In the universe of cryptocurrencies, there are several ways to go public and raise funds. Some of these ways are known as an Initial Coin Offering (ICO), an Initial Exchange Offering (IEO), an Initial Game Offering (IGO), an Initial DEx Offering (IDO), and an Initial Farm Offering (IFO).
The money raised in any of these fundraising models will be used in the protocol’s growth activities, including the development of the products, marketing efforts, and the launch of their assets and services.
The different types of crypto fundraising models
What is an Initial Coin Offering (ICO)?
An Initial Coin Offering is a method of raising funds for a cryptocurrency, like Cardano (ADA) or Tether (USDT). It is done on the project owner’s website.
The development team behind a cryptocurrency releases a whitepaper, which holds important information about its project. The information enables potential investors to scrutinize the project before they invest. It is similar to a prospectus released before an IPO, which is a legally required document if a company intends to go public.
There are a few regulatory hurdles for any project to execute during the process of launching an ICO, which also makes it a breeding ground for scams. Critics say it’s a get-rich-quick scheme, but some successful coins today first started with an ICO — including Ethereum which launched its ICO at $0.31.
What is a Security Token Offering (STO)?
A Security Token Offering (STO), although similar in nature to an ICO, differs in the type of it offers. Typically, the digital assets offered in an STO resemble actual securities, such as bonds and stocks, but they exist in a blockchain environment.
These assets are “tokenized” or represented in digitized form and are executed through smart contracts. The assets you gain from an STO, while deriving their value from a traditional financial investment, can still be traded, transferred, bought, and sold.
It offers a more secure option for crypto investors because these assets are required to undergo regulatory hurdles before being traded. This means fewer opportunities for scam projects and more convenience for the average investor.
Given the attractive benefits of an STO for an investor, it also comes with a caveat: a high capital for participating. Investors enjoy the benefits of better liquidity, asset management, and owning a fraction of the asset.
Coinbase, Archax, and Gemini are examples of platforms that are allowed and regulated by the governments in which they operate the STOs.
What is an Initial Exchange Offering (IEO)?
An Initial Exchange Offering is another way of fundraising like an ICO, but is executed through select centralized cryptocurrency exchanges.
A project owner looks for a cryptocurrency exchange that will agree to list the coins. After all, a coin listed on a popular exchange provides some level of confidence to future investors. However, it may be much more expensive to launch with a big exchange. The exchange gets to collect a listing fee and even a percentage of the token sales.
Exchanges like Binance and Coinbase have a rigorous process in vetting cryptocurrencies and tokens that will be listed on their platforms. While they do not assure the legitimacy and success of any given asset, proper steps are in place for a thorough review.
Unlike ICOs, IEOs have the ability to boost investor confidence because of the measures taken by an exchange to vet the asset. Anybody can buy the token from an ICO, but an exchange requires that you are a registered user and have passed its identity verification before investing in the listed coins.
Elrond and Polygon are protocols which first launched as IEOs.
What is an Initial Game Offering (IGO)?
Initial Game Offerings are the latest in fundraising models for cryptocurrencies and tokens associated with NFT game projects. Access to these tokens means access to the games. The tokens can be used to purchase in-game characters, skins, weapons, elixirs, and other products.
IGOs are conducted in launchpads such as Gamefi (GAFI) and Gamestarter (GAME). Usually, you need to hold a certain amount of that launchpad’s native coin to be part of an IGO. The native coins must be held in the platform for a certain amount of time. How much of the token offering you will receive will depend on the number of native tokens you hold.
As an IGO investor, you will have access to yet-to-be-launched tokens before they are made available to the general public. It carries the same level of risks and rewards when buying cryptocurrencies and tokens that are new to the market — while you can buy the coin at a very good rate, you don’t know by how much its value will rise after it gets listed.
Axie Infinity (AXS) is currently the most popular NFT game in the market and its native token AXS enables players to purchase in-game accessories and plots of land.
What is an Initial DEX Offering (IDO)?
An Initial Decentralized Exchange Offering is like an IEO, but this time it’s done specifically on a decentralized exchange, such as PancakeSwap, Uniswap, and SushiSwap. Project owners can launch anything here from cryptocurrencies to digitized assets like music albums for fundraising. Investors will not have ownership in the project.
Project owners who want to debut in a DEX can provide liquidity to the platform by giving it a portion of the funds raised. Meanwhile, early investors will need to stake their capital as proof-of-stake to avoid selling the assets right away.
Investors can fund the project early during the IDO, but they will only receive the actual tokens during the token generation event. The tokens will be listed on the exchange for the public shortly after.
It’s also worth mentioning that IDOs don’t usually raise as much capital as ICOs, but investors are given more flexibility in their involvement.
GameFi and BSC Launch Pad of Binance Smart Chain are two examples of platforms that welcome IDOs.
What is an Initial Farm Offering (IFO)?
Initial Farm Offering is a form of fundraising in which a crowdfunding event is executed through platforms like Pancake Swap and StreetSwap. As the name suggests, an IFO includes a farming event to generate funding. Users acquire the rights to the tokens during a pre-sale and will receive those tokens right before they are listed on the exchange.
To participate in an IFO, users must first provide liquidity to the DEX, which means staking a certain pair of tokens. For example, if you want to do this in PancakeSwap, you have to deposit or hold liquidity pool tokens such as CAKE – BNB LP and BUSD – BNB LP. Having the LP tokens will allow you to farm the token being launched on the IFO.
Planning to invest in crypto or tokens? Always DYOR
There are various ways for projects to raise capital and introduce their coins or tokens to the public. Whether you are investing through an ICO, IEO, IGO, IDO or IFO, remember to always Do Your Own Research (DYOR) about the projects. Each method of fundraising has its own advantages and disadvantages. Start by reading the whitepaper and knowing more about the team, the product, and the product’s roadmap. Happy investing!