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For a while now, I have been scouring the internet for articles and sources that could tell me a complete and comprehensive picture of what a cryptocurrency’s life cycle looks like. I have seen some promising bits but there isn’t a single publication that tells me all I wanted to know about it.
Hang on, back off, before you get any conclusions, this article is not about that, this is just an article concerning some acronyms that always emerge when I am reading something about releasing and launching of a coin.
Across many articles that I read, I almost always encounter the acronyms ICO, IDO, and sometime IEO. And with just so few letters, my interest and my curiosity is piqued. I immediately searched for the terms and read a number of articles explaining them.
Now, let me share with you what I understood from reading such articles.
First off, it is imperative to bear in mind that the three things are different versions or styles of the same thing. All of them are versions of the “initial offering” of a cryptocurrency asset.
Initial Offering
So what is an initial offering? It is better to think that every cryptocurrency is a project. A project has its purpose and its technical information. How it will all work and what would happen to the project itself. All of those are in the project’s whitepaper.
If there is a project, there is a team that will be responsible for it. This team is consists of people with the technical know hows and skills that will make the project work. But if they want to profit and bring this project in a wider scale, they need funds to run the project. And what will the team do to ensure that they have funds? They already provided the skills but they won’t do it for free, obviously.
The team will then pitch the project to investors. They will offer these investors part of the project or early access to it as long as the investors provide the team with the funds to make the project work.
That’s basically the inital offering, the team pitches the project to investors and the investors will then give them money in exchange for equity or access to it. In short, it is a fundraising activity.
ICO or Initial Coin Offering is the first form of fundraising when it comes to cryptocurrency. It is a simple approach for fundraising. The team responsible for the coin will offer its coins to the public and will handle everything themselves.
The investors have a direct link to the team and the project and vice versa. Let’s imagine it in a real life setting.
A team plans to create NewCoin as their project. They created a website for NewCoin wherein they are selling a portion of the coins supply to early investors at a very low price. When they reach the target for the fundraising, they will use the fund then to further develop the project and make it ready for launch.
There are some issues with this approach. In ICO, the funds collected will solely be handled by the team that created the project. So anytime, they can pull the plug on the project and run away with the investors’ money, this is what we call rugpull, in other words, an utter scam.
The team can promise a lot upon the offering and they can under deliver or not deliver at all.
Another thing that can be viewed as a negative with this approach is the liquidity of the assets. Let’s assume for the sake of the example that the project is legit and it was not a scam and it launched as expected. However, the investors are still stuck with some coins and they could not liquidate them until the team finds an exchange that will list their asset. As an investor, you don’t want to hold a lot of asset that you think will tank. You want to liquidate as soon as you can.
One of the success-failed story in ICO is the Telegram Open Network. It collected $1.7 Billion in two separate ICO’s but the project was hindered and was stopped by the SEC.
Initial Exchange Offering. It may be the better version of the ICO. It differs mainly on the factor of who conducts the sale of the initial offering. In ICO, the team solely manages everything but in IEO, an exchange serves as a middleman between the team and the investors.
In this form of offering, the fundraising is a bit more organized and a bit more safer. The exchange does all the vetting and they will scrutinized the project’s whitepaper before they agree to conduct the listing and the fundraising for it.
There is that element of trust though, for both parties because the exchange will mostly take a bigger factor than just a middleman.
A pretty concrete example of IEO is Binance’s Launchpads. You can visit it and see the upcoming or projects that are doing their initial offerings through the exchange.
Investors can have that sense of relief in this form because as soon as the project launches, they can immediately liquidate their assets because the coin is listed by the exchange.
If you really are an enthusiast of cryptocurrency, you will think that this version is the best among the three mentioned here. IDO stands for Initial DEX(Decentralized Exchange) Offering. So what more is there to explain? It’s decentralized. It’s better. Lol.
Anyway, this is basically the same in IEO but the difference is the fundraising and the launch is handled by a DEX. So instead of BINANCE think Pancakeswap. They share the same advantages but they are different when it comes to liquidity.
In IEO, investors can liquidate their assets because the exchange itself listed it. In IDO, the liquidity will of course depend on the liquidity pool inside the DEX. The team or the investors should keep a portion of the coins locked in liquidity pools to make trading to and from it possible.
So in my opinion, IDO still holds the title for the best version of Initial offering. The power is in the hands of the people and it’s fairly safe from rugpulls and such stuff.
