What is an IDO?
An initial DEX offering (IDO) is a type of decentralized fundraising platform. To better understand what an IDO is, an understanding of a decentralized exchange (DEX) is required first.
A DEX is a platform that allows its users to make direct, Peer-to-Peer transactions, without the use of an intermediary, which would usually be a bank or payment processor.
One of the main characteristics of an IDO is that they do not allow fiat currency (USD, GBP, etc.) to be traded for cryptocurrency or tokens, but rather only allow trading between two tokens or cryptocurrencies.
Decentralised exchanges are also open source, which means that anybody curious enough about the inner workings of the exchange can take a look at the code themselves, and even adapt it to their own project.
With decentralised exchanges out of the way, the rest of the term ‘IDO’ still needs an explanation. ‘Initial’ is fairly straightforward, but the ‘Offering’ is in regards to the coin or token that is being exchanged.
In which case, an IDO launch would be the initial token offering run (purchase availability) on a decentralised exchange to acquire tokens for their base price. This price would be the price that the organisation or group would decide on, before the market adjusts for supply and demand.
Why are they used?
IDOs are essentially an opportunity for users to invest and, as a result, for projects to raise funds. This is true because the practice of setting up an IDO for a project is relatively inexpensive to do.
They can also be considered trustworthy due to the fact that they are open source, if somebody is unsure about the code then they have the freedom to look at it to see if there is anything to be worried about.