25 Jan 2020

I. Market Context

The year 2020 is remarkable, and now, it’s the time for the whole Crypto market to sit together and find out the trend in 2021. There have been many predictions about it such as IDO, NFTs, Layer 2, wallet applications, etc., but it all seems to still revolve around the trend of 2020: DeFi.

If 2020 is the year of DeFi, in which DeFi grows strongly, in 2021, it seems that this trend has not ended, but has been somewhat saturated with too many big players on the market. That also means despite DeFi still growing, DeFi projects in 2021 have to focus on the fields that have not been dominated yet. And, IDO is one of the very sweet pieces of the Crypto market that hasn’t been occupied so far.

This article will discuss the potential of IDO as well as compare the two largest IDO platforms at the current time: Polkastarter and Falconswap.

II. Background of ICO and IEO

To understand what IDO is, readers should understand a bit about its two predecessors: ICO and IEO - 2 concepts that have stirred up the entire Crypto market in the past.

ICO, short for Initial Coin Offering, is the most popular fundraising method in the history of the Crypto market. When a Blockchain project sells its Coin/Token for money (USDT or BTC/ETH), it is called an ICO. In 2017, ICO stormed the financial world, at which many Blockchain startups raised tens of millions of dollars in just a few seconds. And 2017 was also the most successful year of ICO (1), when the total amount of ICO capital raised was up to $6.2 billion. By 2021, ICO has raised a total of more than $21 billion. The most prominent is EOS which raised more than $1 billion in 2017, and by 2020, it has raised more than $4 billion in many rounds (2).

However, ICO is no longer thriving for a reason. Of the reasons why ICO collapsed, the biggest one is exit scams. The cycle of fundraising, promising and then running (literally) makes most investors fed up with it.

Being aware of the weakness of ICO, in 2019, Binance officially launched Launchpad and brought in a new type of fundraising: IEO - Initial Exchange Offering. IEO is simply ICO sponsored by an exchange. IEO projects will be sponsored by the exchange for credibility, as well as listed on the exchange, which significantly reduces the risk for investors. The first IEO to be funded on Binance Launchpad was Justin Sun's BitTorrent, which achieved remarkable success. It was x15 times the IEO selling price, which is an impressive number given the downtrend of the Crypto market at the time. However, IEO has a weakness: you have to deposit money on the exchange to be able to buy it. This may not be a problem with investors in Vietnam, but with investors in China and the US - two nations with huge capital resources. China has banned ICO since 2017, and in the US, crypto-related activities are managed tightly, taxes are high, and obviously the policy that the SEC implements is no different from a ban.

However, every cloud has a silver lining, that’s why IDO was created. In my opinion, not ICO, it is IDO that is a great combination of "funding" and "decentralization".

What is IDO?

IDO stands for Initial DEX Offering, which can be roughly understood as a way of raising capital using DEXes as an intermediary. In fact, IDO is IEO sponsored by decentralized exchanges (DEX) instead of centralized exchanges (CEX). It is no surprise that the first IDO was conducted by Binance. Since June 2019, Binance has launched Raven Protocol and raised $500,000 on Binance DEX. Unfortunately, this is a relatively failed IDO because after 1 year, the price of RAVEN has been divided quite a lot. Specifically, 3 months after being listed, the price of RAVEN has been divided 3 times compared to the selling price at IDO (0.0004x vs. 0.0014). As of now, the RAVEN price is still around 0.0004x and has almost no liquidity.

Why did Raven fail?

According to the subjective opinion of the writer, there are 2 reasons that lead to the failure of this IDO. The first reason is because RAVEN is not really an impressive project. Cap is not large but AI/Deep Learning combined with Blockchain is not a field that can make money in a short time. The second reason why RAVEN failed is important: no one uses DEX.

Back then, the Binance DEX faced problems like bad UX, poor liquidity, few pairs to play with, etc. All of these problems resulted in no Binance DEX users, and of course, IDO on Binance DEX died. And, IDO didn't appear much since then, until Uniswap exploded in 2020.

III. Uniswap and the rise of IDO on Liquidity DEXes

The difference between the Binance DEX’s IDO and the 2020-2021 IDO is that they are both built on Liquidity DEX, not a traditional DEX.

Liquidity DEX like Uniswap, for example, does not use order books to match Makers and Takers like traditional exchanges. Because DEX is inherently decentralized, Makers and Takers are rarely available to create Order Depth, which makes liquidity on traditional DEXes (for example, Binance DEX) low and they also have few users.

To solve this problem, Uniswap changed the game by adding liquidity pools and AMM technology.