, anyone from anywhere could get involved with ICOs. In some respects, this was one of the biggest draws of crypto, as it removed many prohibitive barriers to entry typically associated with investing.
However, as crypto has become more regulated in many jurisdictions, Know Your Customer (KYC) rules have emerged, meaning that many people transacting with ICOs now need to prove their identity. This has stymied the free-for-all nature of ICOs somewhat and added regulatory procedures to such trading.
In contrast, IDOs might not require KYC procedures, but they are typically more selective than ICOs. Specifically, IDOs are often only available to holders of native DEX coins, restricting access to a specific market of investors.
The speed of transactions
Though ICOs tend to be more prevalent than IDOs, they are characterized by slower transaction times. This is caused by the fact that ICOs are only usually released at the end of the event. After all, the token needs to be listed on the exchange before the tokens can be freely traded, so investors need to play the waiting game before building out their portfolios.
In contrast, DEX platforms have built-in liquidity, which means that investors can usually trade their newly acquired tokens much more quickly, or even instantly. With a savvy investment, this means you can get your hands on potential profits without delay, which is one of the undeniable benefits of IDOs over ICOs.
Trust and transparency
One of the broader positives of crypto trading and blockchain technology is the enhanced transparency and trust built into the process, thanks largely to the self-executing nature of the smart contracts that facilitate transactions.
On top of this, ICOs listed on some exchanges undergo some level of checks, which can range from minimal to intense scrutiny, depending on the platform. These checks take place before the platform hosts the ICO and is one reason that some investors prefer this method.
On the other hand, IDOs are driven by community trust, which is super powerful. Active members of DEX platforms usually serve as internal vettors, providing insight, expertise, and insight into coin projects that are emerging within the community.
Broader appeal
Even though ICOs can succeed on practically any blockchain, their success is determined by the exchange they partner with and the user base of said exchange. In many respects, this is limiting and is a risk taken by the project leaders.
However, IDOs are intertwined with the DEX on which they are launched, boosted by the support of the wider community that typically remains loyal to the token as it grows.
The bottom line – ICOs vs IDOs
It would be irrational to conclude that ICOs or IDOs are better than the other. Rather, both offer slightly different things to crypto investors. The crux of the matter lies in centralization v decentralization, which is likely to sway most people towards ICOs or IDOs, respectively.
It’s also worth noting that more governments in jurisdictions around the world are setting up regulatory requirements for crypto and this is likely to affect traditional exchanges and DEX platforms alike.
As the landscape shifts and regulation becomes more stringent, more people may veer towards the decentralized nature of IDOs and the relative freedom and anonymity that it represents.
