The Evolution of Crowdfunding: ICO, IDO, IEO, and More
The world of cryptocurrencies is evolving and has come a long way since Bitcoin was introduced to the world. The growing demand for digital assets peaked rapidly after Bitcoin captured the imagination of the masses. Such is the growth that the number of cryptocurrencies stands at over 7000 today.
The crypto space is continuously evolving and has introduced the world to decentralized finance (DeFi), non-fungible tokens (NFT), and more. Most of the crypto projects have relied on crowdfunding in one way or another. Crypto crowdfunding methods, too, have evolved to suit the needs of the crypto world. In this article, we will take a look at the evolution of crowdfunding and the role it played in the crypto space.
ICO — Initial Coin Offering
The crypto projects began raising funds with Initial Coin Offering, popularly referred to as ICO. It became wildly popular in 2017, with almost every cryptocurrency project raising funds through crowdfunding. But the first ICO took place back in July 2013, to be specific. The first cryptocurrency to begin the trend of ICO to raise funding was Mastercoin. Ethereum, too, had conducted a token sale similarly in 2014. Within 12 hours of the beginning of Ethereum’s token sale, they raised 3700 BTC, worth around $2.3 million then.
Any crypto projects that had conducted an ICO between 2017 to 2018 had a dream run. One of the most successful ICOs in 2017 was the token sale of Brave browser, and they raised $35 million within 30 seconds. ICOs were so popular back then that the EOS project raised $4 billion in a long-term token sale. In fact, the first quarter of 2018 saw ICOs raising a record $6.88 billion. But ICOs started gaining bad rep after almost 80% of ICO projects proved to be nothing but a scam.
ICOs failed to raise any significant amount as a majority of ICOs proved to be a dud. There were other reasons for the decline of ICOs, like lack of product development, among other things. But the most significant reason was the fear of being scammed by fake crypto projects. Reports indicate that 50% of ICOs failed to raise funds after 2017. Thus, most of the crypto projects moved away from ICOs.
IEO — Initial Exchange Offering
In 2017, ICOs were banned in China. Thus, many crypto projects had to find an alternative way to raise funding, and that’s where IEO came to the rescue. An IEO is known as Initial Exchange Offering as it takes place on a crypto exchange on the behalf of a crypto token project.
In return, the exchange charges some fees and also a specific proportion of the tokens for IEO. The difference between ICO & IEO is that the token buyer has to purchase tokens through the crypto exchange in IEO instead of sending the tokens to a smart contract. The first IEO took place in 2017 when Gifto raised $3 million, and Bread raised $6 million through Binance Exchange.
The most popular name in the IEO space is Binance Launchpad, one of the first exchanges to offer IEO. Compared to ICOs, which have been tainted by an increasing number of scams, IEO is still a credible option to raise funding. The crypto projects also benefit from the large user base of the platform. Many credible projects will continue to opt for IEOs despite the higher barriers to entry as it has always proved to be a success.
IDO — Initial DEX Offering
Near the end of 2018, the ICO bubble burst almost entirely, and the crypto projects had to look for another way to raise funding. As we described above, IEO came to the rescue of innovative crypto projects, but there was another kind of issue with IEOs. As credible and popular exchanges like Binance, Huobi, KuCoin, among others, were conducting IEOs, any projects that submitted a request for IEO were vetted extensively. Thus, the number of IEOs is quite small compared to the ICOs.
To overcome these challenges, a new form of crypto fundraising known as IDOs or Initial DEX Offering came to the fore. IDOs are similar to ICOs & IEOs in their essence, as all of them have a similar goal of helping a crypto project raise money and keep it bootstrapped. As for why this crypto fundraising method is known as IDO, unlike ICOs & IEOs, it involves immediate listing on a decentralized exchange. Thus, it is known as Initial DEX Listing, where DEX means a decentralized exchange.
IDOs and IEOs have some similarities but also more than a few differences. For instance, in IDO, unlike IEOs, a third party vets the crypto projects, whereas the sale of tokens happens in a decentralized manner. Uniswap is the most popular option for IEO as it has the most volume among all decentralized exchanges. In fact, it rivals the volume of many leading centralized exchanges.
Guaranteed IDOs are in trend today, where a buyer holding the native token of the decentralized exchange platform has a higher chance of being able to buy the tokens during the IDO on the decentralized exchange. Paid Network’s Ignition Platform is one such example.
The Crypto industry is among the most innovative, and it has overcome many challenges thrown in front of it. The evolution of crowdfunding methods in the crypto space is a testimony to it. After ICOs became tainted, the crypto industry quickly moved onto IEO. Due to higher barriers in IEOs, IDOs started gaining traction in the crypto industry.