Steemit Crypto Academy Contest / S5W5 - Initial Coin Offering in the Crypto Ecosystem

in SteemitCryptoAcademylast year (edited)

Cover Image Created using Poster Maker

Good day, Steemians. I hope you are doing great this new week and I'm very happy that season 5 continues that allows me to continue writing in the contests. The contest before me today has the topic "Initial Coin Offering in the Crypto Ecosystem" in the academy, I will write some things about what I understand on the topic.

Share in detail your understanding of the Initial Coin Offering (ICO) and the purpose of the event in the crypto ecosystem

Cryptocurrency is an asset that can be traded digitally, used for payments, and many other utility purposes. The currency uses cryptography and blockchain technology to secure users' assets and store the transactions data in a way that it can not be hacked as it's immutable.

Cryptocurrencies are traded on different exchanges but in some cases, they can be bought before they are taken to any major exchange for continuous trading. Initial coin offering just as it sounds is the offering of a token in the crypto space at the point when it hasn't made it to any public market.

The ICO (initial coin offering) program is used by projects to introduce their new tokens to the crypto space and used to raise funds that are needed to make the token a complete cryptocurrency. In ICO, investors from the public are invited by the project team to purchase the token at a price that is very less than what it would be when listed in the future.

Furthermore, Initial coin offering can be carried out on special platforms or the project's website. ICO in most cases has funding targets and when the target is reached, that will be the end of the ICO. Also, there is always a personal hard cap in ICO that limits how much a user can buy in the sales.

ICO Calendar Screenshot taken from Coinmarketcap

Coinmarketcap is a tool where one can see a lot of information about cryptocurrency and as I show above, they list upcoming ICOs on their website where one can visit and see the new projects that are performing initial coin offering. There are different types of ICO based on price and the supply of the token and I will show them below.

  1. Predetermined Price and Fixed Supply: This is the type of ICO where the tokens created by a project ad made available in the ICO has a predetermined price per unit and a fixed supply, when it's reached, the ICO will be ended.

  2. Dynamic Price and Fixed Supply: This is another type of ICO that has fixed supply but the price of the tokens per unit in the ICO is determined by the overall funds that were raised in the program.

  3. Predetermined Price and Dynamic Supply: Some ICOs has predetermined price and the number of funds that was received in the program determines the ICO token supply.
Furthermore, not all the ICOs ended up being real as some can even end up being scam projects to steal funds away from investors so one must do good research before investing in ICOs. Cryptocurrencies are the most used assets for buying into ICO as the equivalent of it in USD value based on the ICO price is released to the investors at the end of the program.

Purpose of ICO
To Raise Funds: Raising funds is one of the primary aims of an initial coin offering program by the project team to cover the cost of developing the token. For example, raising funds to add to the liquidity pool that will make it easy for the tokens to trade on DEX and other developments to make the token a successful one.

To Attract Investors: ICOs are also done to call the attention of the investors to get to know more about the project. This is a means of increasing the adoption of the token before it is available freely for trading in different exchanges.

Discuss your understanding of the Initial Exchange Offering (IEO) and Initial DEX Offering (IDO). What platform is utilized for IEO? Give an example of a platform and how it works for the coin offering.

Initial Exchange Offering (IEO)
Initial Exchange Offering is equivalent to ICO but they have slight differences, like the platform that is used for the token sale. For the initial exchange offering, the project approaches a well-known exchange for their token sale which means that the exchange will oversee the initial coin offering for the project.

Furthermore, IEO sales of the tokens are not carried out on the project's website but on an existing cryptocurrency exchange, this makes IEO more credible because the exchange would have verified the authenticity of the project before accepting to organize the IEO.

Initial exchange offerings always have a fixed supply of the token at a predetermined price. But in most cases, the amount of tokens an investor gets at the end of the IEO depends on the total number of investors that joined the program. IEO also has personal hard caps that limit how much a user can put into the pool of the sale.

Initial DEX Offering (IDO)
DEX is the short form of Decentralized exchange, the type of exchange that depends on the AMM model and the liquidity pool to quote the price of assets for exchange which means there is no central authority or middlemen in transactions on DEX which makes users the sole controller of their transactions from the comfort of their wallets.

IDO is equivalent to IEO just that it's a permissionless token offering where the decentralized exchange is used to raise funds for the project through initial sales to investors. The liquidity pool of the decentralized exchange is leveraged for the crowdfunding and equivalent tokens to funds used by the investors are released to them at the end of the IDO.

Furthermore, IDO is based on a decentralized platform but the project still passes through a vetting process before it can be accepted to organize IDO. Investors will need their funded decentralized wallets to connect to the DEX and lock their funds for the IDO. These tokens are distributed during the (TGE) Token Generation Event and can be traded after the period because the liquidity pool must have been well-supplied too at that time.

Platform Used for IEO
The platform used by IEO is the Crypto Launchpad. Crypto Launchpad is the platform used for crowdfunding for projects on a cryptocurrency exchange, it allows investors to buy into the project early and raise funds for the project to continue further development of their tokens and create more products to advance the token.

Furthermore, even when launchpad is used for IEO on centralized exchanges yet it uses the decentralized approach that has a model in place that calculates the funds into the program and allocates tokens at proportions to the investors at the end. Some examples of popular launchpads are Binance Launchpad, BSCPad, Polkastarter, Duckstarter, Firestarter, and many others. The example I will be given on how Launchpad works is the Binance Launchpad.

How the Binance Launchpad Works
Binance Launchpad was created in 2019 to enable projects to raise funds and also allow investors to get on it early, after this initial offering, the token is then listed. The Binance launchpad has launched about 65 projects. I will talk about how the Binance launchpad works.

Screenshot taken from my Binance App

  • The first thing that is needed is funding one's spot wallet with BNB on the exchange.

  • As an investor that wants to buy into the launchpad, she has to visit the Launchpad on the exchange.

  • For an ongoing IEO on the Binance launchpad, there is a subscription period where the BNB balance of the user for the 7 days is recorded and after the subscription period, the users would be required to commit BNB into the Launchpad.

  • The BNB asset will be locked for some time, the amount of BNB that covers the amount of the allocation of the new token will be deducted and the tokens (the remaining BNB and the new token) will be released to the investors.

  • The amount of the tokens that are allocated to the users in the Binance Launchpad depends on three things.

    • The amount of BNB a user committed.

    • The total number of BNB committed into the launchpad.

    • The supply of the token available in the launchpad.

    An example is when 500,000,000 tokens is supplied into the launchpad and if I commit 2,000 BNB and other users also commit 30,000 BNB into the launchpad, the token allocation I will get at the end of the commitment period will be 2,000/32,000 * 500,000,000 which equals to 31,250,000 of the new tokens.

    Furthermore, in the example I showed above, it means I'm getting 6.25% of the total tokens in the launchpad. The BNB equivalent of the tokens I'm allocated based on the predetermined price will be deducted and I will get my new token and the remaining BNB.

    Have you participated in ICO/IEO/IDO before? If yes, what's your experience? Discuss a project that has performed a successful ICO before and the result of the event

    My IEO Experience
    Yes, I have participated in an initial exchange offering before and it was on the Binance Launchpad during the LOKA (League of Kingdoms Arena) token sale. League of Kingdoms Arena token is a utility token and native token of the LOKA gaming platform where game players fight to possess lands from other players on the platform.

    Furthermore, players in the game can team up with other game players to win over lands and share the lots. LOKA is an ERC-20 that is it is built on top of the Ethereum blockchain. On the 20th of January 2022, I committed 0.25 BNB into the BNB launchpad for LOKA, the token was sold at 0.00033971 BNB per unit. According to the calculation of the total commitment into the launchpad, I was only allocated 0.66164389 LOKA.

    Screenshot of my LOKA launchpad experience taken from my Binance App

    LOKA flew higher after listing it and now it is still at 4 times the initial investment for the investors. My experience with this IEO is good because the project still exists and doing well but the launchpad makes it the rich gets richer because I don't have enough money, I only got a little allocation of the LOKA token knowing that some investors would get a lot because of the size of their committed BNB.

    Tron Successful ICO
    Tron has been one of my favorite cryptocurrencies over the years. Tron is a blockchain that was developed in 2017, aimed at making sharing entertainment products easier via the peer-to-peer protocol. It comes with the smart contracts functionality that allows the development of DApps on it and low cost of transactions when compared to the Ethereum blockchain that first has the functionality.

    TRX (TRON) is the native token of the Tron blockchain which was initially an ERC-20 token before it was moved to its blockchain. History shows that Tron organized an ICO in 2017, unfortunately I don't know much about cryptocurrencies then and of course, it is a successful ICO because we still have TRX around doing very well today.

    TRX initial coin offering happened between Aug 31th and Sept 2nd, 2017 with a total supply of TRX to be 100,000,000,000. 40% of the total supply which is 40,000,000,000 TRX was made available in the ICO at a price around $0.0016. The project was able to raise $17,000,000,000 at the end of the ICO, Bitcoin, and Ethereum were the assets that were used for the participation.

    TRX information screenshot taken from Coinmarketcap

    Furthermore, it was indeed a successful ICO because Tron has added more functionalities and products since then and about the return on investment, the current price shows that investors in the Tron ICO have profited about 38.9 times their initial investment.

    What are the merits and demerits of Initial Coin Offering?

    Merits of ICO
  • Initial coin offering enables crypto projects to raise funds to cover some costs in the development of the token to make it available for all and maybe add more functionality.

  • It allows investors to get on new projects early to position themselves for a high yield on investment because the tokens are sold at a very cheaper price at ICO.

  • There is not always paperwork involved in the ICO program which makes it easy for investors to buy into the sale of the token.

  • ICOs always have high liquidity which means that there are no liquidity barriers when trying to buy into it. Tokens are always available freely for purchase during the ICO sale period.

  • Demerits of ICO
  • Some projects may fail to even reach the ICO potential price after the program which makes it an unsuccessful one and it affects investors' capital badly.

  • ICOs can be a means of robbing people of their hard-earned money because some ICOs are purposely set up to defraud the public.

  • High hopes of investors cut short through failed ICO, this is a case shortly after ICO when the project team resolves to dissolve the project and return investors' money. An example of this is the RunNation move-to-earn project that released the statement that they can not proceed with the project after the ICO and promise to return investors' money.

  • Most ICOs don't have any legal framework guiding the program and this makes it extremely risky to invest in it.

  • Conclusion

    Initial coin offering is a way that the project uses to raise funds so that they can finish up work to make the tokens fully available in the crypto space. It allows investors to buy these tokens at cheaper prices and enjoy more yields on their investments when the token becomes tradable in the market.

    Furthermore, it is risky for investors because some ICO are not real as they are only set up to defraud the public, so investing in ICO should involve good research about the project and the team behind it. IEO is safer because the exchange verifies the project before they allow it on the launchpad.

    I'm very happy to participate in this and I will like to invite @ruthjoe, @jasminemary, and @dave-hanny to participate in the contest.

    Hello friend, You are really good when it comes to crypto knowledge and having read from your post you really understand the initial coin offerring in the crypto ecosystem and I wish you the best dear.

     last year 

    Thank you my friend for reading my post today and I'm happy that you love it.

    Your post has been supported by @simonnwigwe from team 2 of the Community Curation Program, at 30%. We invite you to continue sharing quality content on the platform, and continue to enjoy support, and also a likely spot in our weekly top 7.

    Voting date: 08/11/2022


     last year 

    Thank you so much for supporting me @simonnwigwe.

     last year 

    Waooh my dear you can write very well. You have written so well about Initial Coin Offering in the Crypto Ecosystem. This is the best way that fund can be raised for crypto Projects. I like how you have explained the topic and thank you for inviting me.

     last year 

    That's true my friend, it allows the project to raise funds for further development of the project. Thank you for visiting my post friend.

     last year 

    Always giving us top notch articles on the concept of crypto and blockchain technologies.
    With the rise of Initial Coin Offerings (ICOs) in the blockchain space, many investors have started to consider this as a new way to raise money for startups and other businesses. However, investors should be aware of the demerits of the concept, and such make proper findings including the team members identities, before venturing into and ICO/IEO.

    Thanks for sharing friend, and goodluck in this contest. #steem-on.

    I will appreciate if you equally engage on Mine

     last year 

    Yes, ICO is a good way to raise money for the project and for investors, a good way to earn more on their initial investment but sometimes, some ICOs can turn out to be scam. Thanks for sharing on my post.

     last year 

    You have written well in this contest @temitopef, ICO is indeed a method adopted by crypto project in other to raise funds to continue the process of listing the said token in a well known exchange were more users can have access to the token. Crypto projects needs ICO to also make the token known to as many as possible. I wish you success in this contest my friend.

     last year 

    You are right my friend, through ICO projects attracts more investors to increase their token adoption even before it is listed and this benefits everyone in the case of real ICO. Thanks for sharing on my post friend.

     last year 

    Hey dear,

    It allows investors to get on new projects early to position themselves for a high yield on investment because the tokens are sold at a very cheaper price at ICO.

    Dear you have always been a wonderful content creator especially here on crypto academy. This is true, infact it is the biggest and most important and profit gotten from buying and offering like the initial Coin Offering because the price of the asset tends to grow higher than you might expect but note this would be good only if the project becomes sucesssful

    Thank you very much for sharing, please you can check my own entry here

    wishing you success

     last year 

    Thank you for sharing on my post, the primary aim of ICO has been to raise funds while the investors can earn multiples of their investment after an ICO when the coin is listed.

    Coin Marketplace

    STEEM 0.25
    TRX 0.14
    JST 0.035
    BTC 51510.21
    ETH 2980.02
    USDT 1.00
    SBD 4.23