Report: Making a killing in crypto Initial Dex Offerings
Examining the reality behind the mouth-watering returns of IDOs
Whilst many of us are busy searching for crypto moonshots the more astute among us have uncovered what could be described as the crypto goose. The returns that this goose has been laying are something a Silicon Valley VC would give his right testical for.
Most of us have heard of the term ICO (initial coin offering). They were all the rage back in 2018. But in reality most of these were the brainchild of a scammer or an over ambitious under researched computer programmer. Saying that many of the successful cryptos of today were funded via ICO including Ethereum, Filecoin, Cardano and Ripple. We wrote an article recently where we claimed, ‘The ICO is dead, long live the ICO.’ And we were right, the ICO is not dead, it has just reinvented itself into something called an IDO.
What is an IDO?
These are tokens that represent any type of asset hosted on a decentralized exchange (DEX).
This is how they work
A project looking to raise money through an IDO is most likely one step away from listing on a platform such as Uniswap. Users of an IDO platform contribute either USDC, ETH or a native currency of the platform. The offerings are limited and are on a first come first served basis.
The good news for the investor is that many of the platforms vet the project including its team before the project is able to tap investors. Some don’t — it is our job, as investors, to select the responsible platforms. As is always the case when the demand for anything hits the ceiling, the quality deteriorates rapidly, we are close to that point now.
Many IDOs are massively oversubscribed. They are more popular than buying a ticket for a Britney Spears concert — some are sold out in 10 seconds. And talking about tickets, some platforms allocate tokens by virtual lottery ticket in an attempt to level the playing field.
We recently launched the only dedicated IDO community on Reddit. You can discuss current and upcoming IDOs and other related topics here: r/IDOs
Eye watering returns
This IDO phenomenon is a recent one. Polkastarter is a leading DEX platform in this space which only launched in December 2020. Since then the platform has amassed 200,000 investors, funded 40 projects and has one of the best track records in the business. That’s not to mention the $280 million its native token POLS is now valued at — all in the space of a few months — only in crypto!
The great thing about investing through these platforms is that you don’t have to wait long for your return. Within a few days of the IDO closing projects are quickly listed on Uniswap and or other exchanges at a substantial premium to the IDO price.
Some examples of recent returns achieved by a few notable projects include:
Bridge Mutual up 19 times (Polkastarter)
Blind Boxes up 29 times (Ignition)
Shyft up 15 times (Polkastarter)
ExeedMe up 37 times (Polkastarter)
Advantage of IDOs
The IDO has many advantages. The project’s token gains access to immediate liquidity. We all know that insufficient liquidity can be the downfall for any project. In the case of an IDO, as soon as a project launches investors can start trading its token. If we are lucky enough to get in early we are able to buy a new token and later sell it at a higher price during the IDO.
It is also far cheaper to list a project on an IDO compared to a major central exchange. That and the speed at which the process can be completed is a major advantage for the project owner. An IDO exposes a project to a large community of investors allowing it to build both a following and credibility. Finally some IDO platforms provide an incubator service which will assist the project with both its development and marketing. That is helpful to both the project owner and the investor, the investor being assured a pipeline of better quality projects.
Disadvantages of IDOs
The advantage of being able to trade a token as soon as it launches is also a disadvantage. Investors late to the game can end up paying multiples of the original listing price. In reality there are very few investors who are lucky enough to get in at the issue price because the token price starts to climb as soon as the allocation of tokens begins to fill.
Rug pulls are another problem, although some platforms have put in place certain controls to prevent this. A rug pull is when a dubious project pulls its token’s liquidity from the decentralized exchange thereby rendering the token worthless due to lack of liquidity.
US investors are also prevented from buying on certain platforms and participating in certain IDOs.
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Listen to our latest podcast from the team at leading IDO platform DxSale here.
The Whitelist
The biggest gripe among participants in IDOs is the fact that very few people have ever managed to get on the whitelist let alone receive an allocation of tokens. There are two simple reasons for this. Firstly the demand for new shiny cryptocurrencies is unprecedented and secondly the amount of money raised by each new project is relatively small compared to its predecessor the ICO. Generally the amount being raised is between $100,000 to $150,000. With high demand and a limited allocation of tokens you can see why there are few ‘lucky’ investors.
A whitelist is the first step in the IDO process. In order to participate you must register. That means doing a few things first including registering on the project’s Twitter account and retweeting a prepared tweet to your own followers. Next you have to provide a form of ID. Some platforms expect you to provide a copy of your passport which many investors are understandably not overly happy about. Assuming you follow these steps to the T you are then eligible to participate in the IDO. The advantage for the project of a whitelist is they are able to quickly establish a large community of potential users and or investors which is going to be a very valuable asset as the project matures.
We recently launched the only dedicated IDO community on Reddit. You can discuss current and upcoming IDOs and other related topics here: r/IDOs
Picking the best opportunities and platforms
The number of platforms operating in the IDO space is growing fast. This is a new market so many platforms are still developing both their infrastructure, business model and their offering. Below are a few of our favorite platforms.
DuckStarter — www.duckstarte.io
Polkastarter — www.polkastarter.com
Ignition — www.ignition.paidnetwork.com
TrustSwap — www.trustswap.org
DxSale — www.dxsale.network — anonymous team behind it
Coming soon
KickPad — www.thekickpad.com
YFDAI — www.yfdai.finance — don’t accept US investors or investors from North Korea
Most platforms rely on human verification of a startup before it is given the go ahead. Some outsource the vetting process to community members. DxSale for example automates this function ensuring that tokens are locked preventing rug pulls. The leaders right now are Polkastarter, DuckStarter and Ignition, but that could all change tomorrow as new entrants join an already crowded market place.
IDO platforms as an investment
Finally lets look at IDO platforms as an investment in their own right.
As you can imagine there are many cryptocurrency options in this sector however valuations are sky high. Here are two of the more interesting ones.
Polkastarter (POLS)
We looked at Polkastarter a little earlier.
This is probably one of the more interesting platforms and cryptocurrencies. Having already established a strong user base it is one of the leading lights in the space. It is also looking to use its credibility and large investor base to diversify into other areas — the first one being DeFi insurance. Polkastarter’s token has a valuation of $236 million and a fully diluted valuation of $370 million. This is probably a billion dollar plus platform when you compare it to its rivals in the same space, PancakeSwap and Uniswap.
DxSale (SALE)
This project has a market cap of $8 Million and a fully diluted valuation of $27 million. Despite a 3,600% rise in price in the last six months the valuation is modest based on its performance and potential. The DxSale platform has raised $3 million for over 1,400 projects accumulating $300 million in TVL since December 2020. DxSale has taken a different approach to many of its competitors by introducing controls to prevent rug pulls. Its main downside is that it has an anonymous team, however balanced against the rapid progress it has made and its modest market value, this is a coin to conduct further due diligence on.
There are many other platforms operating in this market but most look overpriced particularly if you take into account the maximum number of tokens in circulation which implies a significantly higher valuation compared to the headline figure, always a little misleading.
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To summarise…
The IDO is relatively new by crypto standards. Polkastarter, a leading player, was only established in December 2020 and has already amassed 200,000 investors. There have definitely been some mouth watering returns generated from IDOs however the sector is not without its problems. The biggest complaint is that investors are unable to participate or that prices move so rapidly they end up paying multiples of the listing price.
We have to remember that IDOs are young and that they are a far from perfect solution to the crypto fund raising dilemma but they are definitely a step in the right direction. The concept should only grow stronger making this a great area to look for gems and earn substantial returns. However as always make sure you are spreading your risk among a number of projects as not all projects will turn out to be as rosy as the examples we have cited above.
Not Financial Advice
This article does not constitute financial advice or a recommendation to buy in any way. Always do your own research and never invest more than you can afford to lose. Investing in cryptocurrencies is high risk, and you could lose 100% of your investment. The article should be treated as supplementary information to add to your existing knowledge.