First came initial coin offerings, then initial exchange offerings. Now, initial DEX offerings are all the rage. Here’s how to participate in one. [Updated Sept. 10, 2021]
What Are Initial DEX Offerings (IDO)?
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.
IDOs also tend to raise smaller amounts of money, as they give smaller projects access to retail investors sooner than ICOs and IEOs.
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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.
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.
Easier and Faster to Launch
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.
Greater Due Diligence on Investors
All of this means that it’s important to find trustworthy launchpad platforms that provide anti-scam vetting and Know Your Customer (KYC) 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.
Oversubscription on IDOs
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 two main components: pre-buying launchpad tokens and luck in a lottery.
Get Whitelisted on IDO Launchpads
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.
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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 and DuckDAO 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.
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.
Holding POLS Token
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.
Providing Liquidity on PancakeSwap
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.
Should You Invest in IDOs?
IDOs are one of the many innovative products in the DeFi space. Being early on promising projects is something all crypto investors desire, and IDOs offer a platform for to achieve that. While the returns on some IDOs are in the thousands of percents, it is unwise to "degen" into any IDO you see.
Users keen on participating on IDOs should do due diligence on the project — reading the project's whitepaper, visiting the official website and getting to know the team behind it are some of the ways. These resources are often available on IDO launchpad platforms.