What is IDO, ICO, and IEO: The Evolution of Cryptocurrency Fundraising

This article will cover everything about what is IDO, ICO, and IEO. Imagine you're at a bustling marketplace. Vendors are shouting, trying to get your attention, each with a unique product to sell. Now, instead of fruits, clothes, or electronics, these vendors are offering new digital currencies or tokens. This marketplace represents the world of cryptocurrency, and the vendors' methods of selling their tokens are akin to ICOs, IDOs, and IEOs. Let’s delve into what these terms mean, their origins, differences, history, and impact, and take a look at some notable examples from the past.

The Origins: ICO, IDO, and IEO

Initial Coin Offering (ICO): Think of an ICO as a digital fundraiser. Companies create a new cryptocurrency or token and sell it to investors to raise money for their projects. This method became popular in 2017 and allowed startups to bypass traditional fundraising methods like banks or venture capital.

Initial DEX Offering (IDO): An IDO is similar to an ICO but takes place on a decentralized exchange (DEX). This means the token sale is automated through smart contracts, offering more transparency and accessibility.

Initial Exchange Offering (IEO): An IEO, on the other hand, is managed by a cryptocurrency exchange. The exchange acts as a trusted intermediary, conducting the token sale on behalf of the company. This method adds a layer of credibility, as exchanges usually vet the projects before listing them.

The Differences: Simplified

• Platform: ICOs are often hosted on the project’s own website, IDOs on decentralized exchanges, and IEOs on centralized exchanges.
• Trust Level: ICOs rely heavily on the project's reputation, IDOs offer some transparency via smart contracts, and IEOs provide additional trust as exchanges vet the projects.
• Ease of Participation: ICOs can be more accessible to a wider audience, IDOs require some knowledge of using decentralized exchanges, and IEOs are user-friendly but may require account verification on the exchange.

A Brief History: The Rise and Fall

ICO Boom of 2017: The year 2017 was the golden era for ICOs. Hundreds of projects raised billions of dollars from investors eager to get in on the next big thing in crypto. The allure was high returns on investment, similar to buying shares in a company before it goes public.

However, this gold rush had its pitfalls. Many projects either failed to deliver on their promises or turned out to be outright scams. This led to significant financial losses for investors and skepticism towards ICOs.

Shift to IDOs and IEOs: In response to the shortcomings of ICOs, the crypto world saw the emergence of IDOs and IEOs. IDOs, with their decentralized nature, provided more transparency, while IEOs offered an additional layer of security through exchange vetting.

Impact and Current Usage

ICOs: Due to regulatory crackdowns and the high risk of scams, ICOs have become less popular. However, they paved the way for innovative fundraising methods in the crypto space.

IDOs: IDOs are gaining traction due to their decentralized and transparent nature. They allow projects to reach a wide audience without relying on a centralized platform.

IEOs: IEOs are currently more popular than ICOs, thanks to the added trust from established exchanges. They provide a safer environment for both projects and investors.

Failed ICOs of 2017: Lessons Learned

1. Tezos:The Tezos Initial Coin Offering (ICO) in 2017 was one of the most notable in the cryptocurrency space, raising a staggering $232 million. However, this success was marred by significant internal conflicts and legal issues, leading to substantial delays and investor frustration.Initial Success and Vision: Tezos was envisioned as a self-amending blockchain platform, aiming to offer superior governance and upgradeability compared to other blockchain projects. The ICO, which took place in July 2017, was a massive success, accumulating about 66,000 Bitcoins and 361,000 Ethers in just 13 days​.Internal Conflicts and Legal Battles: The problems began shortly after the ICO concluded. The relationship between the founders, Arthur and Kathleen Breitman, and the president of the Tezos Foundation, Johann Gevers, became strained. Disputes over the control and management of the funds and the project itself led to significant delays in the token distribution​​. This internal conflict escalated to the point where both parties accused each other of unethical behavior, further complicating the project's progress​.

   In addition to internal strife, Tezos faced multiple class-action lawsuits in the United States. The lawsuits claimed that Tezos had conducted an unregistered securities offering, violating SEC regulations. These legal challenges added another layer of complexity and delayed the project's development further​​.

2. Sirin Labs: Sirin Labs raised $158 million to create the Finney blockchain smartphone. The ambitious project aimed to revolutionize mobile technology but failed to gain market traction. Production issues and a lack of consumer interest led to substantial losses​.
3. Bancor: Bancor launched its Initial Coin Offering (ICO) in June 2017, raising an impressive $153 million within a few hours. The project aimed to create a decentralized liquidity network that allowed users to convert different cryptocurrencies without needing an exchange. This innovative concept quickly garnered attention, positioning Bancor as a pioneer in the decentralized finance (DeFi) space.However, Bancor faced significant challenges shortly after its successful ICO. In 2018, the platform experienced a major security breach where hackers stole approximately $13.5 million worth of tokens. This incident raised serious concerns about the platform's security and shook investor confidence​​. Additionally, regulatory issues in 2019 forced Bancor to bar U.S. users from its platform, further complicating its operations and affecting its market presence​.Current Status and Innovations: Despite these setbacks, Bancor has managed to adapt and evolve. The project continues to operate and has introduced several innovative features aimed at enhancing its utility and security in the DeFi ecosystem. One of its notable advancements is the Carbon protocol, which enables users to execute automated trading strategies directly on the blockchain. This protocol is designed to resist common DeFi exploits such as Miner Extractable Value (MEV) sandwich attacks, providing a more secure trading environment​​.Moreover, Bancor's governance model, operated through the BancorDAO, ensures that changes to the protocol are made transparently and democratically, involving the community in the decision-making process. This decentralized governance approach helps maintain the protocol's integrity and aligns it with the interests of its users​.
4. Status: Status, which raised $100 million, aimed to develop a mobile Ethereum client. The project encountered multiple development delays and failed to deliver on its promises, causing disillusionment among its investors​.
5. Substratum: Substratum raised $13.8 million for creating a decentralized web. The project faced technical challenges and a declining cryptocurrency market, which eventually led to its collapse. Substratum's vision of a decentralized internet never materialized​.

How to Participate in IDO and IEO

Participating in an IDO:

1. Choose a DEX Platform: Research decentralized exchanges (DEXs) that host IDOs, such as Uniswap, PancakeSwap, or SushiSwap.
2. Create a Wallet: Set up a cryptocurrency wallet compatible with the DEX, such as MetaMask or Trust Wallet.
3. Fund Your Wallet: Purchase the necessary cryptocurrency (often ETH or BNB) and transfer it to your wallet.
4. Find an IDO: Keep an eye on upcoming IDOs by following platforms, social media, or IDO launchpads like Polkastarter or DAO Maker.
5. Participate in the Sale: Follow the specific instructions on the DEX to participate in the IDO, usually by swapping your cryptocurrency for the new token during the sale period.

Participating in an IEO:

1. Choose an Exchange: Select a cryptocurrency exchange that hosts IEOs, such as Binance, Huobi, or KuCoin.
2. Create an Account: Sign up for an account on the exchange and complete any required identity verification (KYC) processes.
3. Fund Your Account: Deposit the necessary cryptocurrency (often BTC, ETH, or the exchange's native token) into your exchange account.
4. Find an IEO: Look for upcoming IEOs on the exchange’s IEO launchpad section.
5. Participate in the Sale: Follow the exchange’s instructions to participate in the IEO, which often involves buying the new token directly from the exchange during the sale period.

Conclusion: Navigating the Crypto Fundraising Landscape

The evolution from ICOs to IDOs and IEOs highlights the dynamic nature of the cryptocurrency world. While ICOs opened the door to a new way of fundraising, their pitfalls led to the development of more secure and transparent methods like IDOs and IEOs. As the market matures, these newer methods are becoming the preferred choice, offering better protection for investors and more reliable funding for projects.

As you explore the crypto space, remember the lessons from the past. Always do thorough research and understand the risks before participating in any token offering. The digital marketplace is exciting and full of potential, but like any investment, it requires caution and due diligence.