The overwhelming cryptocurrency market cap has now surpassed the $2 trillion mark. As the market continues to make waves in industries ranging from finance to healthcare, its startups and corporations have turned to different fundraising avenues.
Traditionally, when a company wants to raise funds to launch a new product or increase sales, it has relied on financial loans from banks or venture capitalists. However, with the success of cryptocurrencies (Bitcoins and Ethereum) and their legalization in many regions of the world, a new fundraising strategy emerged.
Companies initiated a process called fundraising via token insurance. According to the process, they sell crypto tokens to the public in exchange for Ethereum, Bitcoins, and FIAT currencies. Back in 2017, the very first method of conducting token sales was introduced – the Initial Coin Offering (ICO).
In this article, we will give you a detailed overview of the ICO fundraising progress, covering the launch of IEO (Initial Exchange Offer) and highlighting some key developments in IDO (Initial Dex Offering).
Initial Coin Offering – ICO
Initial coin offerings, which entered the public lexicon as early as 2017, are defined as a “decentralized funding method”. It is a novel concept introduced in 2013 when the Mastercoin project was proposed by JR Willet, who used it to collect 4740 bitcoins to work on his new platform.
ICO contributes to the democratization of financial investments and enables the financing of progressive business ideas and plans on a global scale.
As part of the ICO process, companies are required to issue unique tokens or coins that are allocated to investors in exchange for their contributions. There are three main forms of tokens:
- Currency Tokens – for exchange or trade, like cryptocurrency.
- Security Token – As a traditional security assurance, but backed by blockchain technology.
- Utility Token – One of the most used types that gives investors access to any service or product.
Some leading use cases
As people started looking into digital solutions, interest in ICO projects increased. From 2016 to 2019, a total of 1676 token sales worth nearly $29.2 billion were made.
EOS.IO predicted the highest cash accumulation of nearly $4.1 billion back in 2017. It is a blockchain protocol regulated by the cryptocurrency EOS that performs millions of transactions per second and claims to eliminate transaction fees.
Some other causes are:
Currency (XMR)
Popularly known as the “Privacy Coin,” Monero ensures privacy with its standout features that include ring signatures, stealth addresses, and full coin fungibility. The Monero users can conduct transactions seamlessly without revealing their true identity as the platform offers near perfect coverage of anonymity.
Binance Coin (BNB)
The BNB token reduces trading fees for its users. On the Binance platform, users can easily pay listing, exchange, and withdrawal fees while getting up to 50% off all fees.
Apart from these, Zcash (ZEC), 0x Protocol (ZRX) and Basic Attention Token (BAT) are some of the most prominent cases in the industry.
Why are ICOs risky?
Because the cryptocurrency market is under-regulated, ICOs can be risky for investors. If the ICO turns out to be a scam or fraud, the entire project fails. Other risk factors associated with an ICO include:
- Uncertain chances of success
- liquidity risk
- IT risks
- Insufficient documentation
- Insufficient transparency
ICO 2.0 – The first exchange offer – IEO
Rather than being issued by a company, as is the case with ICOs, an IEO is offered directly by a cryptocurrency exchange. Due to being listed on this exchange, any organization or crypto looking to launch an IEO must be vetted by the DeFi exchange itself. This was in response to the large number of scams that have been rampant in ICO fundraising, which have seen investors get burned one too many times.
After almost $700 million was stolen from investors due to ICO rug pulls in 2018, it’s no wonder that 2019 saw the launch of IEOs that directly helped investors fight this form of crypto theft. In their first year after launch, IEOs raised a total of $1.7 billion, showing the mass excitement around this new form of fundraising.
The most successful projects during this period were:
- matic
- Fetch.AI
- ocean log
- VeriBlock
- Bittorrent
2020 and the arrival of IDOs (Initial DEX Offering)
After the success of IEOs, the crypto community wanted to push this even further. This sparked the development of IDOs, a crypto token that operates solely on DEXs (decentralized exchanges). These are token generation events where users can lock funds in liquidity pools and generate tokens in return for providing liquidity.
Besides fundraising in the traditional sense, IDOs also allow new projects to distribute their cryptocurrency tokens to a larger audience. Since users need to buy into the liquidity pools with the cryptocurrency of their choice, they immediately buy some tokens. Then, during the token generation event, everyone in the pool is further rewarded, increasing the token’s liquidity and distributing it to the masses.
Similar to IEOs, any IDO wishing to gain access to a DEX must first go through a vetting process to ensure that the project actually aims to do what it promises. The decentralized exchanges used in these projects are known as DEX launchpads. Several platforms have become popular launchpads, including BakerySwap and Pancakeswap.
If you’re looking for a low-risk way to get into IDO projects, we recommend sticking to well-established launchpads that have done the due diligence of the token offered on their platform.
IDOs meet the GameFi industry
GameFi is the connecting point between the blockchain and gaming industries, offering users the opportunity to earn cryptocurrency and other digital assets while playing. With the rise of this platform, IDOs specifically tailored for GameFi systems, also known as IGOs (Initial Game Offerings), are the most recent adaptation of this fundraising system.
Within an IGO, blockchain companies will try to raise funds for their upcoming gaming project. Rather than getting tokens back from a liquidity pool, IGO participants can play the game early, gain access to exclusive content, receive a range of mystery boxes, characters, and other in-game digital assets to boost their performance and fun.
While this system examines a slightly different payout than IDOs, they often still use Launchpad platforms to fuel their fundraising success. Typically, these launchpads require participants in the IGO project to lock away their currency for a set period of time. With this extra liquidity, the game has more funds to complete everything on time.
The digital assets that users can earn from GameFi games can be traded or exchanged for cryptocurrency on DEX platforms. This new game format has quickly turned to IGOs/IDOs to attract capital. This fundraising format gives players exactly what they want and platforms with the seed funds to stay in development.
A current example for the integration of games in IDOs is LunaFi. This project provides a gamified IDO that allows users to bet with tokens on when a rocket will crash. The longer they keep their tokens in the rocket, the higher their return. However, based on random smart contracts, the rocket can crash at any time.
Fully gamified IDO projects have become incredibly popular, with projects like LunaFi paving the way for this form of fun fundraising.
Final Thoughts
Fundraising within the blockchain has gone through different periods in its recent history. What started out as a very unstable system of ICOs has now evolved into a more secure platform backed by DEXs, launchpads, and entire blockchain ecosystems.
It is very likely that new methods of fundraising will emerge with new developments within the blockchain. Just as the GameFi industry has led to the conversion of IDOs into IGOs, we will almost certainly see future developments in this area. With further safeguards in place and a web of vetting processes to ensure projects are secure, blockchain investment opportunities have now become a viable and interesting way to expand your portfolio.
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