What are IDOs?

In this guide, I’ll share everything I’ve learned about IDOs, from how they work to how I go about participating in them.

IDOs explained

For me, an IDO is when a new crypto project releases its token to the public through a decentralized crypto exchange. It reminds me a lot of an initial coin offering (IEO), where tokens are released through centralized exchanges.

In my experience, during an IDO, a token project works with a DEX to set a listing date and time. From that time, I, along with other DEX users, can purchase the new crypto token at a set price until the allocated tokens are sold out.

I’ve seen IDOs happen on platforms like Uniswap, Sushiswap, and Pancakeswap. These are the big ones, but I know projects can also hold IDOs on smaller DEXs.

As an investor, I see an IDO as a chance to get in early on a new project and buy the token at a set price before it starts trading. For the project, it’s a way to raise funds for development. And for the DEX providers, they benefit from the trading volume and fees.

How do IDOs work?

An IDO begins with a new crypto project working with a DEX to list its token. Some DEXs are more open, while others require community votes or sponsorships.

Once a DEX accepts a project, I know they have to set up a smart contract. This contract creates a liquidity pool with the project’s tokens and sets a price for the new token. I, as an investor, receive tokens from this pool.

Often, participation is limited to investors who sign up ahead of time. I’ve had to follow social media channels to get on IDO whitelists before. Sometimes, it’s open to everyone at coin launch, but that can lead to a buying frenzy.

Trading usually starts right after the IDO. I might be able to sell my coins right away, but some IDOs have lock-up periods, which I always need to be aware of.

IDOs vs ICOs

IDOs and ICOs (initial coin offerings) are related. In an ICO, the project offers its token directly to investors, often through a presale.

Unlike an IDO, which requires a partnership with a DEX, an ICO only depends on the project team. This can mean more flexibility and sometimes lower prices.

Many projects hold a presale or ICO before an IDO. In those cases, I’ve noticed the IDO price is often higher than the ICO price. ICO investors might even sell during the IDO to make a profit.

IDOs vs IEOs

IEOs (initial exchange offerings) are when a project sells its token through a centralized exchange.

Centralized exchanges usually do more due diligence on projects than most DEXs. While it doesn’t guarantee success, it can help avoid scams.

I’ve found that IEOs aren’t open to everyone. You usually need to be a member of the exchange and sometimes own their native token. IDOs, on the other hand, are open to anyone with a crypto wallet, though there might be whitelisting.

IEOs can also be limited by geography, which isn’t an issue with IDOs. Plus, IEOs often have much higher fees than IDOs.

Why do people invest in initial DEX offerings?

I invest in IDOs for a few reasons.

Price speculation

The main reason is the chance to get in early on a new token. I’m usually betting that the token will rise in value after it starts trading.

I’ve seen some impressive returns from IDOs, though it can be volatile. And I know I can usually sell my tokens immediately after the IDO if I want to.

Some IDO tokens also offer staking rewards, which can be higher in the early stages.

Investor safety

One thing I like about IDOs compared to ICOs is that the smart contract is co-managed by the project and the DEX. This gives me more trust in the sale.

But I still know there’s a risk of scams, as IDOs don’t always have the same due diligence as IEOs. Still, using a major DEX provides some safety.

Access to new tokens

IDOs make it relatively easy for me to invest in new tokens. I just need to connect my wallet to the DEX. And since DEXs are open to everyone, I can join from anywhere.

Why investing in an ICO can be better than an IDO

Sometimes, I prefer ICOs.

I think ICOs are often fairer, with presales open to everyone and no whitelisting. Plus, presales usually last longer, which is more convenient for everyone.

ICOs also have lower costs for projects, which can mean lower token prices for me. And I can sometimes get in at a lower price during an ICO than in a later IDO.

How to find IDOs

I spend a lot of time finding and researching IDOs.

Monitor social media

I follow projects on Twitter, Reddit, and Instagram. I also join their Telegram or Discord groups. This is important for whitelisting.

I also follow IDO hedge funds, which often share the projects they’re investing in.

Follow DEX launchpads

I follow DEX launchpads like Uniswap, DAO Maker, and Pancakeswap to stay updated on their IDOs. But I always remember to be aware of marketing hype.

How to pick high potential IDOs and avoid scams

I always do my due diligence before joining an IDO.

Read the whitepaper carefully

The whitepaper is crucial. It should explain the project, its token, tokenomics, roadmap, and how it compares to other solutions. If there’s no whitepaper or it’s vague, that’s a red flag for me.

Look for smart contract audits

Reputable projects have their code audited by services like Certik. I always look for these audits.

Know the development team

I like to know who the developers are and their experience. Many projects dox their teams, which helps me research them.

How to participate in an IDO

The process is similar for most IDOs.

Step 1: Create a crypto wallet

I need a compatible crypto wallet, like MetaMask.

Step 2: Add tokens

I need to add a cryptocurrency supported by the DEX to my wallet.

Step 3: Connect to the DEX

I connect my wallet to the DEX hosting the IDO.

Step 4: Invest

As needed, I enter the contract address, see the pricing information, and make my purchase.