IDO vs. ICO: What's the Difference?
Initial DEX Offerings (IDOs) and Initial Coin Offerings (ICOs) are two ways that new cryptocurrency projects can raise funds. These pre-public launch events have revolutionized crowdfunding and provided investors with opportunities for high returns. However, there are some key differences between an ICO and an IDO that investors should be aware of.
- An initial coin offering is a crowdfunding method where crypto projects share a proportion of the total token supply in return for investment capital.
- An initial DEX offering is another crowdfunding method where a cryptocurrency project shares a proportion of the total token supply via a decentralized exchange.
- With fewer restrictions, the ICO model became overrun by scams and Ponzi schemes.
- IDOs were created as a solution. Cryptocurrency projects can be vetted by community members and investors can trade a new token instantly.
What are Initial Coin Offerings?
Inspired by an initial public offering, initial coin offerings (ICOs) is a crowdfunding method that helps crypto projects raise capital. During an ICO, a crypto project offers individuals the chance to invest fiat or crypto in return for a proportion of a new native coin or token. The event is hosted by the crypto project’s blockchain platform and, therefore, relies on no intermediary third-party.
ICOs became popular in 2017 when the crypto industry went through a period of expansion. By leveraging blockchain technology, initial coin offerings offered a permissionless way for crypto projects to generate funding. There are two main types of ICOs:
- Private ICOs. Private ICOs are limited to a set number of investors and typically include financial institutions, venture capital firms, and high-net-worth individuals.
- Public ICOs. Public ICOs are the crowdfunding option that many crypto investors have come to know. Through a public ICO, any individual can invest capital in a new crypto project.
What Is a Crypto IDO?
Initial DEX offerings (IDOs) are a crowdfunding method that evolved from ICOs. Instead of being managed by a crypto project, an IDO is completed using a decentralized exchange (DEX) - an application built on top of a blockchain that allows investors to make trades without the need for an intermediary.
When DEXs became popular in 2019, many projects saw the opportunity to raise funds quickly in a decentralized manner. Like an ICO, individuals can invest either fiat or crypto in return for a proportion of new native coins or tokens. Once a project is launched, investors can then trade the new coin or token directly on the DEX. IDO platforms were created shortly after and have become a popular crypto launchpad for organizing and managing IDOs.
Main Differences Between ICO and IDO
ICOs and IDOs allow crypto projects to raise funds without having to rely on intermediaries. But in the question of IDO vs ICO, there are some distinct differences that investors need to be aware of. The most significant difference is that ICOs are overseen and completed by a crypto project, whereas an initial DEX offering is completed through a joint effort between a crypto project and a decentralized exchange. This results in some fundamental differences in fundraising, vetting, and smart contract management.
|Fundraising||Completed by project issuing ICO||Completed by a DEX or IDO launchpad|
|Vetting||None||Vetting completed by DEX community or IDO launchpad|
|Smart contract management||All smart contracts are managed by the ICO creator.||Smart contracts jointly managed by IDO creator and DEX.|
|Token listing||Project must reach an agreement with DEX or CEX||Token is instantly listed on DEX|
|Marketing||Marketing is the responsibility of the ICO creator||Marketing is the responsibility of the IDO creator and DEX/launchpad|
|Fees||Gas fees for smart contract completion||Gas fees for smart contract completion|
For investors, ICOs are often viewed as the simpler option. Investors are guaranteed a set price for new coins or tokens which are accessible to anyone. However, as a result of the ease with which ICOs can be created, it is easier for malicious parties to take advantage. In addition, once an ICO is completed, an investor must wait until a project completes an agreement with either a crypto DEX or a centralized exchange before cryptos can be traded.
In contrast, only projects selected by a DEX’s decentralized community are authorized to perform an initial DEX offering. Although IDOs are viewed as more complicated, thanks to the instant creation of a liquidity pool, investors can begin trading cryptos instantly. It is for these reasons the IDO model has become favored by both projects and investors.
How Do Crypto IDOs Work?
Initial DEX offerings work by selling a part of the total token supply through a decentralized exchange. To create an IDO a project must first apply to a DEX or launchpad. The project must then be approved by the internal DEX community. If approved, the project is authorized to complete an IDO.
A proportion of all native coins or tokens are then set aside for the IDO launch and the project is marketed by both parties. Individuals can opt to invest during the fundraising period by purchasing an ‘IOU’. This involves committing funds, either in the form of fiat or crypto. At the end of the fundraising period, IOUs are then used to distribute native coins or tokens via a Token Generation Event (TGE). After the TGE, the DEX’s liquidity pool then allows for instant token trading.
Should You Invest In An IDO?
Initial DEX offerings provide one of the best methods for gaining access to new cryptocurrencies and, therefore, should be on the radar of anyone looking to get ahead of a public launch. But that doesn’t mean they are suitable for every retail investor.
IDO launches provide investors with the opportunity to buy new crypto before listing and at a low price, but that price is not always guaranteed. While a project will have a set listing price, instant trading on a DEX means that the value of crypto will change extremely quickly. IDOs also require familiarity with blockchain technology, Web3 crypto wallets, and smart contracts. Furthermore, there is no guarantee that crypto launched via an IDO will increase in value over the long term.
What are the Pros and Cons of an IDO?
Here are some of the most prominent pros and cons of an initial DEX offering:
- IDOs are permissionless and allow any investor, regardless of geographic location or status, to access a new project.
- New coins or tokens are available immediately for trading allowing short-term gains to be realized.
- A DEX’s community picks and chooses which projects are accepted, which adds a secure level of verification.
- DEXs are dependable applications that are developed using a complex network of audited smart contracts.
- As there is no control over token distribution, pump-and-dump schemes have become common. With immediate trading, individuals can manipulate prices by buying and selling large quantities.
- As a new coin or token can be swapped instantly, very few investors gain access to crypto at the specified listing price.
- There are still no guarantees that a project has been thoroughly vetted by a DEX or launchpad. Malicious creators can still abandon a project and try to siphon off investments.
What are the Pros and Cons of an ICO?
Here are some of the most prominent pros and cons of an initial coin offering:
- Unlike IPOs that are restricted to accredited investors, any individual can make a small investment during an ICO.
- Like IDOs, ICOs allow investors to participate from anywhere in the world. There are no geographic barriers to entry.
- All investors taking part in an ICO are guaranteed to receive a new coin or token at a set discounted price. This can leave greater room for a high return on investment.
- In the past, it has been easier for crypto scam projects to launch via an ICO due to the lack of verification and auditing.
- As a result of scam projects, ICOs are now heavily scrutinized by government bodies such as the US Security and Exchange Commission.
- After a token sale, investors need to wait for the project to list with a centralized exchange before any profits can be realized.
IEO and IGO Explained
ICOs and IDOs are not the only offerings available within the crypto space. IEOs and IGOs are also commonly used by crypto projects. IEOs, or initial exchange offerings, were developed shortly after ICOs. Hosted by centralized exchanges (CEXs), these offerings were created to avoid the scam and Ponzi schemes that had infiltrated the ICO space.
Instead of an offering being hosted by a crypto project, an initial exchange offering leverages the existing infrastructure of a crypto exchange to launch a new coin or token and raise money. For a project, one advantage of an initial exchange offering is that all technical details are handled by the exchange platform. With larger user bases, centralized exchanges can also offer an instant audience and a thorough vetting process.
On the other hand, Initial game offerings (IGOs) are a crowdfunding method that is specifically used by blockchain-based gaming projects. Instead of investing and receiving a native crypto coin or token, IGOs offer individuals the chance to invest fiat currency or crypto for early access to in-game accessories and assets. Ownership of in-game assets is transferred using non-fungible tokens (NFTs). During an IGO, NFTs may represent a range of items including skins, weapons, unique character traits, and vehicles.
Successful Projects Launched from IDOs and ICOs
The success of an initial DEX offering or initial coin offering depends on a variety of criteria including utility, marketing, and community support. Here are 8 examples of projects that are classified as successful coin offerings.
1. Ethereum (ETH)
ICO Price: $0.31
Current Price: $1,637
Return on Investment: 527,965%
Ethereum is now the second-largest cryptocurrency in the world by market capitalization and is arguably one of the most successful cryptocurrency projects ever launched. Its native coin, ETH, was offered in 2014 via an ICO where individuals could buy the coin using BTC. $18.3 million worth of BTC was raised.
2. Cosmos (ATOM)
ICO Price: $0.1
Current Price: $12.70
Return on Investment: 12,600%
Cosmos is a layer-0 network focused on building interoperability within the crypto space. Its native coin, ATOM, was launched using an ICO in April 2017. The ICO raised $17 million for the Cosmos Hub.
3. Raven Protocol (RAVEN)
ICO Price: $0.0017
Current Price: $0.0014
Return on Investment: -17.64%
The Raven Protocol is a decentralized neural network project that is focused on transforming the AI industry. Its coin, RAVEN, was first launched in June 2019 by the Binance DEX. Although the price of RAVEN is now down from its initial price, the IDO is considered a success by many as it was one of the first IDOs ever to take place. $6.1 million was raised.
4. Cardano (ADA)
ICO Price: $0.0024
Current Price: $0.3801
Return on Investment: 14,941%
Cardano is an innovative smart contract blockchain that is developed using a science-based approach. Cardano’s native coin, ADA, was launched via an ICO in September 2015. While many ICOs last no more than a few months, ADA’s ICO lasted 16 months. Investors could buy ADA using BTC until January 2017. $62.2 million was raised for the project.
5. Arweave (AR)
ICO Price: $0.73
Current Price: $11.02
Return on Investment: 1,287%
Arweave is a decentralized storage protocol that offers businesses a method to store large datasets across a distributed network. The network’s native coin, AR, was launched via an ICO that took place in May 2018. The project raised $8.7 million which was collected in ETH.
6. Quant (QNT)
ICO Price: $1.10
Current Price: $136.07
Return on Investment: 11,570%
Quant is a protocol that targets blockchain-to-blockchain and Web2-to-Web3 communication. In May 2018, the project launched QNT, the native coin of the protocol. Investors were able to purchase QNT with ETH. $11 million was raised.
7. Aave (AAVE)
ICO Price: $1.84
Current Price: $80.64
Return on Investment: 4,310%
Aave, previously known as ETHLend, is a decentralized lending and borrowing protocol that allows investors to lend and borrow digital assets without the need for an intermediary. The original coin of the protocol, LEND, was launched via an ICO in November 2017. $17.8
8. Binance Coin (BNB)
ICO Price: $0.15
Current Price: $304
Return on Investment: 202,566%
BNB, formerly Binance Coin, is the native coin of the BNB Chain and is associated with the Binance cryptocurrency exchange ecosystem. The coin was launched in July 2017 via an ICO which raised $15 million worth of ETH.
Frequently Asked Questions
To participate in an IDO an investor needs to join an IDO’s whitelist. Once whitelisted, an investor must then wait for the Token Generation Event when all new cryptocurrencies are distributed.
Yes, after an IDO token sale, a DEX’s liquidity pool allows investors to trade in and out of the token instantly. While this is an option, many choose to hold on to tokens in the hope of higher returns in the future.
ICOs provide investors guaranteed access to new crypto at a set price and allow any project to raise money without restriction. Unfortunately, a lack of restrictions has resulted in a high number of malicious actors taking advantage of the process. IDOs and IDO launchpads were created as a solution.
Leveraging decentralized exchanges, IDOs vet crypto projects via community members and allow for the instant realization of liquidity. Are IDOs risk-free? Definitely not. But initial DEX offerings have helped to overcome some of the problems with new crypto launches. What’s most important is to thoroughly research a project before committing investment capital.