You Think You Know Well About IDO?

In recent years, financing using cryptographic assets (virtual currency) has become popular. There are multiple ways to do this, but the one that has increased sharply in 2021 is “IDO.”

In the past, when it came to raising funds, it was common to get a loan from a bank or issue shares. These methods require the intervention of a third party and are not possible without certain qualifications and conditions. In that respect, IDO can be held by anyone using a dedicated platform, and there is no need to pay interest or dividends, or even repay it. Moreover, because it utilizes blockchain technology backed by smart contracts, it has the advantages of lower cost and much faster financing than before. These merits are the priming water, and the attention for IDO is increasing.

What is IDO?

IDO stands for “Initial DEX Offering” and means an event to raise funds by issuing crypto assets on DEX (Decentralized Exchange). With DEX, users can directly exchange crypto assets (tokens) without going through a virtual currency exchange (administrator). In other words, even if you do not set up a wallet on the virtual currency exchange, you can trade using the wallet (non-cast dial wallet) that you manage. This makes the risk of hacking as close to zero as possible.

DEX runs primarily on the Ethereum blockchain, where crypto assets are priced by smart contract algorithms rather than specific administrators. IDO issues its own crypto assets with this DEX. To hold an IDO, you need a funding purpose. The point is how to collect a lot of funds from investors by skillfully appealing the purpose, the market size of newly issued crypto assets, and the future potential.

The image is similar to IPO (Initial Public Offering). IPO is a way for unlisted companies to list new shares and raise funds. Unlike stocks, IDOs do not have voting rights, dividends, shareholder benefits, etc., but the idea of ​​raising funds in the form of crypto assets by announcing them before they are traded on cryptocurrency exchanges is similar to that of IPOs. It can be said that. When newly issued crypto assets start trading in the market, they can rise up to several tens of times in a short period of time, and investors can make huge profits. On the contrary, if the price drops significantly, it will be a big loss. At DEX, there is no review by a specific manager, so anyone planning an IDO, whether a group or an individual, can hold an IDO. Of course, IDO could end in failure because investors wouldn’t be interested if the project itself wasn’t attractive.

IDO and ICO

ICO is similar to IDO. ICO stands for “Initial Coin Offering” and is one of the financing methods using original crypto assets like IDO. ICO first appeared around the time of the cryptocurrency boom in 2017, appealing to investors the promising potential of planned projects and raising funds. It is also called “token sale” or “token auction” for easy understanding, and it takes a style in which the issuer of crypto assets and investors trade directly.

Since there is no screening, it is easy to enter and you can buy crypto assets cheaply before listing on the cryptocurrency exchange, so a lot of money was invested by speculators who expect the price to increase after listing.

Why Some Projects Donot Use ICO?

The feature of ICO is that it is very easy to enter because there is no need for it to be examined or screened. Since it uses blockchain technology, it has attracted a lot of attention because it does not require fees and transactions are speedy, but the content of the project was also a mixture of boulders.

There were some projects that didn’t last long even though they were good, and some of them vanished after raising funds, and fraudulent acts were rampant. As a result, creditworthiness for ICOs plummeted in 2018, fading out as a way to raise funds.

IEO

When the difficulty of raising funds by ICO became apparent, “IEO (Initial Exchange Offering)” came next. IEO is a method of raising funds through a centralized exchange (virtual currency exchange).

Reflecting on the fact that fraudulent activities occurred frequently in the ICO without the existence of an administrator, at the IEO, the contents are examined in the exchange of newly issued cryptographic assets and projects, and only the stocks that pass through them raise funds. A system was built to do this task. Since the screening criteria are not lenient, it is not easy to use it, so the reliability of crypto assets and projects has increased, making it a safer investment destination for investors compared to ICO. However, it is difficult for investors to enter the market compared to ICOs and IDOs because of the conditions, such as opening an account on a cryptocurrency exchange and purchasing tokens.

Why is IDO Actively Used?

IDO is more advanced than IEO and has attracted the attention of investors. It was held little by little in 2020, and has increased explosively since the beginning of 2021. Let’s dig into why.

IEO is a great way to raise money, but screening has raised the barriers to enter for token issuers. As mentioned above, the investor must also clear the conditions, such as the need to open an account, so it is undeniable that the market lacks excitement. Therefore, there was a need for a system that could attract a wide range of investors without screening. However, high-risk mechanisms such as ICOs do not earn investor confidence.

IDO was developed in line with this trend. DEX used in IDO is Decentralized Finance, which allows users to make direct loans and remittances 24 hours a day, 365 days a year, without revealing their identities, without going through a centralized entity such as a bank or securities company. With Ethereum’s smart contracts, it will be possible to provide services on the blockchain that are connected to various external sources such as finance, securities, insurance, and market data. This is Decentralized Finance, and one of the many innovative smart contracts is DEX (Decentralized Exchange).

Remittances are fast, anyone can participate without presenting any ID’s, and all transactions are recorded on the blockchain, ensuring high transparency. These conveniences and reliability of IDOs that utilize DEX are very attractive to both token issuers and investors. As evidence of this, Decentralized Finance has expanded rapidly to a market size of 7.8 billion dollars, about five times in the year from 2020 to 2009, but the number of IDOs has also increased sharply in response to this trend. It has been increasing. (Nikkei)

Reference: IDO Development in Japan, legal or not?

Steps to IDO

IDO is done using the IDO platform within DEX. Popular IDO platforms include “Polkastarter”, “DAO Maker” and “Solstarter”.

The most important thing in doing an IDO is to be able to present an attractive project that will appeal to many investors. White papers are the most important criteria for investment by many investors. IDO will succeed if it can publish a white paper on the concept and roadmap of the project, the scale and price of the tokens to be issued, the name, what kind of technology to adopt, etc., and appeal to the future with convincing contents. The rate can be expected to increase. Carefully create the white paper and choose which platform to use for IDO. The point of selection is high liquidity (= ease of buying and selling). Popular platforms such as Polkastarter have a large number of traders and can ensure high liquidity, which makes IDO easy to succeed. Be aware that in illiquid and volatile markets, positive results cannot be expected and are dangerous.

The Future of IDO

As of December 2021, multiple IDOs are held in a week, and it is not uncommon for the price to be several tens of times higher after the token sale starts. The fact that IDOs are active means that there are so many projects. Some projects are sloppy, and it’s hard to say that everything is successful. However, funding from crypto assets is used for various projects on the blockchain, and the Metaverse (virtual space) is particularly noteworthy.

Business development utilizing NFT (Non-Fungible Token) is becoming active in some of the Metaverse that enables games, shopping, and auctions through avatars in virtual space. NFT uses blockchain to link digital content such as digital art, music, videos, and game characters with irreplaceable tokens, proving its uniqueness. This asset value is highly valued by investors and the wealthy, and in 2021, the number of NFT works that are bought and sold at high prices using crypto assets is increasing rapidly.

The future market size of Metaverse is said to be 7.8 billion dollars, and it is thought that NFTs that can be bought and sold even in virtual space will occupy a part of it. Cryptocurrency assets such as Ethereum are indispensable there, and it can be said that IDO plays an endless role in procuring the resources. On the other hand, however, crypto assets are vulnerable to money laundering and fraud, and are always at risk of misuse. In addition, DEX is not approved by the Financial Services Agency, and the legislation has not caught up, so even if you get into some trouble, you are responsible for everything. If these risks are mitigated and more convenient and secure, the need for IDOs will surely increase.

Conclusion

Blockchain technology, which is speedy and has no fees, is rapidly being used in all fields beyond the boundaries of the industry. The crypto asset market is at the top of the list, and if these markets, such as NFTs and Defi, which caused a big boom in 2021, continue to expand, the needs of IDOs will increase dramatically.

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Also see: Relipa’s NFT Development Service (Japanese – Translated English)