What Is an ICO or IDO?

Two different methods for a project to launch a token and raise capital from the public.

ICO came first. IDO replaced it as the dominant model. Understanding both explains how token launches evolved and why the current system works the way it does.

ICO: Where It Started

Initial Coin Offering. Project sells tokens directly to the public before the token trades anywhere. Buyers send ETH or BTC. Receive project tokens in return. No exchange involved. No vetting process. Minimal regulatory oversight.

Ethereum raised $18.3 million through an ICO in 2014. Proof the model worked for legitimate projects.

2017 turned it into something else entirely.

EOS raised $4.1 billion over a year-long ICO. Tezos $232 million. Telegram raised $1.7 billion from sophisticated investors before abandoning the project after SEC intervention. Hundreds of projects raised millions on whitepapers with no working product, no proven team, and no realistic path to delivering anything.

Most of them delivered nothing. The ICO era produced some of the most elaborate fundraising documents and some of the most spectacular failures in financial history simultaneously.

SEC started paying attention. Applied the Howey Test. Investment of money in a common enterprise with expectation of profit from others' efforts. Most ICO tokens qualified as unregistered securities under that framework. Enforcement actions followed. Kik paid $5 million settlement. Telegram returned $1.2 billion to investors and paid $18.5 million penalty after abandoning their Gram token launch.

ICO as a mechanism effectively died in the US market. Projects moved elsewhere or found other structures.

IDO: The Current Standard

Initial DEX Offering. Token launches directly on a decentralized exchange with immediate liquidity created at the moment of launch.

No centralized gatekeeper. No exchange relationship required. Anyone can participate regardless of geography in most cases. Token immediately tradeable from the first block.

Raven Protocol ran the first IDO on Binance DEX in June 2019. Model spread quickly. Lower barrier to launch than working with a centralized exchange. More accessible to retail globally. Immediate price discovery rather than waiting for an exchange listing.

Launchpads emerged to add structure. Polkastarter, DAO Maker, Fjord Foundry. Platforms that aggregate IDO launches, run whitelists, conduct some level of project vetting before featuring a launch. Not as stringent as exchange vetting but more than zero.

Most token launches today are effectively IDOs. Token deploys, liquidity added to Uniswap or Raydium, trading begins. Whether it happens through a formal launchpad or just directly on the DEX is the main variation.

IEO: The Middle Ground

Worth knowing. Initial Exchange Offering. Sits between ICO and IDO.

Token sale conducted through a centralized exchange's launchpad. Binance Launchpad most prominent. OKX Jumpstart, Bybit Launchpad others.

Exchange vets the project before featuring it. More credibility signal than a random IDO. Harder to access for projects without exchange relationships. Exchange takes a fee or token allocation in return.

BitTorrent token launched on Binance Launchpad in January 2019. Sold out in minutes. Demonstrated the model could generate enormous demand when backed by exchange credibility.

IEO projects still carry investment risk. Exchange vetting reduces some red flags but doesn't guarantee project quality or token performance.

ICO vs IDO vs IEO Side by Side

ICO: direct to public, no intermediary, minimal vetting, regulatory gray area that turned mostly red, 2017-2018 era, raised billions, mostly failed.

• IDO: through DEX, immediate liquidity, permissionless, current standard for most token launches, accessible globally, lower friction.
• IEO: through CEX launchpad, exchange vets project, more credibility signal, requires exchange relationship, higher barrier for projects.

What Still Goes Wrong

IDO with no vesting on team tokens. Launches, team dumps immediately, retail holds bags. ICO era behavior with IDO infrastructure.

Launchpad featuring projects that turn out to be scams. Vetting process varies in quality. Some launchpads have stronger track records than others. Featured on a launchpad is not a guarantee.

FDV at IDO listing already stretched. Token lists at implied valuation that requires years of growth to justify. Immediate unlock pressure from presale and seed investors who bought cheaper.

Regulatory uncertainty hasn't disappeared. IDOs exist in grayer area than ICOs but the legal questions around token sales as securities haven't been fully resolved globally. Geographic restrictions on launchpad participation increasing as a result.