IDO, ICO, IEO and IFO: find out what they are and what the differences are

The world of cryptocurrencies is full of acronymsas well as the title of this text. In fact, the terms listed form a veritable alphabet soup. In common, they both refer to “initial offers” of something, or, in this case, some token specific. Such offers may be created by people, companies or even entities without a central command.

These offers have some similaritiesas well as differences between them. In general, each one differs, as already mentioned, in form and by where is carried out. Therefore, check out the differences between ICO, IEO, IFO and IDO in this text. First, check out the meaning of each of these acronyms below:

• Initial Coin Offering (ICO);
• Initial Exchange Offering (IEO);
• Initial Farm Offering (IFO);
• Initial DEX Offering (IDO).

The origin

First of all, it is worth highlighting the origin of these acronyms, which, paradoxically, is in the stock market. The four were inspired by the famous acronym IPOwhich means Initial Public Offering (Initial Public Offering). The term is used in financial market to designate companies that are starting to negotiate their actions on the stock exchange.

In a similar way, the tokens who go through these offers are usually starting your negotiations. That’s why all these offers contain the I, Initial (initial). After all, they are tokens newly released by companies or projects that are still in the search phase capital of investors.

Although the first token offering has been released in 2013the boom in the token market began in 2017. With the appreciation of Bitcoin (BTC) and, later, of the Ethereum (ETH)the market opened its eyes to this modality. People and companies saw tokens as a way fast and cheap to capture resources and finance projects.

A token offering can occur in any way independentby means of exchanges or even via decentralized finance (DeFi). As the market evolved, new types of offers emerged and made a name for themselves. Currently, four modalities mentioned in this text are the best known and those that move the largest amount of resources.

ICO

English acronym for Initial Coin Offeringthis was the first token sale modality to emerge on the market. In an ICO are issued tokens that are later launched in the market. No There are specific rules: any person, company or group can create a token and launch it via ICO. Therefore, the modality has a high degree of freedom of entry.

This offer is launched on the market and open for any investor who wishes to purchase the tokens offered. This investor simply needs to have a portfolio and tokens from the blockchain where the ICO is held. Most of these tokens are issued on the Ethereumthat is, you need to have tokens Ether (ETH) to acquire the created tokens.

Through an ICO, investors can basically issue any kind of token. For example, there are tokens that give access to some product or service (utilities). Another ICO may create tokens that represent some real asset (gold, real estate or movable property). Finally, the company can attract investment through tokenization of part of their assets, transforming the token holder into a partner (security).

The first ICO was held in 2013 by Mastercoinone of the first platforms to allow the creation of tokens. At the time, the amount raised from the sale was US$ 5 milliona paltry amount compared to the more than US$ 6 billion collected by the modality in 2017. However, the pressures regulatory and the large amount of blows made the sport go into decline from 2019.

IEO

English acronym for Initial Exchange Offering. IEOs are a more restricted of token issuance, since, unlike ICOs, they require a trusted third party in the operation. In this case, the third party is usually a exchangea platform that mediates cryptocurrency trading.

An IEO can happen in two ways: by own exchange or by third parties using your platform. The first model is the most common and also the one with the most examples of success. In it, the exchange itself resolves to create and distribute its own token, that is, the exchange creates and issues the product.

These tokens usually grant discounts and services special to their holder, who can use them directly on the company’s platform. Many platforms also offer financial products to token holders, as savings that yield feesfor example. The token also serves as reference price for other cryptocurrencies, creating pairs of trading within the exchange.

In this sense, the most successful IEO example is Binance Coin (BNB)token created by Binancethe world’s largest exchange in terms of trading volume. The token was created in 2018 and initially offered discounts in the fees charged by the platform. With the growth of Binance, BNB has gained new uses and a demand which made its price skyrocket almost 1.000% since January 2021.

In addition to launching their own token, exchanges can use an IEO to sell tokens created by third parties. In this way, if a person or enterprise decides to launch a cryptocurrency and make this sale on platform from an exchange, this qualifies as an IEO.

The launched token is traded on exchangein the same way as a action launched in a stock exchange specific, such as B3 or Nasdaq, for example. This type of sale has advantages significant in relation to ICOs. There are, for example, few cases of frauds in projects launched via IEO. In addition, IEOs have:

• Security and credibility of a platform recognized in the market;
• Through an IEO, the investor has access to a consolidated and large client base, depending on the size of the brokerage;
• The token has a greater chance of being traded and, therefore, gaining liquidity in the market;
• Exchanges have mechanisms to assess the risks of each project, reducing the risk of fraud and losses for investors.

IFO

English acronym for Initial Farm Offering. In general, the IFOs work like the ICOsbut they also have differences among themselves. The main one is that IFOs are aimed at decentralized finance (DeFi)with the launch of tokens taking place through decentralized exchanges (DEX).

IFOs allow users to purchase tokens through “pre-sales” hosted through a DEX. Such pre-sales are used for the acquisition advance of the tokens before they are listed for general trading, i.e. an IFO gives the investor the chance to acquire the tokens at lower prices cheap. Currently, DEX PancakeSwap is one of the main platforms where IFOs take place.

To participate in an IFO, users must provide liquiditythat is, leaving your tokens on the DEX platform. The value, in turn, is used to guarantee the acquisition of tokens during the presale. Typically, the DEX asks for liquidity in a pair of your own token plus the token of network where it is executed. For example, PancakeSwap IFOs usually ask for liquidity in the pair Cake-BNB (Cake is the PancakeSwap token).

This liquidity must be provided through a portfolio with the format adopted by the network where the token is issued. Thus, tokens of the Ethereum must be sent in wallets ERC-20tokens of the BNB in the standard BEP-20and so on. Typically, each DEX has a list of instructions on how to participate in these offers.

Some DEXs have a system of veto to prevent the offering of tokens that may appear suspectsas blows. However, such a resource no is available on all platforms. In addition, this veto no guarantees the success or token integrity, which means that users must always make their search before investing.

GONE

Finally, there are the Initial DEX Offeringsthat is, when a token is launched directly on a platform DEX. The tokens launched in this offering may represent any asset that is traded on the DEX. But its holders no have rights of shareholders over the entity that issued the tokens.

IDOs can be created to represent not only cryptocurrenciesas well as any other type of asset. Music, films, works of artall this can be tokenized and have its launch on a DEX. This IDO offers companies a tool to engage their communities in an economy that enriches their products and services, enabling them to do decisions of smart business decisions about your assets.

In a way, the IDOs are similar to IEOs. The main difference is that, in the case of IEOscompanies launch their tokens and raise funds through a centralized exchangewhile the IDOs occur in a DEX. In both cases, the trading of tokens is immediateonce the project manages to raise the funds. Despite being on DEXs, IDOs also have a number of rulessuch as:

• the project must pay a huge sum or offer part of the tokens to be launched on the DEX;
• there is a non-competition policy, that is, the project cannot list its tokens on other exchanges;
• project creators have very little room to control the parameters of the token sale.

Some famous DEXs in the market offer IDO services, such as Binance Dex, Uniswap and Polkastarter. Currently, many traders prefer acquire tokens via GONE than through ICOs. This is because, in ICOs, the issuer of the tokens has more control about the fundraising round, which can generate a disadvantage. IDOs, as they are intermediated by a DEX, tend to generate a greater isonomy between the parties.

In short, the token issuance market has seen a huge growth in recent years. Since popularity from ICOs to security of emissions by exchanges, the modality remains in adaptation and constant evolution. Far from having diminished, token offerings are on their way to becoming a new option of investment for the cryptocurrency market.

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