The evolution of fundraising in crypto has encompassed initial coin offerings, initial exchange offerings and traditional seed rounds, with billions of dollars drawn into the industry over the last decade.
More recently, initial DEX offerings (IDOs) have become the crowdfunding model of choice for DeFi projects, providing a means by which startups can issue their native token on decentralized exchanges and automated market makers (AMMs) — and raise money in a process deemed fairer and more transparent than previous iterations of blockchain-based crowdfunding.
If your project is gearing up for your own IDO, there’s a good deal of groundwork with many considerations that have to be made before you secure a suitable host platform and invite your community to participate.
Note: This guide assumes that you already have a full project team in place, including and especially blockchain developers, so will not consider the technical resources you will need to have.
Step 1: Create Your Token and Token Economics
This step combines what might be the simplest and the most difficult portion of your entire IDO process.
The token creation process is easy enough — you just need to create an asset to represent your project on the blockchain that you’ve chosen. Ethereum, which is the most popular network for DeFi projects at the moment, has resources for token creation which your project developers should be familiar with and an ERC-20 token is quite easily created in a few minutes. Other blockchains like EOS and Binance Smart Chain also have similar developer resources.
Before you create a token, however, you’ll want to decide a structure for your project’s token economics that would suit you and your users, offering enough predictability and high profitability to attract newcomers, without ignoring long-term sustainability and market stability.
This means deciding a total maximum supply, the total funds you would like to raise (which would help determine your token starting price at IDO launch), how much would you like to retain for the project’s development and marketing costs, how much you might decide to distribute as airdrops, and how much would be committed to your own initial liquidity pools and staking pools. Is supply fixed? Will there be token burning?
Some projects also allocate a portion of the token supply to a governance fund, should you decide to include a voting or governance aspect to your IDO project. Finally, you should also consider setting aside a sort of “miscellaneous fund” for any possible activities or scenarios in the future.
All of these details should be clearly laid out in your project’s whitepaper as many investors head straight to the tokenomics when considering a new IDO.
Step 2: Identify Your Audience
You’ve got your token economics done and your IDO token’s technical preparations are complete. Now, you’ve to think about who you’re selling to.
Most crypto projects have a good idea about the sort of investors they wish to attract. While it’ll be retail or professional traders for some, some are only too happy to entice starry-eyed crypto newbies, while others appeal to OGs who’ve been in the game longer than most.
Targeting for an IDO isn’t just important to inspire interest or build hype, of course. You want to attract the sort of individuals who have faith in the platform and see value in it, who won’t just dump the tokens to make a quick buck and move on. Of course, there will be a percentage of people who dump on the market anyway, but for the most part, you want the audience to be engaged from the get-go. You want to build a community.
Identifying your audience will also help you in other steps. For example, if you’re after Bitcoin holders only, then it’s pointless to be building an IDO on Ethereum without supporting wrapped Bitcoin tokens like pBTC, wBTC or RENBTC. Maybe you want a geographical focus, in which case Binance’s Chinese audience could make a strong argument for you.
The DeFi experience of your audience also matters. If you’re chasing DeFi power farmers, you’re probably going to focus an IDO on a high-volume platform. If it’s institutions and hedge funds you’re after, you might want to choose a more structured platform with high-end portfolio tools. The best way might be to choose a platform that covers both of course — access to high volumes as well as offering powerful asset management and security tools like PlasmaFinance, which has a multisig wallet feature called Vaults for portfolio management.
The worst thing you can do is skip this crucial step and fail to define your ideal investor.
Step 3: Choose Your Blockchain
Numerous blockchains support IDOs, from Binance Smart Chain and Ethereum to Polkadot. So, you’re going to have to weigh up the merits of each before deciding which one is best suited to your token sale.
Of course, it doesn't have to be the chain you actually launch your token on: it’s entirely possible to launch the IDO on Ethereum due to its appreciable network effects and developer community, then issue the token on Polkadot. But you’ll be forcing your users to contend with high transactional costs due to network congestion on Ethereum.
You could choose a cheaper network like Binance Smart Chain but you might give up some of the larger volume benefits on Ethereum, at least in the beginning.
You could even do the token swap later or establish a cross-chain bridge like Polkadot or pNetwork. Just ensure that the blockchain you choose supports interoperability with others — Ethereum, Polkadot and Binance Smart Chain, are the top dogs in this area but upcoming ones like PlasmaDLT offer the same interoperability, at higher throughput for cheaper DeFi transactions.
Step 4: Vet Your IDO Host
Having come to a decision regarding your target audience and preferred blockchain, you’ll need to assess the various IDO hosting platforms (typically, they are also called token launchpads) that have come online in the past two years. Do you go with an established launchpad (and by established, we mean launched in 2019) or a newer venture that represents a tentacle of a well-known cryptocurrency exchange?
Needless to say, it’s vital to vet the launchpads that meet your criteria in order to weed out those associated with bad projects, scams, and trading bots. Drill into their track record to find out about the successes or failures of projects that have launched there in the past. How have tokens performed on the market, and what’s the user sentiment towards the launchpad itself? Are its contracts independently audited? Does it have plenty of venture capital behind it or did it mysteriously bloom out of thin air?
The launchpad might meet your approval from a reputational standpoint, but it would also be prudent to look into their fee structure and find out what sort of support they provide in terms of marketing. Some platforms also stipulate that associated projects must hold the launchpad's native token to participate, and others still offer the benefits of integrations more typical of centralized services, like a fiat onramp.
Moreover, you’ll want to ensure that there is support for your chosen IDO type, whether it’s:
- A fixed listing as is commonly done on Uniswap;
- An “Overflow Model” like on PancakeSwap;
- A first-come-first-served IDO like Shyft Network did on Polkastarter; or
- Truly decentralized IDO platform Spaceport where anyone can launch their IDO without restriction or limitations, barriers or permission and choose from a wide range of customizable parameters including the IDO type (eg. fairer implementation of the Dutch auction).
Successful DEXs benefit from incredibly strong ecosystems comprising committed liquidity providers, seasoned traders and savvy developers. They also invariably form strategic partnerships with other powerful platforms and investors, and can deploy on multiple blockchains. Naturally, the stronger the launchpad’s ecosystem, the brighter your prospects of success. A launchpad integrated with global DEX liquidity sources, like SpacePort, for example, ensures that your token will be visible and tradable across a swathe of DEX aggregation protocols like PlasmaFinance, 1inch, Zerion and Matcha.
Will the IDO launchpad give your project the attention it deserves, or is it prioritizing quantity over quality? Make no mistake, some platforms pull out all the stops to get clients to list with them — then make no effort to maximize the launch itself.
A cursory glance at the DEX’s past and schedule should help clarify whether they’re the right fit for you, but here are some important factors to consider as well to give your IDO the edge:
- Visibility: It can be tempting to simply select the launchpad with the largest trading volumes, but that doesn't necessarily mean greater visibility. It’s often better to seek out higher visibility by choosing a more targeted platform that is geared toward the project niche or particular investor community.
- Transparency: It’s vital to host your IDO on a platform that is as transparent as possible, allowing users to verify the credibility, reputation, and trustworthiness of a project to provide greater confidence in the investment. Platforms should present full token information and allow users to verify data such as the token contract address via a trusted source like CoinMarketCap.
- Convenience: DEXs can seem more complex to users than centralized alternatives, so it’s important to select a platform that is as intuitive as possible. Some platforms can deliver the benefits of a decentralized exchange, while also bridging centralized service integrations such as fiat on/off ramps so even non-crypto people can participate in your IDO.
- User Empowerment: DeFi users are a discerning bunch and demand more features and more control over their interactions on blockchain. Choose a platform that lets users launch trading pools, liquidity mining programs for additional governance token incentives, and staking pools, as well as other contest and reward programs, to encourage participation.
Step 5: Battle Test Your Security and Documentation
Once you’ve completed all the groundwork for a successful IDO launch, the final step will be to ensure that your coding, smart contracts and documentation all stand up to inspection. DeFi and crypto investors will be conducting their technical due diligence on you, so you’d better be ready for that!
For this step, you should seek the assistance of independent third parties for an objective assessment.
A good start would be to make your project code open source and invite developers and white hackers to examine it and test it for possible malicious backdoors or loopholes that can be exploited. If you want institutional assurance, getting a recognized smart contract auditor like Certik to audit your contracts is the minimum you can do — these audits can then be published alongside your contracts on public explorers like Etherscan so people can see for themselves that your contracts have been audited properly.
Finally, any technical documentation describing your project and IDO, including your whitepaper, should be reviewed independently to ensure it contains all the necessary information a blockchain project should have.
In conclusion, IDOs are increasingly popular as a new way to crowdfund on the blockchain owing to the ease of setting up and efficiency. However, there’s a lot of thought that needs to go into your IDO to give it the best chance of success.
Selecting the right decentralized exchange platform for your token sale isn’t an exact science: it’s a case of sizing up what’s on offer and choosing the launchpad with the right fundamentals, a great community, and genuine passion for what you have to offer. Choose the right launchpad and you’ll have a solid foundation for long-term success.