What is an IDO? Everything you need to know about this process

An Initial DEX Offering (IDO) or Initial DEX Offering is a fundraising method, through which a project launches a token through a DEX, or in other words, a decentralized Exchange. We must always keep in mind that when we talk about an IDO we must remember that the concept of liquidity pools, which is already known to all Reental users due to the liquidity it provides to tokenized real estate tokens. IDOs can be created for an immense variety of projects, from a cryptocurrency to the creation of the token for a startup that offers tokenized real estate 😉.

The process of an IDO is similar to an IEO or Initial Exchange Offering, both processes have the objective of raising capital to start a project, in addition to allowing immediate trade and also a possible raising of extra funds. This fundraising methodology allows companies to accelerate their growth and investors have a liquid market.

The concept of IDO is relatively new, since the first of all was introduced in June 2019 by Raven Protocol and was listed on Binance DEX, however, it still has some way to go to evolve and correct certain points to benefit investors.

Once we know what an IDO is, let's see how it works.

In general, the operation of an IDO is relatively simple. The projects use launch platforms or launchpads where investors can go to buy the project token. Even if it is a decentralized platform, the project that is about to launch its IDO must be aligned with the requirements of the specific platform.

In the process of launching a token, there is usually a pre-sale phase, where investors have the advantage of acquiring the token at a discount a few months before its launch.

Once the different phases stipulated by the company have been completed, the token launched will be immediately listed on a DEX, or decentralized exchange as we have explained above. It should be noted that the vast majority of tokens are based on the ERC20 standard, which means that these projects are built on the Ethereum network or on networks compatible with the EVM (Ethereum virtual machine). However, with the appearance of new networks, it is something that is constantly evolving and many tokens are multichain.

Now that we've seen what an IDO is and how it works, let's look at its advantages and disadvantages.

Advantages

• Decentralization itself: Considering that there is no need for a centralized exchange or permission to start fundraising, anyone can organize and also participate in an IDO.
• Your immediate liquidity: IDOs provide immediate access to liquidity and trading, which differentiates them from ICOs and IEOs, which involve an initial waiting period.
• Low cost: If a project uses the liquidity of a decentralized exchange for its initial offering, without any intermediary, only gas fees are paid to activate the protocol of the new smart contract programmed for the project.
• Reliable transactions: Considering that DEXs work based on smart contracts, which execute transactions and record them on the blockchain, which guarantees great security. They also don't hold investor funds, so they aren't as popular targets for hackers.

On the other hand, IDO's also have some disadvantages.

Disadvantages

• Lack of control mechanisms: those who organize fundraising have no control over who buys tokens or the number of investors.
• There is no possibility of integration with Know Your Customer (KYC) capabilities, since no personally identifiable information is recorded for investors.

As we have seen, this is a really interesting instrument for many projects to be able to finance themselves and thus provide great services to their clients and investors, the latter can usually enjoy some advantage over other later investors.

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