Other Types of Funding
In the previous module we dealt with the topic of IEOs, giving examples and comparing them with STOs. Now we are going to talk about other types of crypto funding that are catching on: IDOs and IGOs. In addition, we will also deal with the topic of utility and security tokens and their characteristics.
IDOs and IGOs
We have seen how, over the years, numerous innovative methods of fundraising have been created as a result of the development of the cryptocurrency sector as a whole. The absence of control and investor protection was the fundamental issue with ICOs. Project teams were not subject to any due diligence because there were no control systems in place, which led to the creation of somewhat more controlled forms of crypto crowdfunding, such as STOs and IEOs. The advent of Decentralized Finance (DeFi) and its massive development has led to the creation of alternative fundraising models, such as that of IDOs and, subsequently, of IGOs, which are a relatively new phenomenon.
Definitions of IDOs and IGOs
IDO stands for “Initial DEX Offering”, and allows new crypto projects to raise funds from investors by launching their tokens through a decentralized exchange (DEX). For your information: A decentralized exchange (DEX) is a type of cryptocurrency exchange that operates without a central authority or a single point of control, and allows users to buy and sell cryptocurrency in a peer-to-peer manner. IDOs are similar to initial exchange offerings (IEOs), since both allow immediate trading on top of raising funds. However, IDOs can provide a much more affordable token sale and listing mechanism, mainly because a DEX requires relatively cheaper listing costs. On the other hand, IDOs are less regulated (or not at all). Because IDOs are conducted on decentralized exchanges, which are not controlled by a single entity, there is often less oversight and fewer regulatory requirements compared to IEOs, which are conducted on centralized exchanges. This can make IDOs riskier for investors.
IGO stands for “Initial Game Offering”, and allows a new game project to sell a portion of its in-game tokens or virtual assets to the public before they are made available in the game. This particular method of funding is gaining popularity among crypto users thanks to the rise of GameFi, which is a system that enables users to gain in-game currency by completing specific tasks in blockchain-based games. Most frequently, launchpad platforms are used to organize IGOs. Participants who invest through launchpads typically have to lock the platform’s native token for a specific amount of time. Participants may be granted early access to the game’s tokens or NFTs depending on the project. The project’s accessibility to all investors is one of the main benefits granted to IGOs. It is no longer necessary for a gaming startup to persuade venture investors or approach a select few high-net-worth individuals for funding. On the other hand, there is a risk that the game project may not be successful or that the tokens or virtual assets may not be used or valuable within the game. It is important to carefully evaluate the potential demand for the tokens or assets and the long-term prospects of the game before investing.
Examples of Successful IDOs and IGOs
There are a large number of DEXs and launchpads across different blockchains that offer IDO and IGO services. For this reason, it is always better to do the necessary research to avoid running into scams. Here are two examples of successful launchpads:
- Polkastarter: a decentralized platform (built on the Polkadot blockchain) for fundraising that enables blockchain teams and businesses to raise money and start their projects via an IDO. The platform went online for the first time in Dec. 2020 and has rapidly become the most popular venue for Initial DEX Offerings. Polkastarter provides many services for startups, including support for the listing process, marketing, and community engagement.
- GameFi launchpad: a platform that allows game developers to conduct an Initial Game Offering (IGO), by providing investors initial access to game assets and allowing them to interact with the GameFi community’s gamers. Game projects can use IGO to offer the initial products or NFTs of their games in a variety of ways, including pre-orders and airdrops.
Utility Tokens vs Security Tokens
In this course, we have repeatedly used the words “Utility tokens” and “Security tokens”, which, despite being both digital assets built on the blockchain, have different legal and regulatory implications. It is important for issuers and potential buyers to carefully consider their differences, in order to have a clear vision of how these should be treated in terms of regulations and intended use.
Utility tokens are typically a kind of cryptocurrency that gives holders the right to access certain goods or services on a network. They can be used for purchases from the issuer or other users of the network. Utility tokens do not provide any ownership rights in the company issuing the tokens, and they are not designed to be investments even if, since they can be freely traded on the crypto market, they are considered by many people as investment instruments by all the effects.
Security tokens, on the other hand, represent ownership of an asset, such as a company or a piece of real estate. They are subject to federal securities regulations and may provide holders with certain rights, such as the right to receive dividends or voting rights. Security tokens are intended to be investments, and they are designed to provide holders with an economic return. They are typically issued by companies looking to raise capital through an STO.
Utility and security token legislation is a developing field, and the legal standing of these tokens can change based on their unique qualities and applications. In general, utility tokens are not subject to the same level of regulation as securities, but they may still be subject to certain consumer protection laws. A token that is initially labeled as a utility token might later be reclassified as a security token if its nature changes or if it is used in a way that is more analogous to a security.
Highlights
An Initial DEX Offering (IDO) is a type of crypto funding method that is conducted on a decentralized exchange (DEX), while an Initial Gaming Offering (IGO) is a type of funding that is specifically focused on the gaming industry.
Polkastarter is considered to be one of the best platforms that conducted an IDO, while GameFi launchpad is one of the most popular hubs that developed an IGO.
The main difference between utility and security tokens is the rights and privileges they provide to holders. Utility tokens are used to access goods or services, while security tokens represent ownership.
Conclusion
In this module, we talked about two new and growing forms of crypto funding, IDOs and IGOs, explaining their characteristics and functions in a simple way. Furthermore, we have finally analyzed the delicate topic of the differences between utility and security tokens, which is still much debated.
Other Types of Funding
In the previous module we dealt with the topic of IEOs, giving examples and comparing them with STOs. Now we are going to talk about other types of crypto funding that are catching on: IDOs and IGOs. In addition, we will also deal with the topic of utility and security tokens and their characteristics.
IDOs and IGOs
We have seen how, over the years, numerous innovative methods of fundraising have been created as a result of the development of the cryptocurrency sector as a whole. The absence of control and investor protection was the fundamental issue with ICOs. Project teams were not subject to any due diligence because there were no control systems in place, which led to the creation of somewhat more controlled forms of crypto crowdfunding, such as STOs and IEOs. The advent of Decentralized Finance (DeFi) and its massive development has led to the creation of alternative fundraising models, such as that of IDOs and, subsequently, of IGOs, which are a relatively new phenomenon.
Definitions of IDOs and IGOs
IDO stands for “Initial DEX Offering”, and allows new crypto projects to raise funds from investors by launching their tokens through a decentralized exchange (DEX). For your information: A decentralized exchange (DEX) is a type of cryptocurrency exchange that operates without a central authority or a single point of control, and allows users to buy and sell cryptocurrency in a peer-to-peer manner. IDOs are similar to initial exchange offerings (IEOs), since both allow immediate trading on top of raising funds. However, IDOs can provide a much more affordable token sale and listing mechanism, mainly because a DEX requires relatively cheaper listing costs. On the other hand, IDOs are less regulated (or not at all). Because IDOs are conducted on decentralized exchanges, which are not controlled by a single entity, there is often less oversight and fewer regulatory requirements compared to IEOs, which are conducted on centralized exchanges. This can make IDOs riskier for investors.
IGO stands for “Initial Game Offering”, and allows a new game project to sell a portion of its in-game tokens or virtual assets to the public before they are made available in the game. This particular method of funding is gaining popularity among crypto users thanks to the rise of GameFi, which is a system that enables users to gain in-game currency by completing specific tasks in blockchain-based games. Most frequently, launchpad platforms are used to organize IGOs. Participants who invest through launchpads typically have to lock the platform’s native token for a specific amount of time. Participants may be granted early access to the game’s tokens or NFTs depending on the project. The project’s accessibility to all investors is one of the main benefits granted to IGOs. It is no longer necessary for a gaming startup to persuade venture investors or approach a select few high-net-worth individuals for funding. On the other hand, there is a risk that the game project may not be successful or that the tokens or virtual assets may not be used or valuable within the game. It is important to carefully evaluate the potential demand for the tokens or assets and the long-term prospects of the game before investing.
Examples of Successful IDOs and IGOs
There are a large number of DEXs and launchpads across different blockchains that offer IDO and IGO services. For this reason, it is always better to do the necessary research to avoid running into scams. Here are two examples of successful launchpads:
- Polkastarter: a decentralized platform (built on the Polkadot blockchain) for fundraising that enables blockchain teams and businesses to raise money and start their projects via an IDO. The platform went online for the first time in Dec. 2020 and has rapidly become the most popular venue for Initial DEX Offerings. Polkastarter provides many services for startups, including support for the listing process, marketing, and community engagement.
- GameFi launchpad: a platform that allows game developers to conduct an Initial Game Offering (IGO), by providing investors initial access to game assets and allowing them to interact with the GameFi community’s gamers. Game projects can use IGO to offer the initial products or NFTs of their games in a variety of ways, including pre-orders and airdrops.
Utility Tokens vs Security Tokens
In this course, we have repeatedly used the words “Utility tokens” and “Security tokens”, which, despite being both digital assets built on the blockchain, have different legal and regulatory implications. It is important for issuers and potential buyers to carefully consider their differences, in order to have a clear vision of how these should be treated in terms of regulations and intended use.
Utility tokens are typically a kind of cryptocurrency that gives holders the right to access certain goods or services on a network. They can be used for purchases from the issuer or other users of the network. Utility tokens do not provide any ownership rights in the company issuing the tokens, and they are not designed to be investments even if, since they can be freely traded on the crypto market, they are considered by many people as investment instruments by all the effects.
Security tokens, on the other hand, represent ownership of an asset, such as a company or a piece of real estate. They are subject to federal securities regulations and may provide holders with certain rights, such as the right to receive dividends or voting rights. Security tokens are intended to be investments, and they are designed to provide holders with an economic return. They are typically issued by companies looking to raise capital through an STO.
Utility and security token legislation is a developing field, and the legal standing of these tokens can change based on their unique qualities and applications. In general, utility tokens are not subject to the same level of regulation as securities, but they may still be subject to certain consumer protection laws. A token that is initially labeled as a utility token might later be reclassified as a security token if its nature changes or if it is used in a way that is more analogous to a security.
Highlights
An Initial DEX Offering (IDO) is a type of crypto funding method that is conducted on a decentralized exchange (DEX), while an Initial Gaming Offering (IGO) is a type of funding that is specifically focused on the gaming industry.
Polkastarter is considered to be one of the best platforms that conducted an IDO, while GameFi launchpad is one of the most popular hubs that developed an IGO.
The main difference between utility and security tokens is the rights and privileges they provide to holders. Utility tokens are used to access goods or services, while security tokens represent ownership.
Conclusion
In this module, we talked about two new and growing forms of crypto funding, IDOs and IGOs, explaining their characteristics and functions in a simple way. Furthermore, we have finally analyzed the delicate topic of the differences between utility and security tokens, which is still much debated.