First came initial coin offerings, then initial exchange offerings. Now, initial DEX offerings are all the rage. Here’s how to participate in one.
More specifically, IDOs are the successor to the initial coin offerings (ICO) popular in 2017 and 2018…. and the initial exchange offerings (IEO) that began replacing them in late 2019 and 2020.
Unlike those coin offering models, IDOs do not rely on centralized exchange, which provide some oversight but also impose high fees as well as barriers to entry for both projects and retail investors.
Unsurprisingly, IDOs are proving popular with projects focused on decentralized finance (DeFi) and privacy — which have decentralization at their core — as well as non-fungible tokens (NFTs) projects that are as hot as the DeFi market.
IDOs also tend to raise smaller amounts of money, as they give smaller projects access to retail investors sooner than ICOs and IEOs.
The Advantages of an IDO
IDOs free projects from the costs and controls imposed by centralized exchanges.
First and foremost, IDOs provide instant liquidity, as the tokens sold start trading on the host DEX immediately. This is a particular benefit over ICOs and IEOs, which are effectively at the mercy of centralized exchanges free to list (or not list) tokens at their discretion.
Second, IDOs don’t attract the very severe fees levied on ICOs and IEOs by exchanges.
Another big factor is investor fairness. In both ICOs and IEOs, the tokens being launched are pre-mined and often pre-sold, which essentially locks small investors out of the early stages of trading, when successful launches often see the greatest price gains.
By contrast, IDO launchpads — such as the decentralized fundraising platform Polkastarter — generally limit the allocation of tokens to prevent whales and bots from locking small investors out — which also happened in some early direct IDOs.
Finally, projects launching IDOs don’t have to wait to be vetted by exchanges before trading can begin, making it easier for smaller, early stage companies to raise funds from the public. Instead, the projects tend to rely on active community members using on-chain traceability and (presumably) public smart contracts to review projects. Which is, at best, a mixed blessing.
What Are the Disadvantages of IDOs?
Decentralization brings a lack of control that can mean projects receive less vetting… and in some cases, it can actually be hard to get in on IDOs.
All of this means that it’s important to find trustworthy launchpad platforms that provide anti-scam vetting and Know Your Customer checks. Some even offer marketing support that’s not too dissimilar to what centralized rivals provide. Of course, it’s important for you, the investor, to dig deep into a project’s tokenomics and security, too.
Because IDOs tend to focus on smaller token sales than ICOs did and IEOs do, it’s often difficult to participate, as popular projects are often vastly oversubscribed. To manage this, the launchpad platforms that most IDOs use limit the number of participants with pre-arranged whitelists, which can amount to a lottery or require an investment in launchpad tokens.
With particularly high-profile projects, the small number of tokens sold can combine with IDOs’ instant liquidity to create very quick price surges and declines.
How Can You Participate in an IDO?
Getting in on an IDO requires pre-buying launchpad tokens, and luck in a lottery.
The major launchpads for decentralized exchange offerings on blockchains such as Ethereum, Binance Smart Chain, Polkadot, Solana and Cardano have several features in common, starting with whitelists. As IDOs tend to raise small amounts compared with IEOs — and especially the old ICOs — they have to limit the number of buyers and the amount of the launching token each can buy.
Generally, winning a whitelisting spot requires holding a minimum number of the launchpad’s native token, with larger holdings gaining more entries (and jacking up those native token prices.) Usually, individuals can only win once. Some launchpads offer non-tokenholders the ability to enter a whitelist lottery by staking tokens to improve liquidity.
Whitelisting generally includes Know Your Customer checks, and buyers need a Web 3.0 wallet like Metamask. Also, don’t live in the U.S. or other banned countries such as Iran, Iraq, Cuba, North Korea or Venezuela — most IDOs don’t permit investors from those countries.
What Benefits Do IDO Launchpads Bring?
Launchpads bring vetting — and thus credibility — to projects they choose, as well as the liquidity needed to support initial trading.
One important benefit is credibility, as top launchpads like Polkastarter perform due diligence on projects they accept.
They also ensure that the IDOs launched have sufficient liquidity by incentivizing liquidity providers with their native tokens, which are required to win whitelist slots.
The fact that IDOs are often vastly oversubscribed can help create a buzz and form communities. In March, the DeFi insurance platform Tidal Finance held its IDO on Polkastarter… and ended up having 500 would-be buyers for every slot.
How Can Investors Get in on Polkastarter IDOs?
Polkastarter is making it cheaper to participate in IDO lotteries.
A core feature of Polkastarter is its use of fixed swap pools, setting a fixed price for token swaps in order to cap individual participation in IDOs.
This ensures that as many people as possible can participate, building projects’ communities with a strong group of early adopters.
Polkastarter offers two ways to earn a whitelist slot, beginning with holding its POLS tokens. Every 250 POLS brings one “ticket” in an IDO lottery. As of May 10, 2021, Polkastarter is reducing the minimum number of POLS required for participation from 3,000 to 250.
Holding more POLS also makes it easier to win slots, thanks to a new boost system — 1,000 POLS gives a 1.1x boost, for example, while 30,000 gives 1.25x and frees holders from the seven-day cooldown period in which whitelist winners cannot participate in another IDO.
The second is providing liquidity, locking liquidity pairs like ETH-POLS on the Uniswap DEX and BNB-POLS on PancakeSwap. Locking liquidity earns rewards in POLS tokens, such as the 40,000 POLS that Polkastarter is offering on PancakeSwap in May.
Another new opportunity is an upcoming NFT drop, which will let POLS holders stake tokens in exchange for NFTs, which will give access to exclusive liquidity pools.