Alex Fatuliaj
July 12, 2023
Startup Saturday

IDO Supply + Price


Tokens may be one of the best fundraising mechanisms humanity has seen to date, boasting liquidity like never seen before. As a result, the Web 3 industry created many different ways to launch a token and raise capital.

Important Details


Tokens can be introduced into the market via different ways:

  1. Sold in the future,
  2. Sold in the present,
  3. Directly listed on an exchange,
  4. Created as reward, or
  5. Distributed as a reward.

Sold in the future means that tokens are agreed to be transferred once they're created in exchange for money now. Contracts like SAFTs, token warrants, or other ways to receive funds before the tokens launch.

Sold in the present means tokens are made available for purchase via the creator's platform, or via third- party entities like launchpads or exchanges - these include entities like CoinList, DAO Maker, KuCoin, etc.

Directly listed on an exchange means the creator either creates a liquidity pool on a decentralised exchange full of their tokens and a paired liquidity crypto, or they send tokens to a centralised exchange that creates its own liquidity.

Created as a reward means the tokens are mined into existence via a Proof of Work or similar mechanisms.

Distributed as a reward refers to tokens being given to users via airdrops, staking rewards, or other distribution methods.

Although seemingly obvious information, it is apparent that there are deep-rooted misconceptions about common terminology that sways public perception and affects the future of the space.

For example, the term 'ICO' is associated with the 2017-2018 era which was full of scams due to the fact that projects could sell tokens directly to the public with zero regulation. However, technically speaking, every method of selling a token to users technically falls under the umbrella of being an ICO, by sheer definition.

It is understandable why the space wanted to move away from the terminology, but it is important to comprehend what these things actually mean.

ICOs


Initial Coin Offerings (ICOs) got their name from Initial Public Offerings (IPOs), where a company creates and sells stocks to the public via an exchange. Unlike IPOs however, an ICO doesn't need to happen via a third party: tokens can also be sold directly to users (because the regulators haven't caught up yet).

There are 4 main ways of doing an ICO:

Static supply and static price: project sets a specific funding goal, with each token having a set price; once the funding goal is reached, there are no more tokens for sale.

Static supply and dynamic price: offering n% of the supply for sale but without a locked price means the more the project fundraises, the greater the price of the token, because n% of tokens will be worth more.

Dynamic supply and static price: some ICOs have a dynamic token supply but a static price, meaning that the amount of funding received determines the supply.

Auctions: in an auction, the supply is static but the price will change based on the auction rules. There are also Dutch auctions, where the price goes down instead of up, and Vickrey auctions, where everyone's bids are hidden from each other.

Historically, the problem with ICOs was that projects sold tokens directly to users via their platforms; there was no accountability which allowed for scams to flourish, and eventually led to the SEC et al. getting involved. Now we have IEOs and IDOs, where tokens are sold via exchanges as a third party.

IEOs and IDOs


IEO stands for Initial Exchange Offering, and IDO for Initial DEX (Decentralised Exchange) Offering.

An IEO is the same as an IPO - an exchange facilitates the public sale. An IDO on the other hand, utilises smart contracts to collect investors' (usually KYC'd) capital and then distribute the tokens to them post TGE (Token Generation Event), shortly after the IDO.

Centralised exchanges became facilitators of Initial Offerings because they're trusted entities, whilst DEXs utilise smart contracts and are therefore trust-less.

Launchpads


Launchpads are third-party entities that help projects launch tokens, and help with marketing, strategy, etc. In essence, a launchpad is a fancy term for a consulting agency that helps projects conduct their IDOs, IEOs, or ICOs (in case of ICOs, the launchpad becomes the custodian / escrow).

Fair Launch*


A fair launch isn't an ICO. It's when the tokens get distributed to the community members. A fair launch ensures there is no early access, pre-mine, or allocation of tokens. Price is set naturally when users become able to trade the tokens.

Direct Listing*

A direct listing isn't an ICO either. Here, the project sends tokens to an exchange, or creates a liquidity pool on a decentralised exchange with their token and a liquidity pair crypto, and allows people to buy it from the pool directly. On a DEX, this creates natural price discovery. On a CEX, a token price is set.


All posts: https://www.simplicitygroup.xyz/blog

Twitter: https://twitter.com/SimplicityWeb3

Telegram: https://t.me/SimplicityGroup

Newsletter: https://thoughts.simplicitygroup.xyz/subscribe