An Initial DEX Offering (IDO) is a token offering that utilizes either a decentralized exchange (DEX) or a cryptocurrency launchpad to facilitate fundraising. A startup crypto project provides their tokens to the platform and users invest their capital in the startup’s tokens. The DEX or launchpad completes the distribution of the tokens to investors and transfers funds raised to the project. These processes are often automated and occur via smart contracts on the blockchain.
Similar to IEOs, IDO investors have some assurances that DEXs and launchpads have performed due diligence before accepting a project on their platforms. Potential investors may feel comfortable that their investment dollars are not going towards scams or projects that may never launch. For the project, they can reach a broader audience of potential investors and platform users and they can leverage the marketing capabilities of the host platform.
How does an IDO work?
Every launchpad or DEX that hosts IDOs has their own processes, rules, and regulations regarding their token offerings; however, there are some methods that are shared by most of these platforms:
After due diligence processes, a project is either accepted or rejected to have its IDO on the platform. The project offers a supply of tokens for a fixed price, and users send their funds (usually stablecoins) in return for these tokens. Investors will receive the project’s tokens during the token generation event (TGE) or later according to the vesting schedule in the tokenomics.
Like with an IEO, there is usually an investor whitelist. You might have to complete marketing tasks, join social media channels, or simply provide your crypto wallet address to be eligible to participate in the token offering.
After the fundraising event, some of the funds may be used raised to create a liquidity pool with the project's token on a DEX while the rest of the funds are sent to the team to aid in development or to fund other areas of the token launch. Typically, the liquidity provided to the DEX is locked for a certain period.
At the TGE, purchased tokens are transferred to participants according to the vesting schedule and then the LP will be opened for trading.