We’re all familiar with IDOs, i.e., Initial Dex Offering, a popularly opted web3 approach for that projects in this industry to fundraise. The familiarity, security, and efficiency offered by IDOs today make cryptocurrency fundraising for new projects easier and straightforward.
However, even with this common route that crypto entrepreneurs take to seek the attention of venture capitalists, there are still many other methods of cryptocurrency fundraising. Apart from IDOs, there are many more promising options that projects opt for cryptocurrency fundraising – ranging from the infamous ICO to Initial Stake Pool Offerings and much more!
The various methods of cryptocurrency fundraising available today ensure that no entrepreneur has to limit their approaches to a certain method. But what are other common fundraising routes in the crypto industry, and how are they different from IDOs? Let’s go ahead and explore that below in detail!
The History of Crypto Fundraising:
In 2017, there was an explosion of fundraising activity in the cryptocurrency market. The same year, crypto rose to prominence and became the new asset class. The term “ICO craze” comes to mind for many observers and individuals involved in the market then.
In fact, at that time, dozens of projects launched their initial coin offerings (ICOs) live. But it should come as no surprise that most became massive failures, some even remembered as part of the crypto projects’ history.
Nonetheless, a few projects managed to amass millions of dollars for themselves; some are still on top of the game today. Considering this, several commentators felt that the current ICO mania showed all the markings of the dot-com boom, which occurred in the late 1990s and was characterized by excessive speculation that resulted in the formation of a gigantic bubble that led to the failure of many new online businesses.
Likewise, in 2017, industry professionals anticipated another crash of this kind, but it never occurred. The mania of initial coin offerings (ICOs), however, did lead to the emergence of various alternative types of crypto financing. They include STOs, IEOs, IDO platforms, and the recent addition of ISPOs. Let’s talk about each one in more depth down below.
Different Crypto Fundraising Methods:
Some of the most common and trusted methods of cryptocurrency fundraising used today include:
Initial Exchange Offering
Firstly, let’s explore an IEO or Initial Exchange Offering. For cryptocurrency startups, obtaining capital through the sale of tokens at an Initial Exchange Offering (IEO) is a popular method. Furthermore, a crypto exchange handles everything on the company’s behalf. To compensate itself, the exchange keeps a commission on each token transaction.
Another thing to note about the IEOs is that the fundraising process is quite confident because the tokens are sold on reputable exchanges. So before allowing an IEO to be listed on their platform, these exchanges undergo regulatory due diligence, KYC/AML checks, and other anti-money laundering procedures.
The initiative also gains from the extensive user base of the exchange. However, ICOs can be a costly fundraising method to consider, as compared to others.
Initial Dex Offering
Now, let’s move to one of the most commonly opted fundraising methods in crypto, IDOs. So are you still unsure what is IDO? An Initial Dex Offering (IDO) is similar to an Initial Exchange Offering. However, what makes IDOs different is that they employ a decentralized trading platform as a launchpad rather than a centralized exchange.
In addition, rather than receiving clearance from an exchange, the IDO community scrutinizes an IEO’s projects and tokens. As a result, this common fundraising route in the crypto industry ensures that initiatives can acquire finance much more quickly – promising faster results for the investors and entrepreneurs participating in crypto IDO.
Security Token Offering
Tokenized digital assets can also be referred to as security tokens. The process by which these tokens are sold on a cryptocurrency exchange to raise capital is called a Security Token Offering (STO). A security token is a one-of-a-kind token that is issued on a blockchain that does not require any permission. It is a piece of an enterprise that may be exchanged for actual financial assets such as equity and reflects a stake in the business.
Security Token Offerings are required to maintain full compliance with the governance of regulatory bodies. Moreover, one of the reasons STOs are considered more trustworthy than ICOs is that the project that launches the STO is required to put in significantly more work toward preparation and compliance as a result.
Initial Coin Offering
An Initial Coin Offering is the equivalent of a traditional initial public offering in the cryptocurrency world (IPO). But what’s different in an ICO is that, rather than selling shares, it enables crypto projects to sell the newly launched cryptocurrency they have created. Later, collectors and investors buy these coins with the expectation that the value of the underlying cryptocurrency will rise in the years to come.
Despite its innovative approach, the industry has been quite critical of Initial Coin Offering (ICO) because of the large number of fraudulent enterprises that have used this strategy to collect cash and then vanished with the money they had raised. Hence, this reason keeps ICOs as a secondary fundraising option in the crypto world.
Initial Stake Pool Offering
Lastly, ISPO stands for Initial Stake Pool Offering and is a relatively new method of generating capital using Cardano’s staking pool. It was initially implemented by MELD, which is a non-custodial cryptocurrency bank. MELD referred to it as a “liberating” fund-raising method at the time. Investors participate in an Initial Stake Pool Offering (ISPO) by delegating some ADA tokens to a stake pool.
The project keeps the ADA produced through staking, and in exchange, it issues a comparable quantity of its native currency.
The investors wager on their holdings rather than buying or selling their tokens, which is how every other capitalization method is carried out. The fact that investors do not have to part with their ADA to be eligible for rewards makes this method significantly more secure. Their stake tokens continue to be their own and are stored in their respective wallets.
IDO vs. ICO vs. IEO vs. STO vs. ISPO – Why is IDO in Crypto Still a Better Fundraising Approach?
When comparing IDO vs. ICO vs. IEO vs. STO vs. ISPO, it’s evident how every fundraising approach other than crypto IDO has some loopholes that make them a secondary option. Especially if we consider the time, emergence, cost, and fraud possibilities, the most secure and fast fundraising option for entrepreneurs and return solutions for investors is IDO in crypto.
Besides, everyone wants a speedier, more efficient, and more secure way to fundraise, which IDOs promise. Given the history of fundraising and project start-ups, it’s easy to see how a lack of effective methodology has led to many low-quality ventures. We have also observed unsuccessful projects that are frauds more frequently than usual, with project founders stealing investors’ money and leaving.
These challenges make it difficult for reliable initiatives to progress with their development and launch faster. They also put investors in the difficult situation of deciding whether to invest and waiting a long time to see if the project was a success or a failure/fraud. In contrast, while using crypto IDO, investors do not need to wait long periods for their preferred tokens to be listed on an exchange.
Instead, the listing normally occurs immediately after the IDO is completed.
Hence, compared to ICOs and other means of fundraising, the speedier approach to money for projects through IDO in crypto allows investors to cash out their capital much faster, making it a more trustworthy strategy.