From ICO, IEO to IDO: Exploring the Evolution of the Cryptocurrency Funding Hype Cycle

If or when the funding goal of an ICO is met and the project is launched, the tokens sold will be promoted as future functional units of currency.

In the industry of cryptocurrencies, we often see acronyms and esoteric abbreviations that abound, which confuse many laymen, but in the cryptocurrency community, within Twitter and telegraph groups, these acronyms are gradually spreading like machine guns.

In the cryptocurrency industry, we often see acronyms and esoteric abbreviations that confuse many laymen, but in the cryptocurrency community, within Twitter and telegram groups, these acronyms are gradually spreading like machine guns.

It’s been a long time since we’ve heard of ICOs, once synonymous with cryptocurrency fundraising, but in the last two years, it’s gradually been replaced by another term – IDO.

How did IDO replace the once-popular ICO? What has gone on in between? Let’s explore the answers to the questions below.


What is ICO?

ICO is called Inital Coin Offering, an initial offering of tokens, which is a financing mechanism commonly used for cryptocurrency projects.

 Wikipedia describes an ICO as the sale of a certain amount of cryptocurrency in the form of “tokens” (“coins”) to speculators or investors in exchange for fiat currency or other cryptocurrencies, such as Bitcoin or Ether.

If or when the funding goal of the ICO is met and the project is launched, the tokens sold will be promoted as a functional unit of future currency.

An ICO can be judged as some combination of.

The fundraising aspect of the crowdfunding or sale (usually primarily cryptocurrency), including some sort of soft/hard cap that must be met to be valid (i.e., minimum criteria must be met)

The maturity of the product at the time of the early stage venture or even the angel round (i.e. a very immature project, which in reality is just the “idea” or “vision” of the project)

In return for the invested capital, some kind of “token” is received and is “tradable”, as in the case of an IPO (i.e. when a private company goes public and everyone can start buying it) – “traded” shares)

Token sales run on a blockchain infrastructure where the tokens are available (e.g. the Ether blockchain for ERC20 tokens)

-2 –

Origins of ICO – fundraising for new project development

In 2013, influenced by the immaturity of electronic devices and the imperfection of the internet at the time, early Bitcoin enthusiasts at the time communicated more within the Bitcointalk forum.

In July of that year, a man named JR Willett appeared on the forums to show Bitcoin enthusiasts that the complete specification of the protocol layer built on the Bitcoin blockchain was not only more secure.

And users can customize their tokens (think of the current coins for everyone, and his examples are GoldCoin, USDCoin, and EuroCoin), and they can do distributed token exchanges (think of the current decentralized exchange DEX), distributed betting (no need to trust a website to coordinate bets), etc.

In other words, he has created a protocol layer with more features and more possibilities on top of the Bitcoin blockchain. This project is called Mastercoin.

But, after all, ” scientific research” and innovation requires funding, so he asked bitcoin enthusiasts for funding. And promised that if it ever succeeded, Mastercoin would give investors a huge report.

This was the first ICO project in history, and the first utility token.

At a meeting of the development team of the Mastercoin project, Willett spoke to this.

“If you want to start a new protocol layer on top of Bitcoin today, which a lot of people don’t realize, you can do that without having to turn to a bunch of venture capitalists and say, hey, I have this idea, here’s my presentation, here’s my team of developers – there’s a lot of developers in this room.

If you get a group of trusted people that people have heard of to get together and say, well, we’ll do this. We’re going to create a new protocol layer.

It’s going to have X, Y, and Z new features on top of Bitcoin, and that’s what we’re showing up for, that’s our plan, that’s our Bitcoin address, and anybody who sends coins to that address has a part of our new protocol.

Anybody can do that. I’ve been telling people this for at least a year now because I want to invest in it. I don’t have a lot of coins, but that’s where I want to invest my coins.”

From ICO, IEO to IDO: Exploring the Evolution of the Cryptocurrency Funding Hype Cycle

In the end, the Mastercoin project raised a total of 4,740 bitcoins, at a price of $600,000 at the time.

Another thing that has to be mentioned is the second ICO project in history, Nextcoin.

It was the first cryptocurrency in history that changed the character of Bitcoin and relied entirely on PoS (proof of stake mechanism) instead of cottage coins like Litecoin (LTC), which were issued based on Bitcoin’s source code.

In September 2013, another anonymous member of the Bitcointalk forum, BCNext, posted a new thread announcing the launch of a second generation cryptocurrency, ” NXT “.

But he only asked for very few donations and only needed to determine the initial distribution of interest. A few months later, the NXT fundraising ended and the token was successfully launched.

Since its goal was not to raise a lot of money, only 21 bitcoin donations were accepted, which were worth around $16,000 at the time.

To this day, we can still look up NXT tokens from CoinMarketCap, Non-Small, etc. At the time of writing (July 1, 2021) NXT has a market cap of $11.59 million in circulation.


The Rise of ICOs – Ether

In 2014, a young Russian guy, Vitalik Buterin, came up with his vision of the world’s first zero-infrastructure platform, ” Ether”, and he tried to raise funds.

Vitalik chose the name ” Ether ” ( Ether ) after browsing through Wikipedia articles about the elements and science fiction.

When he found the name, he immediately realized that it was more beloved than all the names he had seen; the word ‘Ether’, he thought, referred to a hypothetical invisible medium that permeates every corner of the universe and allows the propagation of light.

Soon, within 12 hours, the Ether token sale had raised 3,700 bitcoins for a total fundraising of $18.3 million. V-God then launched the Ether blockchain.

In 2016, a decentralized autonomous organization called The DAO (an application developed on the Ether network) raised a record $150 million through a token sale to fund the project’s development.

But The DAO was hacked in June, when $50 million worth of Ether tokens were stolen by anonymous hackers.

Subsequently, Ether was split into two separate blockchains (the “fork event”) – the new version (where the hacker’s theft was reversed) became the current Ether (ETH), while the original version (which the hacker still managed to steal) was renamed Ether Classic (ETC).

Since the official launch of the main Ethernet network, there have been more than 10,000 ” ERC20 ” tokens to date.

(ERC20 is a protocol standard that defines certain rules and criteria for issuing tokens on Ether’s network and infrastructure. ERC stands for Ethereum Request For Comments, and 20 represents a unique ID number to distinguish this standard from others.)

The Ether, on the other hand, has gone from a price of $0.31 at the initial sale to an all-time high of $4,715 on May 12 of this year, a historical increase of 15,000 times, which can be considered a myth in the history of ICOs.

After Ether, ICO also officially rose.


The boom and bust of ICO – 2017~2018

As we all know, 2017 saw the third bull market in the cryptocurrency market. This year, the concept of ICOs also caught fire.

Players in the cryptocurrency community who were keen on making quick money started to turn to the primary market and participated in various hot ICO token offerings.

From ICO, IEO to IDO: Exploring the Evolution of the Cryptocurrency Funding Hype Cycle

Figure shows the top ICO projects in 2017~2018

In 2017, there were eight projects that raised $100 million or more: Hdac, Filecoin, Tezos, Sirin Labs, Bancor, Polkadot, Qash, and Status.

From ICO, IEO to IDO: Exploring the Evolution of the Cryptocurrency Funding Hype Cycle

Yet this was only a small amount, and by 2018, some ICO projects even reached many times the highest fundraising amount of $250 million in 2017.

Among them, EOS and Telegram received $4 billion and $1.7 billion in fundraising, respectively.

From ICO, IEO to IDO: Exploring the Evolution of the Cryptocurrency Funding Hype Cycle

To which Bloomberg offers an incredulous response.

“The blockchain may be billed as an immutable public bill, but in the contentious crypto world it generates, determining the truth can be tricky.

In the case of ICOs, no one has to file any regulated documents or even reveal their identity, and it remains difficult to determine the amount of money issuers claim they raised.”

However, behind the boom in the cryptocurrency market there are also risks and crises.

Due to the hot market, the two years have also bred many so-called ” fake projects wrapped in fake white papers”, but for investors, no, for speculators, huge amounts of money will still be invested beyond imagination.

If you haven’t experienced the ICO boom period in 2017 and can’t feel how ICOs are scammed and made into ” shitcoin initial offerings”, you can look at the picture below to feel it.

From ICO, IEO to IDO: Exploring the Evolution of the Cryptocurrency Funding Hype Cycle

The image data comes from the DeadCoin platform, which started recording ICO projects from 2017 that have retired tokens, development stopped, no one traded, scams, etc., collectively known as ” dead coins.”

By now there are 1,659 ” dead coins “, most of which are ICO projects from 2017 to 2018.

Bloomberg published a very detailed research report in July 2018, which stated that about 78% of ICO projects were identified as scams before they were traded.

And that report further highlighted that as of July 2018, 70% of ICO funds (in dollar terms) were flowing to higher quality projects.

From ICO, IEO to IDO: Exploring the Evolution of the Cryptocurrency Funding Hype Cycle

After cryptocurrency investors discovered the many flaws of ICOs (e.g., unregulated, no investor verification and protection, mostly immature projects, lack of transparency, and plummeting token prices), the fervor of ICOs began to cool down.


Improvements in ICOs

After the heat of ICOs cooled down, many people started to research and improve the mechanism of ICOs. For example, IEO, DAICO, ETO and STO, etc.

  1. IEO (Initial Token Output)

IEO is a scheme for projects to be used as a formal investment in blockchain platforms, with cryptocurrency exchanges predominating. It was first proposed in 2017 with the idea that ” project teams will no longer be counterparties to the investment, but can be exchanged directly in the exchange without going through the traditional steps of an ICO.”

Changpeng Zhao, CEO of CoinExchange, once commented on IEO: “From a contributor’s perspective, each IEO participant must create an account with the exchange and send ETH to that account.

Instead of sending ETH to the smart contract that governs the ICO. When an IEO begins, participants can purchase tokens directly from the exchange.”

  1. DAICO (DAO combined with ICO)

DAICO is an improvement of ICO by V-God, the founder of Ether, which is a combination of the advantages of DAO (decentralized autonomous organization) and the fixed mechanism of ICO.

DAICO uses smart contracts to hold project team’s accountable. And instead of releasing all the raised funds to the project team at once, donors have the right to provide investment funds in a more controlled manner.

Through a consensus mechanism, they can vote on how much money to release to the project team on a regular basis. In short, it is the DAO version of ICO.

  1. ETO (Equity Token Offering) and STO (Securities Token Offering)

A similar concept, explained in terms of ETO, is that investors can raise money in cryptocurrency and in return receive beneficial ownership of the company (e.g. voting rights, dividend rights, depending on the type of stock).

In simple terms, it means that ” off-chain” companies can issue their shares ” on-chain”, or a portion of them.

Among these four ICO alternatives, IEO is the best developed and the most successful.

But IEO has the fatal drawback that it is not in line with the decentralized spirit of blockchain, where an intermediary (exchange) can decide which projects to approve and charge a fee according to the privilege.

But with the rise of the DeFi (decentralized finance) market in the last two years, a large number of decentralized exchanges (DEX) have emerged, and it’s a nail in the coffin to use DEX to fulfill the mission of IEO.


What is IDO?

IDO’s full name is Initial DEX Offering (Initial Offering on a decentralized exchange).

The original decentralized exchange (DEX) functioned only as a swap between tokens, such as Uniswap and SushiSwap, built on the ethereum network, and with the advent of IDO, many investors were attracted.

Shockingly, the first decentralized exchange (DEX) in history to launch an IDO is not the top decentralized exchanges Uniswap or SushiSwap, but Raven Protocal (Chinese translation: 鸦), built on the Coinan smart chain.

The launch was in June 2019, and the token sold was also the exchange’s platform coin RAVEN, although it ended up with only $500,000 in sales.

But later, as platforms such as Compond and Curve also launched IDO functions, IDO successfully replaced ICO and became one of the hottest segments of the cryptocurrency market in the past two years.


Comparison of ICO, IEO and IDO

Unlike IEO, IDO is launching project tokens on DEX by opening up a liquidity pool of token trading pairs, such as ETH/USDT, rather than an order book.

This means that the price will only change if tokens are bought or sold and the percentage of tokens in the liquidity pool changes.

And the biggest difference from ICOs and IEOs is that IDOs can be executed autonomously by the token project and listed freely on a decentralized exchange (DEX).

This allows new projects to interact directly with a decentralized investment community rather than through an intermediary (exchange). This is more in line with the peer-to-peer basis of the blockchain and the spirit of decentralization.

From ICO, IEO to IDO: Exploring the Evolution of the Cryptocurrency Funding Hype Cycle

The Crypto Funding Hype Cycle. From the first ICO in 2013 to the first IDO in 2019, the crypto funding model continues to evolve to improve on inherent flaws. Image credit: Ruben Merre

But while IDOs are better than ICOs and IEOs, for the time being, IDOs are in the middle of the pack. But for now, IDOs are in a quandary. Not all crypto startups are geared toward DeFi.

Their users may not be as well-versed in DeFi as cryptocurrency investors, which creates a learning curve for IDO launches. Conversely, DeFi users may also be less willing to invest in non-DeFi projects.

Therefore, in order for the IDO market to scale, improvements in areas such as education and accessibility are needed.


Summing up

As the top decentralized exchanges (DEX) are outpacing the daily trading volume of centralized exchanges and challenging their market dominance, a larger user base will make DEX a necessary option in the long run.

But until then, projects looking to raise capital by issuing tokens will still choose the strategy that works best for them based on their market philosophy, not necessarily IDO.

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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