What is an IDO in Crypto? Discover its Definition

ICO and IDO: Definitions and Differences

In the world of cryptomonnaies, you have probably encountered the terms ICO and IDO during your market analyses. Understanding these concepts is essential for navigating the crypto ecosystem.

What is an ICO?

An initial coin offering (ICO) is equivalent to an initial public offering in the cryptocurrency industry. It is a method of raising funds for companies looking to create a new coin, application, or service.

Interested investors can participate in an ICO to receive a new cryptocurrency token issued by the company. This token may have utility related to the product or service offered, or represent an interest in the company or project.

How an ICO Works

When a crypto project wants to raise funds through an ICO, the first step is to determine the coin structure. ICOs can be structured in various ways. Some companies opt for a fixed offer and price, where a specific funding target is established, each token has a predefined price, and the total supply is fixed. Others choose a fixed offer but a dynamic price, where the ICO has a determined supply of tokens and a variable funding target - the amount received then determining the price per token. Finally, some ICOs prefer a dynamic offer with a fixed price, where the amount of funds raised determines the total supply of tokens.

What is an IDO?

A decentralized exchange initial offering (IDO) is a creative funding method in the crypto industry. It aims to solve the control and security issues faced by investors with ICOs.

IDO uses decentralized exchanges (DEX) to provide investors with a more secure funding model. Decentralized finance (DeFi) offers this alternative to overcome the challenges of ICO.

How IDOs Work on DEX

The immediate liquidity provided by DEX is one of the main reasons for the success of IDOs. Liquidity providers receive significant rewards from DEX. Many projects allocate a portion of their funds to provide liquidity to DEX.

When the IDO is launched, early investors can sell their tokens at a higher price. Smart contracts manage asset tokens and liquidity pools. Unlike traditional funding methods, IDOs can create tokens instantly.

Advantages of IDOs Compared to Traditional Methods

In terms of fundraising, IDOs operate through specialized launch platforms, while ICOs are primarily managed directly by the project itself. For token listing, IDOs favor decentralized exchanges, unlike ICOs which generally rely on centralized exchanges. Regarding the verification process, IDO platforms impose stricter requirements, thus providing better protection to investors than the often less rigorous verification process of ICOs. In summary, IDOs offer a more decentralized and secure approach, effectively addressing the limitations of traditional funding methods in the cryptocurrency ecosystem.