Education
April 8, 2022

Crypto fundraising models: ICO, IEO, IDO, IGO, and IFO

To investors, crowdfunding mechanisms might seem risky because these projects are still making a name for themselves. An investor knowing the risks and benefits of these projects and doing his or her due diligence minimizes getting pulled into an unsuccessful venture.

Starting a company is not as easy as it looks. Others have to look for ways to fund their vision. Availing of a loan is one option, but other ways prove more advantageous. One of which is launching an Initial Public Offering (IPO). 

IPO refers to a company going public and offering its shares to the public. The investment bank hired by the company sets the price and date. 

The IPO process benefits both the company and the public. The company gathers enough capital while the public (the buyers) gets an opportunity to earn from the company's growth. 

IPOs seem like an overwhelming and out-of-reach idea for beginners in investing. 

In the world of cryptocurrency and the digital era, various types of initial offerings could be worth your time and money. 

Initial Coin Offering (ICO)

During the crowdfunding phase of a coin, the team behind it offers the newly-generated coins to the public in exchange for other leading cryptocurrencies such as Bitcoin (BTC), Ether (ETH), or Tether (USDT). 

Investors can read the coin's overview on its Whitepaper, a document containing the project's purpose, historical performance, the technology behind it, and other vital information. 

Instead of a document indicating their ownership of the new coin, the investors will receive either one of these types of token: 

  1. Investment/Asset Token - can be used to earn a dividend or as a voting right
  2. Utility Token - can be used to avail the project's products or services

Ethereum is one of the popular projects whose development was funded by an ICO. 

Initial Exchange Offering (IEO)

Launching a new project could seem like reaching for the moon especially if the team is not known by enough cryptocurrency holders. This makes an Initial Exchange Offering (IEO) more viable to startups. 

A centralized exchange that already established its name in the industry and has a huge following, lends its credibility to a new crypto or blockchain project. 

The startup lists their project on an existing exchange or trading platform. Instead of the investors sending money directly to the team or the project, they entrust their money to the exchange. Early investors get the tokens even before they are traded on the market. 

Initial DEX Offering (IDO)

Decentralized liquidity exchange is the heart of an Initial DEX Offering (IDO). Basically, it is an ICO done in a decentralized exchange (DEX). 

IEOs involve a rigorous process wherein a project is vetted first before receiving approval for the project to be listed. The team behind this also has to pay fees. 

In an IDO, the exchange does not control the listing and the investors do not own equity in the project. As soon as the token is listed, it can immediately be traded in an available liquidity pool. This means listing a token in an IDO provided more liquidity than the abovementioned options. 

Initial Game Offering (IGO)

Gaming projects built on the blockchain build their capital through an Initial Game Offering (IGO). 

This crowdfunding mechanism is done in launchpads such as Binance NFT, GameFi, EnjinStarter, Gamestarter, and TrustSwap. Each launchpad has its own native token. The investor will buy this token and lock them in for a certain period. 

Investors are given early access to the game and other rewards. They can also get assets in the form of non-fungible tokens (NFTs) such as avatars, skins, or weapons that they can use as leverage once the game if fully launched and opened to everyone.

Once that happens, the best-case scenario is that the coin's value skyrockets and the early buyers will benefit from a huge return on investment (ROI). 

Initial Farm Offering (IFO)

DeFi projects also raise their funds through Initial Farm Offerings (IFOs). The decentralized exchange vets the project and conducts a pre-selling event for investors. 

PancakeSwap is one of the popular IFO platforms.

The pre-sales are done in any of these two ways: 

  1. Basic Sale - Users have a limited buy amount.
  2. Unlimited Sale - Users can buy an unlimited amount of tokens, but it comes with a small fee. 

PancakeSwap rewards the project with the BNB it collected from the sale. The buyers will be able to collect their new tokens once the IFO ends. 

Closing thoughts

To investors, crowdfunding mechanisms might seem risky because these projects are still making a name for themselves. An investor knowing the risks and benefits of these projects and doing his or her due diligence minimizes getting pulled into an unsuccessful venture. 

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