The crypto market is adopting innovative means for fundraising to initiate new projects. In the conventional financial system, fundraising is bound to simple borrowing or enlisting the services of Venture Capital. This method hurts the initiators of a project in the long run: https://bit-indexai.net/. The space for digital currency is divergent, which enables the projects to raise finances by indulging the community in it.
Crypto and blockchain start-ups are capable of issuing tokens that are interchangeable with other cryptocurrencies and fiat money. The raised funds contribute to the project development.
What Do You Mean By Crypto Crowdfunding?
Philanthropic organizations utilize a variety of crowdfunding techniques for fundraising from the general public, but often their appeals are limited to a particular group or specific types of gifts. Therefore, crypto crowdfunding is a fundraising technique that involves crypto traders and investors for donations. By embracing cryptocurrency, charitable organizations can widen their revenues by building relations with a rapidly growing pool of potential donors.
The three commonly used fundraising techniques or models for crypto projects are Initial Coin Offering (ICO), Initial Exchange Offering (IEO), and Initial DEX Offering. Further explanation of all these techniques is given below.
Initial Coin Offering (ICO)
It is the first and foremost technique of crowdfunding that shows great resemblance with the Initial Public Offering; that is used in the stock market. In an Initial Coin Offering, an organization decides to release tokens backed by blockchain technology, and investors are free to purchase them via leading cryptocurrencies such as BTC or ETH. These tokens are issued at discounted prices. Stable coins like Tether (USDT) are also suitable for this purpose.
The tokens provided by the company are tradable on both centralized and decentralized exchanges. The ICOs started in 2013 when Mastercoin started the first-ever ICO campaign, and it raised a sum of around 0.6 million dollars. Similarly, Ethereum, the 2nd top-notch cryptocurrency, had its ICO back in 2014 collecting 18 million dollars in less than one and a half months. It permits companies to establish funds without the approval of the regulatory authority
- An ICO project is convenient to initiate, and companies do not need to follow extensive procedures.
- Investors with smaller amounts are encouraged to invest as its cost is low.
- An ICO lacks security, and hackers can target it effortlessly.
- It is not a suitable choice for long-term investments.
Initial Exchange Offering (IEO)
An IEO is the doppelganger of an ICO in many perspectives. The only difference between these models is that IEO uses an exchange platform for its launching. The exchanges of cryptocurrency serve as a trusted third party that works on the behalf of the project. In an Initial Exchange Offering, tokens are made available to the investors before their release to the market to earn remarkable returns. As the crypto exchanges handle the entire process, the IEO projects need to be more authentic by providing all the essential information.
A proposal is submitted to the exchanges, and the appropriate exchange accepts that proposal. Exchanges protect their reputations by working diligently. Initial Exchange Offerings can attract many investors.
- IEOs take place via Crypto exchanges that are validated and highly secure for investors.
- Funds are directly transferred to investors’ accounts instead of Smart Contracts.
- IEOs are costly and complex to set up.
- Investors have no hold on the exchange operations.
Initial DEX Offerings (IDOs)
It is the latest crowdfunding technique adopted by crypto projects for fundraising. IDOs sell the tokens on decentralized exchanges via blockchain technology to raise funds. Because the IDO model is new, it is gaining popularity among DeFi and DApps. IDOs are distinct in attributes from the ICOs & IEOs. IDO does not claim ownership of any project during the fundraising. As these projects work on completely decentralized exchanges, they do not obey rules and regulations.
The IDO model came into existence in 2019. The IDO projects utilize a variety of coins including Bitcoin, Ethereum, and Tethers. Bitcoins are traded using Bitcoin Trading Software.
- IDOs are user-friendly and contain instant liquidity.
- Initial DEX Offerings also begin with a lower cost.
- IDOs face controlling problems.
- When you conduct a large volume of transactions, prices fluctuate immediately.