Academy Crypto Basics

DAOICO, IEO, IDO, ILO, STO and what makes the difference between them and an ICO

In the beginning there was an ICO. As the time went on, new models of investing in blockchain startups began to emerge, armed to skip the backdrop of the increasing adaptation of cryptocurrencies and feed the growing investors’ demand to participate in funding activities. In 2021, DAOICO, ILO and IDO, IEO and STO are the new ICO models.

As the ICO associated risks are still part of every crypto investor’s journey, the main goal of creating new methods of cryptocurrency investment mentioned above lies in reducing the difficulties and discrepancies associated with ICO. Moving on to the next stages of project development, the developers are starting to face more responsibility in regards to project’s investors, which allocates additional guarantees of a refund.

Generally speaking, fundraising is responsible for collecting a Soft Cap first, and then proceeding with a Hard Cap. When the circumstance of the Soft Cap is not being met, the project is officially obliged to return the funds to the investors. Coming back to the subject of the ICO, anonymous organizers may promote their tokens themselves, and listing on the exchange may never be carried out, same comes to the reimbursement of the investment funds. In IEO, for example, developers issue tokens and list them on an exchange, which itself distributes them to interested investors. Thus, new methods of attracting investments minimize the risks of investors.

What is an IEO? 

IEO is an Initial Exchange Offering, a method of attracting investments with the support of centralized cryptocurrency exchanges independently selecting the projects for this route of offering. Here the risks are minimized, liquidity problems are solved and the token gets instantly listed on the exchange.  While we are putting the ticks in all these boxes, it is important to freeze the income in time at a certain token price, otherwise there is a possibility of losing an asset.

Most of the IEOs are carried out through a lottery model when the customers need to keep the exchange tokens on the balance for a certain amount of time before the token sale happens. The lucky ones get the opportunity to participate in the lottery and with a 20% chance of receiving the long-awaited allocation for tokens.

The largest IEO ever happened is considered to be Bitfinex, dating back to may 2019. This project’s first ranking is explained by the total amount collected during the IEO with a total of $ 1B.

IDO is the initial DEX offering. The method is similar to IEO, but it’s also embracing the advantages of smart contracts and the liquidity of the DeFi market.

ILO – Initial Liquidity Offering using an AMM (automated market maker). The token liquidity is generated automatically, i.e. via creation a buyers and sellers pool. The practice of automatic market regulation using the smart contracts can only happen on the DEX exchanges. Thus, investors are guaranteed to receive a valuable token that can be sold immediately.

DAOICO is another practice designed for investing in crypto projects which blends the advantages of Decentralized Autonomous Organizations (DAOs) with classic ICOs. The first DAOICO was conducted by the Ethereum father – Vitalik Buterin. The DAICO mechanism runs the smart contracts, which regulate all the operations with funds raised during the investment rounds. Courtesy DAO, the concept has snatched an extended control from token holders. For example, after the completion of the public sale of tokens, the contract temporarily blocks their mass sale in order to avoid price manipulation.

STO – a security token offering, is a method configured to support the real assets and comply with the requirements of the SEC (Securities and Exchange Commission). Еhis kind of crowdfunding involves total regulation via smart contracts.

The token can serve as proof of the separation of the following rights like ownership of shares, dividends, interest on the company’s income, payment of debts, voting rights, and etc. These tokens are legally viewed like investments and need to comply with the regulations applicable to securities.

Keep in mind DAOICO, IEO, IDO, ILO, STO may also have disadvantages such as:

  • Listing fees. Crypto projects are forced to pay listing them, startups may also need to provide the exchange with a commission.
  • Incorrect IEOs verification. Some cryptocurrency exchanges are imprecise when verifying the IEOs. Always conduct your own investigation of each and every investment project.
  • The intricacies of the way the smart contracts work. Be prepared for a roller coaster of volatility and sell a high-value asset on time.

The creation of a legal framework is a critical step for the ripening of the industry. The birth of the new and trustworthy fundraising methods has allowed investors to feel more confident and look forward to investing more.

Zamzam project is about to tokenize the real sector into the digital economy and will also carry out the fundraising process. Stay tuned and watch out for the latest updates online to take part in the first round of investments (September 2021).

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