Initial DEX Offering

Publication Date :

10 Dec, 2024

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Table of Contents

What Is Initial DEX Offering (IDO)?

Initial DEX Offering (IDO) is a type of crypto funding in which tokens are distributed among investors on a decentralized exchange (DEX). The main purpose of the IDO is to ensure security levels by issuing the tokens immediately when investors receive funds.

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The origin of the IDO occurred after facing the limitations of the initial coin offering (ICO). It works on a permissionless mechanism that facilitates crowdfunding for the project. In June 2019, the Raven Protocol was the first crypto project to launch as an IDO. However, funds must be locked in smart contracts before tokens are issued to investors.

Key Takeaways

Initial Dex offering (IDO) refers to a crypto crowdfunding program on the decentralized exchanges (DEXs).
Here, investors can invest in smaller amounts and receive tokens in return. Every investor must act as a crypto whale to gain maximum stake.
As the allowlist of investors gets prepared, the funds are locked in smart contracts until the token release. They later enter liquidity pools besides project tokens.
On the release date, the investors receive their subscribed tokens, and the project gets access to funds. Raven Protocol was the first project to launch IDO in June 2019.

Initial DEX Offering Explained

Initial Dex Offering is a crypto crowdfunding process that utilizes the power of decentralized exchanges for token issuance. It provides an open and secured space for funding, which is absent in the traditional token offerings. Here, the investors invest their money in these crypto projects and receive tokens in return. However, the funds must be locked in a smart contract before they launch the native coin. Later, in the event of a release, the tokens are distributed to investors, and the locked funds reach the project. As a result, the funds stay secure, and they receive their tokens on time. However, the back-end process of IDO differs in real time.

Every platform has its own set of rules and procedures. But, the base for most of them remains the same. The prime purpose is to protect the investors from any scamming projects. Once the project gets approval, the entire token supply is decided upon. These smart contracts work as automated market makers (AMM) for raising funds. These AMMs eliminate the need for centralized exchanges and replace them with DEX. As a result, no authority (even the crypto project) cannot monitor the investor's money or their private keys.

Also, investors do not need to deposit a lump sum amount directly to the firm's account. Instead, the smart contracts act as safe vaults until token release. Later, on launch, the project can access locked funds and distribute tokens in exchange. And the money received from the IDO goes to the liquidity pools. Once the project is live on the mainnet, access to these pools will be activated. As a result, token holders can likewise trade these tokens in the crypto market.

How To Launch?

The following are the defined steps for how a crypto project can launch its IDO on a DEX. Let us look at them:

Deploying the vetting process: The platform's launch initiates the vetting process, which helps in dealing with fraudulent projects and scammers. The vetting process conducts an in-depth analysis of the developers and verifies the service providers, credentials, past performance, and project details. The investors can also envision the project objectives and goals they wish to achieve. However, if rejected, the project halts at the initial stage itself. As a result, the investors develop trust in the project.
Development of whitepaper: Once the project receives clearance (or approval), it can list the features of the project and token in the whitepaper. It lists the application, blockchain technology, consensus mechanism, and token distribution system. Also, the team can decide on the total token supply on the release date. In short, it acts like a blueprint of the entire project.
Whitelisting: The next step is to perform allow listing before launch. This means that the team creates a list of IP addresses, names, or groups of investors who wish to apply for the IDO. Investors must submit their wallet address, join the community forum, or perform certain tasks to be on that list.
Locking mechanism: Once decided, investors can deposit their funds in a smart contract for a locking period. This will ensure the safety of the locked funds.
Transfer to liquidity pools: A part of the entire funding amount is transferred to liquidity pools along with the project's tokens. The rest is transferred after the project launches. Once the funds reach the team, the associated tokens are distributed among those investors mentioned in the allowlist.
Token trading: On release, the tokens are flooded into liquidity pools, where users can trade them. However, the tokens released may be for a certain locking period called vesting.

Examples

Let us look at some examples of initial DEX offerings to comprehend the concept better.

Example #1

Suppose Jamz is an Ethereum-based blockchain project developed by Arthur and James. They aim to provide financial solutions empowered by the PoS consensus model. However, the project still needs to be prepared to launch on the DeFi platform. Therefore, they had to revise their capital structure and tokenomics before releasing it. They arranged the whitepaper and decided on the token supply. As per the changes, the Jamz project agreed to launch 300,000 JMZ (native tokens) in the market. Also, they released their whitepaper detailing the application of this blockchain product.

After a few weeks, around 80,000 crypto users subscribed to the allowlist. In return, the Jamz project locked their $10 million funds in a smart contract connected to a liquidity pool. Thus, after two weeks, the team released the tokens, and they could access funds from the smart contracts.

Example #2

According to the latest crypto updates as of September 2023, the Tezos Domains project launched an initial DEX offering (IDO) on the TrustSwap platform. The TED tokens were available to investors from September 25 to 28, 2023, for $0.04 per token, with an initial market capitalization of $198,500. Notably, users could participate in the IDO without needing an EVM-compatible wallet, as the Tezos blockchain operates on a non-EVM-compatible platform.

Advantages And Disadvantages

Advantages

Here, smart contracts ensure the safety of the invested amount.
It builds trust and integrity in the crypto project.
There is immediate liquidity provided on the token release.
IDOs do not require lump sum money. Here, investment usually occurs in smaller amounts compared to other funding methods.
It also includes anti-whale features to prevent larger stakes by individuals.

Disadvantages

The vetting process can still have some loopholes for some scamming projects.
There can be price fluctuations and manipulation in the market.
Investors must have enough knowledge about the project before investing in it.

Initial DEX Offering vs Initial Coin Offering vs Initial Exchange Offering

Although IDO, IEO, and ICO aim to raise funds for the projects, they have different functions to perform. Let us look at their major differences:

Basis	Initial Dex Offering	Initial Coin Offering	Initial Exchange Offering
Meaning	A crypto funding program for blockchain projects on decentralized exchanges (DEXs).	A type of crypto funding for initially raising funds for the crypto project.	Initial exchange offering refers to a funding type that occurs on centralized exchanges.
Fundraiser	IDO occurs through DEX or a launchpad.	Here, the project itself raises funds on a crypto exchange.	The centralized exchange enables funding via IEO.
Vetting process	It is an initial requirement for IDO.	ICO needs no such criteria for funding.	Even the IEO includes a disciplined vetting process.
Token trading	Here, users either receive a token immediately for trade or wait until the vesting period.	Until tokens are not released on the exchange, investors cannot access them.	They are listed immediately on the exchange after release for trade.
Smart contracts	The launchpad and the project manage these contracts.	The project itself manages the smart contracts.	Here, the crypto exchange authorizes them.