There are several common truths of the crypto world:
- The blockchain must contain an asset that has value
- Value can only be generated in the process of supply and demand
- If there is no organic consumption, a significant community is needed, which is necessary for creating supply and demand.
- As a result, the startup has to take a lot of “Holders” somewhere.
In order to get the initial number of cryptocurrency owners somewhere, each project resorts to its own methods. For example, in the case of Bitcoin or Ethereum, everyone initially could simply farm as many tokens as they wanted.
But not all projects were able to achieve the same fame or wanted to wait so many years for their community to grow. Not everyone, after all, had the same model.
Therefore, back in 2013, the first ICOs appeared, which combined fundraising + getting an interested community. But now that the industry has outgrown its baby pants, the models are divided. Some big operators remain (Republic/Tokensoft/Polka auctions), but also platforms that work with startups that have already raised some funds and are now interested in attracting a wider community. These platforms help projects to launch successfully. Therefore, they began to be called launchpads. They inform their community and help manage token pre-sale.
Launchpads are public sale operators that allow crypto startups to collect funds from a large number of people. They solve some key issues that concern the founders of launching projects:
- gathering people who want to invest some money in a project that is interesting to them
- verification of these people (sanctions, multiaccounts, KYC/AML)
- a convenient way for gathering funds
- easy distribution of tokens to investors.
All of this has now grown into a rather interesting and large industry, in which three distinct stages and scales can be traced.
Initial Coin Offerings. The very first attempt to implement fundraising + community distribution. In ICO, tokens are offered to a limited group of users. Through them, money is collected allowing for further development of the project. It is expected that when the project goes public, the price of tokens will increase so that the initial group of users will end up with a profit.
This is how, for example, Ethereum was funded — 50 million ETHs were offered in August 2014 in a fundraising event for the development of the project. They managed to collect 32 thousand Bitcoins, which at that time was equivalent to $18.4 million.
ICOs became a real mania in 2016-2018. In the second half of 2017, there were around 50 new offerings a month. ICO platforms have emerged, allowing their users to track new launches and quickly invest in them. The highest-grossing ICO of all time was Filecoin, raising $257 million in August 2017 (and $200 million of that within the first hour of their token sale).
But there were widely known problems with this scheme. Fewer than half of all ICOs survived more than four months after the offering. Almost half of ICOs sold in 2017 failed by February 2018. The reason was (and still is) low investor insight. People often do not understand what they are buying. And if the project actually has any prospects.
ICOs have become the largest in ambitions and scale, but they have also received the greatest risks. There are now more than 5 thousand coins that have not taken off. Around 80% of ICOs turned out to be pure scams, according to New York-based advisory company Satis Group. There were almost no smart investments here, the sphere devolved into gambling and blind faith in the creators. After a few years, it became clear that other models were needed to cut off scams and increase the safety of investors.
As a result, ICOs remained, but in a rather narrow form. They are sometimes organized by Republic or Tokensoft and tracked by platforms like ICODrops, which all act as a proto-launchpads for the projects choosing to still go down this path.
IEO — Initial Exchange Offering, in which the early sale of tokens takes place on a centralized exchange. The exchange acts as a mediator and conducts the initial vetting of the project.
Here come the first true launchpads! They are organized by some of the exchanges. They select projects, help organize IEOs, manage raising funds and distribution of tokens. IEO launchpads can instantly expose new projects to a huge audience. Imagine it like a crypto version of America’s Got Talent. New projects showcase their pitch on the stage (the launchpad), and the jury (the launchpad’s users) can choose to invest in them.
IEO launchpads are always tied to a сentralised exchange. And the exchange charges a fee for its launchpad services. The most successful IEO launchpads currently are:
- Binance Launchpad
- OKX Jumpstart
- Huobi Prime
- FTX IEO.
Due to a large number of clients of crypto exchanges, IEOs can attract a very significant amount of money, up to tens of millions. But in terms of one user, investments are usually small, within a couple of hundred dollars. IEOs are not as well suited as ICOs for institutional investors looking to spend hundreds of millions of dollars at once. In fact, these amounts of money will not be support for a specific project, but an investment in the exchange as a whole — after all, in order to participate in the IEO, they would first have to buy exchange tokens. These are extra hurdles the biggest investors are not willing to go through.
However, for the general public, IEO launchpads are massively more popular than ICOs. The biggest advantages of IEOs over ICOs are:
- The launchpads can market the project to a much wider audience.
- The token immediately starts to trade on a reputable exchange, improving its liquidity and visibility.
- The project gets audited by the exchange, significantly reducing the chance of a rug pull.
The final capitalization of projects launched through IEOs is significantly less than the results of top ICOs. But the probability of an outright scam also becomes ten times lower. IEOs are much safer for an average investor than ICOs. Most of them turn out to be very profitable investments. 12 out of 16 largest IEO launchpads have generated positive returns, and 100% of them generated positive returns at the projects’ all-time highs. This is in stark contrast to ICOs, almost 80% of which turn out to be rug pulls.
IDO is a token offering organized by a decentralized exchange (DEX). Decentralized exchange is a peer-to-peer marketplace where transactions occur directly between crypto traders. Usually, DEX has more involved users who can also remain completely anonymous. Hacking attempts are also not as prevalent here. While transactions on a centralized exchange are recorded on that exchange’s internal database, DEX transactions are settled directly on the blockchain, which makes them impossible to tinker with.
DEXs are currently booming — in the first quarter of 2021, $217 billion in transactions flowed through decentralized exchanges. There were more than 5 million DeFi traders, a growth of over 20x in just a year.
Not every decentralized exchange organizes IDOs. However, those that do almost instantly adopt all the functions of the launchpad — to help their projects succeed in the wide world. IDO launchpads form a pool of investors interested in IDOs, check projects, and distribute tokens. They allow crypto startups to find a community that is interested in the product and can fund the last stages of its development.
IDOs offer some natural advantages over both ICOs and IEOs:
- Immediate liquidity
- Fast listing period
- Lower cost of listing
- Decentralization, which is important for many end users.
Financial risks and the possibility of corruption are largely excluded here — since these mini-exchanges themselves invest in the project. And they take project tokens, not cash. Those tokens are frozen for quite a while, just like for early investors, until the project goes public. Therefore it is important for IDO launchpads that startups they invest in eventually return a profit. They risk not only their reputation, like exchanges in IEOs, but real money.With IDOs, launchpads themselves take the risk. Therefore, they are more attentive to the initial vetting of projects, and even help them with technology and advertising. Hence, the likelihood of a scam is greatly reduced. Those IDOs that do bad vetting do not stay in the market for long: anyone can look at this page in Cryptorank, evaluate Current ROI and ATH ROI columns, and understand which launchpads they shouldn’t get involved with.
IEOs are sometimes more beneficial for crypto startups, especially those that are starved for funds. But from the point of view of the average investor who wants to increase his capital, IDO is a very promising option. Virtually nothing goes to zero immediately.
Types of IDO launchpads
There are quite a lot of IDO launchpads to choose from, more than 70, and here we meet the most varieties.
For example, depending on their internal structure and the tokens they can interact with, IDO launchpads can be:
There are also specialized launchpads, like NFT pads, yield farms, gaming launchpads, or startup incubators. Yield farms are quite popular at the moment: they allow you to generate income by holding cryptocurrency and locking it for a period of time into a specific project. The most prominent among those is PancakeSwap.
There are also launchpads that invest only in gaming, such as Seedify. These launchpads are even more trustworthy: they know how to test these specific projects. Seedify shows a 2.2x (220%) ROI, which means that all projects have, on average, more than doubled their value after launch, which is a pretty solid result.
There are also IDO launchpads with full startup incubator features (Red Kite). They have several hundred employees who are directly involved in the development of the projects they invest in. Incubators provide young crypto startups with funding, mentoring, and training, and then present them to their audience.
All of this is developing rapidly, and most importantly, this development is easy for even an outsider to track. You can easily check which launchpads make the most money for investors. It is enough to go to the same Cryptorank page and see the current ROI and ATH ROI.
What is best to invest in?
ICO, IEO, and IDO essentially share, in their core, the same model. With blockchain, tokens, TGEs, built-in trading features, and a pool of investors. It’s just that this model has gradually adapted to different needs.
There are no projects that came out through IEO or IDO that have increased their capitalization by 50 million times, like Bitcoin, or 8,400 times, like Ethereum. But, similarly, there are no projects here that went down straight to zero immediately after launch.
At this stage of development of the cryptosphere, the likelihood of a new hyper-successful coin appearing out of the blue and without fanfare (through direct ICO) is vanishingly small. Even the most promising projects try to first test the waters by gauging investor interest through launchpads, or at least consulting with the exchanges to find out what these old-timers think about their idea. As a result, it becomes much easier and safer for them to launch by raising initial capital through IEO (if they need a lot of money) or IDO (if a few millions is enough).
Direct ICOs remain the preferred way to launch for hype projects that want to avoid verification by savvy investors. They are also sometimes used by extremely confident developers who believe that their technology is so amazing that it can take off without anyone’s help. But the probability of a failure here increases exponentially.
At the same time, there are almost never instant failures at IEOs and IDOs. Significant initial marketing and more thorough checks allow projects to last at least a few months, during which almost all initial investors have the opportunity to exit with a profit — if they believe that the project has outlived its growth prospects.Many IDO and especially IEO projects successfully exist and develop even several years after launch — for example, Polygon, Freeway Token, LTO Network, Axie Infinity, Fetch.ai, Harmony. In the volatile world of crypto, these are now almost oldies, the level of Ford or Macy’s in the real world. If you’re new to the sphere, putting your trust in some established IDO launchpad and choosing one of the more interesting upcoming projects on that platform is the safest bet.