The world of cryptocurrencies is filled with acronyms, as is the title of this text. In fact, the terms listed form a veritable alphabet soup. In common, both refer to “initial offers” of something, or, for that matter, some specific token. Such offers can be created by individuals, companies or even entities without a central command. These offers have some similarities as well as differences from each other. Generally speaking, each differs, as already mentioned, in the way and where it is carried out. So check out the differences between ICO, IEO, IFO and IDO in this text. Beforehand, check the meaning of each of these acronyms below: Initial Coin Offering (ICO);
Initial Exchange Offering (IEO);
Initial Farm Offering (IFO);
Initial DEX Offering (IDO).
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The origin
First, it is worth highlighting the origin of these acronyms, which, paradoxically, is in the stock market. The four were inspired by the famous acronym IPO, which stands for Initial Public Offering. The term is used in the financial market to designate companies that are starting to trade their shares on the stock exchange. Similarly, tokens that pass through these offers are generally starting their trades. That’s why all these offers contain the I, from Initial (initial). After all, they are tokens recently launched by companies or projects that are still in the stage of seeking capital from investors. Although the first token offer was launched in 2013, the boom in the token market began in 2017. With the appreciation of Bitcoin (BTC) and, later, of Ethereum (ETH), the market opened its eyes to this modality. People and companies saw in tokens a quick and cheap way to raise funds and finance projects. A token offer can occur independently, through exchanges or even via decentralized finance (DeFi). As the market evolved, new types of offerings emerged and made their name. Currently, the four modalities mentioned in this text are the best known and move the largest amount of resources.
ICO
Acronym in English for Initial Offer of Coins, this was the first token sale modality to appear in the market. In an ICO, tokens are issued which are later released on the market. There are no specific rules: any person, company or group can create a token and release it via ICO. Therefore, the modality has a high degree of freedom of entry. This offer is launched on the market and open to any investor wishing to buy the offered tokens. It is enough that this investor has a wallet and blockchain tokens where the ICO takes place. Most of these tokens are issued on Ethereum, that is, you must have Ether (ETH) tokens to acquire the created tokens. Through an ICO, investors can issue basically any type 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 capture investment by tokenizing part of its assets, transforming the holder of the tokens into a partner (security). The first ICO was carried out in 2013 by Mastercoin, one of the first platforms to allow the creation of tokens. At the time, the amount collected from the sale was US$ 5 million, a negligible amount close to the more than US$ 6 billion collected by the modality in 2017. However, regulatory pressures and the large number of scams caused the modality to decline as from of 2019.
IEO
Acronym in English for Initial Exchange Offer. IEOs are a more restricted modality for issuing tokens, as, unlike ICOs, they require a trusted third party in the operation. In this case, the third party is usually an exchange, a platform that mediates the trading of cryptocurrencies. An IEO can happen in two ways: by the exchange itself or by a third party using its platform. The first model is the most common and also the one with the most successful examples. In it, the exchange itself decides to create and distribute its own token, that is, the exchange creates and issues the product. These tokens usually provide discounts and special services to their holder, who can use them directly on the company’s platform. Many platforms also offer financial products to token holders, such as interest earning savings, for example. The token also serves as a price reference for other cryptocurrencies, creating trading pairs within the exchange. In this sense, the most successful example of the IEO is the Binance Coin (BNB), a token created by Binance, the world’s largest exchange in traded volume. The token was created in 2018 and initially offered discounts on fees charged by the platform. With the growth of Binance, BNB gained new utilities and a demand that made its price soar by almost 1,000% since January 2022.
In addition to releasing their own token, exchanges can use an IEO to sell tokens created by third parties. Thus, if a person or company decides to launch a cryptocurrency and make that sale on an exchange platform, this qualifies as an IEO. The posted token is traded on the exchange, just like a stock posted on a specific stock exchange, such as B3 or Nasdaq, for example. This type of sale has significant advantages over ICOs. There are, for example, few cases of fraud 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 broker; 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.
I FO
Acronym in English for Initial Offer of Farms. Generally speaking, IFOs work like ICOs, but they also differ from each other. The main one is that IFOs are geared towards decentralized finance (DeFi), with token launching taking place through decentralized exchanges (DEX). IFOs allow users to purchase tokens through “pre-sales” hosted through a DEX. Such pre-sales are for the advance purchase of the tokens before they are listed for general trading, that is, an IFO gives the investor the chance to purchase the tokens at cheaper prices. Currently, DEX PancakeSwap is one of the main platforms where IFOs take place.
To participate in an IFO, users must provide liquidity, that is, leave their tokens on the DEX platform. The value, in turn, is used to guarantee the acquisition of tokens during pre-sales. Typically, DEX asks for liquidity in a pair of its own token plus the token of the network where it runs. For example, PancakeSwap IFOs often ask for liquidity in the Cake-BNB pair (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, Ethereum tokens must be sent in ERC-20 wallets, BNB tokens in the BEP-20 standard, and so on. Typically, each DEX has a list with instructions on how to participate in these offers. Some DEX have a veto system to stop offering tokens that might look suspicious, such as scams. However, this feature is not available on all platforms. Furthermore, this veto does not guarantee the success or integrity of the token, which means that users should always do their research before investing.
GONE
Finally, there are the Initial DEX Offers, that is, when a token is launched directly on a DEX platform. The tokens posted in this offer can represent any asset that is traded on DEX. But their holders do not have shareholder rights over the entity that issued the tokens. IDOs can be created to represent not only cryptocurrencies, but any other type of asset as well. Music, movies, artwork, all of these can be tokenized and released 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 make smart business decisions about their assets.
In some ways, IDOs are similar to IEOs. The main difference is that, in the case of IEOs, companies post their tokens and raise funds through a centralized exchange, whereas IDOs take place on a DEX. In both cases, the negotiation of tokens is immediate once the project is able to raise the funds. Despite being on DEX, IDOs also have a series of rules, such as: the project must pay a huge sum or offer apart from the tokens to be launched on DEX; there is a non-compete policy, ie the project cannot list its tokens on other exchanges; the project creators have a very small margin to control the parameters of the token sale. Some famous DEX in the market offer IDO service, such as Binance Dex, Uniswap and Polkastarter. Currently, many traders prefer to purchase tokens via IDO rather than through ICOs. This is because, in ICOs, the issuer of tokens has more control over the capture round, which can lead to a disadvantage. IDOs, on the other hand, as they are intermediated by a DEX, tend to generate greater isonomy between the parties.
In short, the token issuance market has seen tremendous growth in recent years. From the popularity of ICOs to the security of emissions via exchanges, the modality continues to adapt and constantly evolve. Far from having declined, token offerings are on their way to becoming a new investment option for the cryptocurrency market. Also read: What are the main DeFi networks available in the cryptocurrency market? Also read: Decentralized Exchange: know what it is and how to use a DEX Read also: What is NFT: here’s what you need to know
