Securing funding is a pivotal step for any emerging crypto venture. If you're spearheading a blockchain initiative, you might be weighing the options of launching through an Initial Coin Offering (ICO), Initial Exchange Offering (IEO), or Initial DEX Offering (IDO) as a swift avenue to gather funds, an alternative that often outpaces traditional venture capital acquisition.
But what sets these three prominent crypto fundraising mechanisms apart? And more importantly, which one aligns best with your project's goals and financial requirements?
Dive into our comprehensive guide that sheds light on the crucial differences between ICOs, IEOs, and IDOs, offering you the insights needed to choose the most fitting fundraising strategy for your blockchain project.
Find a more comprehensive breakdown on Blockchain-Ad's blog at https://www.blockchain-ads.com/post/ico-vs-ieo-vs-ido
ICO vs IEO vs IDO: Major Differences
At a high level, ICOs, IEOs and IDOs have the following key characteristics:
While all three facilitate fundraising by selling new crypto coins and tokens, factors like sale platform, oversight, costs, security, liquidity and more vary across models.
What is an ICO in Crypto?
An ICO or Initial Coin Offering allows crypto founders to source funding from public backers globally by issuing new digital tokens in exchange for existing cryptocurrencies or fiat money.
How ICOs Work
ICOs first emerged between 2013-2014 as a novel way for blockchain startups to raise capital outside of traditional financing channels like initial public offerings and VC firms.
To conduct an ICO, the crypto team simply needs to publish a project whitepaper detailing the vision, release a smart contract and kick off a token generation event. During the ICO period (typically 30 days), public investors can purchase the new tokens in expectation of price gains when they get listed on exchanges.
Early ICOs required buyers to transfer funds to a smart contract address manually. Later process improvements introduced user-friendly web interfaces and token sale platforms like TokenMarket for a seamless investor experience.
ICO Fundraising Process:
The ICO Boom
By mid-2017, ICOs exploded as a popular tool for crypto fundraising with over $10 billion raised by over 800 token projects the following year. The simplicity and lack of red tape enabled even blockchain startups with just a website and whitepaper to secure millions in capital.
For investors, ICOs offered exposure to innovative DLT ecosystems with the upside of 10-20X token price appreciation once the crypto got listed publicly.
However 2017-2018 also saw the peak of ICO scams, fake projects, hype and excessive speculation which eventually led to a crash. Regulators stepped in and Google banned ICO ads which dried up funding.
Yet even today legitimate blockchain infrastructure initiatives continue to launch periodic ICO rounds to expand capabilities for their live ecosystems. The ICO model has stood the test of time for well designed crypto networks.
Advantages of ICO Fundraising
Disadvantages of Initial Coin Offerings
Now that we’ve seen ICOs in detail, how do IEO and IDO crypto fundraising models stack up?
What is an IEO in Crypto?
If high ICO failure rates worried you, Initial Exchange Offerings (IEOs) emerged to offer greater reliability.
An IEO democratizes access to invest in new crypto coins by moving the token sale from a project website directly to a cryptocurrency exchange platform instead. The exchange screens and selects only credible tokens to list, lending more trust.
For crypto founders, IEOs solve regulatory and visibility challenges by letting exchanges handle compliance, KYC verification and marketing to large readymade investor bases.
Compared to almost $20 billion from ICOs in 2017-2018, crypto exchange IEOs raised over $1.5 billion across about 160 token projects in 2019 alone according to InWara data.
How Do IEOs Work?
Instead of conducting a token generation event themselves, crypto projects can apply for an Initial Exchange Offering on platforms like Binance Launchpad, Coinbase Ventures or OKEx Jumpstart.
The exchange reviews the IEO applicants based on product stage, team strengths, tokenomics and other factors. They charge an upfront listing fee to list only quality coins vetted for long term viability.
Recommended by LinkedIn
For investors, exchange IEO platforms provide secure payment channels and KYC checks to prevent fraud and money laundering risks of ICOs. Participants gain confidence in the credibility of tokens cleared for IEO crowdfunding on mature exchanges.
Typical IEO Process
Binance Launchpad for example has progressed over 83 promising crypto IEOs including Axie Infinity, The Sandbox, and Polygon.
IEO Benefits
Challenges With IEO Model
IEOs brought maturity to crypto fundraising through structured exchange-based token offerings. This leads us to the latest evolution in the sphere - IDOs.
What is an IDO in Crypto?
IDO expands to Initial DEX Offering - a new trend of distributing tokens via decentralized exchanges. It merges the accessibility of ICOs with efficiency of IEOs while upholding core DeFi principles.
How Do IDOs Work?
An Initial DEX Offering launches a crypto token on an automated decentralized trading protocol like Uniswap, PancakeSwap or SushiSwap instead of conventional exchanges.
Project founders create a token smart contract and pair it with a base currency pool (like ETH or BNB). The protocol uses an AMM (automatic market maker) algorithm to enable swapping between the assets at dynamic rates.
Crypto ventures can easily bootstrap liquidity and kickstart IDOs without centralized intermediaries. Supporters swap base tokens from the pool to claim the IDO project’s governance or utility crypto.
Post-IDO, the token remains available for ongoing trading on DEX pools utilizing automated price discovery and liquidity sharing between platforms via mechanisms like Thorchain.
Read our in depth guide on how to launch a successful IDO
Typical IDO Flow
Why Choose IDOs Over ICO and IEO?
IDOs signify the next-generation of blockchain fundraising true to DeFi’s open ethos.
Downsides to Initial DEX Offerings
Read More: The Biggest IDOs of 2023 and How They Succeeded
So those are the key nuances differentiating ICO vs IEO vs IDO models for crypto fundraising. Which approach is ideal for your blockchain project?
Choosing Between ICO, IEO and IDO
We’ve covered the anatomy of ICOs, IEOs and IDOs in depth highlighting unique pros and cons. As a crypto builder exploring funding options, consider these key factors:
Which is better: IEO, ICO or IDO?
IDOs are the best fundraising option for most crypto projects today.
Unlike ICOs and IEOs, IDOs offer the flexibility of decentralized public launches combined with automated liquidity. Crypto startups can gain investor access and trading without centralized vetting or bureaucracy of exchanges.
See our list of the best crypto launchpads for ICOs, IEOs, and IDOs
By leveraging DeFi protocols on DEX platforms like Uniswap, IDOs exemplify permissionless innovation aligned with crypto ethos. Projects willing to manage smart contract risks can benefit from lower costs and community governance.