Raise money for your startup through cryptocurrency and access funds immediately with an IDO.
On December 31, 2021, decentralized finance (DeFi) ecosystem platform MRHB DeFi raised US$5.5 million through an Initial DEX Offering (IDO). The IDO allowed global investors to participate directly in the funding rounds with no third-party mediator. From raising capital through an Initial Coin Offering (ICO) to launching an IDO—cryptocurrency has made possible new ways for startups to raise money with fewer hurdles. Here, we take a look at what an IDO is and how your startup can get started with one.
What is an IDO?
Much like an ICO, an IDO is a way for companies to raise money through cryptocurrency. However, unlike an ICO, a project going for an IDO launches its coin or token on decentralized exchanges. Because of this, investors must have the appropriate DEX account before they can participate in an IDO.
DEX refers to decentralized exchanges where there is no third-party mediating the transfer of funds. It enables direct peer-to-peer exchanges, thus enabling more transparency. By comparison, an ICO functions on centralized exchanges, such as Binance or Coinbase, where the funds are stored with the exchange and transferred after verification.
A DEX relies on liquidity pools that comprise pairs of stable coins and cryptocurrency assets of the company, such as ETH/USDT. Traders buy and sell cryptocurrency tokens within a liquidity pool. An IDO offers better liquidity and gives startups immediate access to ‌funds. An IDO is a completely decentralized offering. Since everyone is responsible for their own profits, losses and trades, startups don’t have to pay high exchange fees to launch an IDO.
Another benefit of IDOs is that they let you engage with users directly. Although anyone can invest in your company, you can set restrictions and demand certain commitments from the community to be approved to invest.
Is an IDO safe?
Yes, it is. Since decentralized exchanges don’t store funds in custodial accounts, there is little to no chance of them being targeted by hackers. All accounts are anonymous and highly secure. In fact, some investors may find IDO to be a safer bet than an ICO. There have been numerous ICO projects that were found out to be scams which duped investors out of millions of dollars. However, the complete lack of regulation in the IDO space may pose a risk, as some startups might try and take advantage of that by defrauding investors. The onus of staying safe from falling prey to cryptocurrency crimes rests solely on the traders here.
Additionally, IDOs are not as popular as ICOs, which means that promoting your IDO launch will require more effort.
How can you launch an IDO as a startup?
At the outset, prepare a strategy. Plan for an IDO like you would for an Initial Public Offering (IPO). Think about the amount of money you would be willing to put into the liquidity pool to build credibility, your marketing plan for the IDO and the like. Next, set up your whitepaper and website to gain the trust of investors and convince them of your legitimacy. Then, decide on which DEX you want to launch your IDO on. There are many options, including Binance DEX, Uniswap and Polkastarter. Finally, on the DEX, you will discover how to create your cryptocurrency token and launch it. With an IDO, you can start getting investments as soon as you launch your token. You don’t have to wait to be verified to do so. In an IDO, instead of the exchanges, the community screens projects.
IDOs are growing in popularity. Though they typically take more time than an ICO to launch, the risks are lower, and ‌investors are more knowledgeable. You can expect better liquidity with an IDO and since it’s a decentralized platform, there’s no intermediary to take their share of profits. All in all, when raising money for your startup through cryptocurrency, don’t limit yourself to ICOs.
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