Buidler DAO: Analysis and Summary of Token’s Initial Issuance Method

Original source: Buidler DAO

Original author: @购少庆@economic model group

Original Arrangement: @黑羽小斗

Preface

The economic model team hopes to study the overall process related to Token. It mainly includes several parts:

• Economic model design;
• Token issuance;
• Token circulation management.

This article mainly discusses the content related to Token issuance. With the development of blockchain and Web3 projects, both FT and NFT have been included in the project. At present, the academic circles and application fields have more researched and developed the issuance of FT, and the relevant research and accumulated cases on the role and issuance of NFT are not rich enough. The "Three Tokens Model for Web3 Applications" published by Dr. Xiao Feng of Wanxiang Blockchain involves NFT-related knowledge. We also briefly analyzed the issuance of NFT in the last section of this article. The group will continue to develop in this subdivided field later. study in depth.

Basic knowledge of Token issuance

Token type

(1) Classification by the Swiss Financial Administration

In 2018, the Swiss Financial Market Supervisory Authority classified tokens according to their potential different economic functions, and this classification method has received greater international recognition. Referring to this relatively official and professional classification definition, specifically, tokens can be divided into the following three types.

• Payment Token: Refers to a means of payment for the transfer of money or value in order to obtain a certain item or a certain service now or in the future. This token is more like what we call currency.
• Utility Token: This type of token exists in digital form and is mainly used for applications or services developed based on blockchain technology as the infrastructure. For example, the gas cost consumed.
• Asset Token: This type of token is backed by certain assets, such as the debt or equity that the token holder can ask the issuer for, a certain share of future company income or asset flow, etc. Therefore, in terms of their economic function, such tokens are similar to stocks, bonds or derivatives. If legal currency is regarded as an asset, one observation angle of stable currency is this type of certificate.

This classification method will produce intersections, and some tokens have certain two or three classification attributes.

This classification is more in line with observing tokens from the perspective of finance and currency. The Token in the project generally has a deduction process, usually it has application attributes first, and the prosperity of the application makes this kind of token have the nature of a general equivalent (currency), and it will have more payment functions and be widely used. Widely used tokens have good liquidity and value endorsement, so it is easy to develop value storage attributes, so they are more like assets.

(2) Classification focusing on supervision: utility type and securities type (also known as: application type and equity type)

Token is essentially a carrier of value. It uses blockchain technology to tokenize value, equity, and physical assets. Its connotation can be equity, such as dividend rights, ownership, and creditor's rights; it can be assets, such as the mapping of physical assets on the chain. , corresponding to asset certificates; it can be currency, such as BTC, USDT, corresponding to payment certificates; it can be circulation certificates in applications or services, such certificates are mainly issued for use in applications, and many dAPPs Both have issued their own tokens, corresponding to application tokens; they can also be anything of value, such as creativity, attention, etc.

But in fact, some tokens are a mixture of various types, such as the platform currency issued by the exchange, which is supported by part of the exchange's profits and has strong financial attributes, but at the same time the exchange has also opened up many usage scenarios for it , has use value.

Based on the concept of token economy, the concept of token economy is considered to have unlimited potential. The main feature is to use the characteristics of token itself to create a better ecosystem, a better value model, more user groups, and Demonstrate a large-scale distributed form of value creation - this is the essence of open source collaboration.

This regulatory-focused token classification model divides tokens into two categories and four subcategories.

**The first category: Utility Token. **

Product or service token (Use of Product), which represents the right to use the company's products or services.

Reward Token, users get rewards through their actions.

**Second category: Security Token. **

Equity Token, similar to the company's equity, bonds, etc.

Asset Token corresponds to assets in the real world, such as real estate, gold, etc.

This division is more in line with the observation angle related to supervision. Utility Token can develop freely, and Security Token is regulated. However, if Utility Token involves financial activities and has securities attributes, it will also be regulated.

Note: Our previous article Four-quadrant Token Economic Model (1): Double FT Model has also discussed this in detail.

The purpose of Token issuance

From the existing cases, Token issuance has two main purposes:

• Issue Token to users (promote users to use applications)
• To raise funds

Two types of FT and NFT in Token:

• FT is more in line with the characteristics of currency. The above two goals are the most obvious. The issuance of FT needs to find a group of people who recognize the value of FT. The value of FT lies in the description of the future of the project.
• NFT can also accomplish the above two goals, but because of its characteristics and development history, there is not much to analyze. (We will have a special section to discuss the issuance of NFT later)
• Examination indicators for Token issuance methods

According to the purpose of Token issuance, we have initially summarized several indicators. Generally speaking, compliance issues should be listed first. However, due to the early characteristics of the development of the blockchain industry, supervision and compliance are also being explored.

• The issue of user coverage of Token issuance: high-value Web3 users are a method commonly used by everyone. According to the characteristics of the application, other screening methods are required, and according to planning and execution, the coverage of target users is satisfied to the greatest extent. The fields that Token should cover have different calculation methods depending on each application
• Compliance issues: According to the nature of Token and the policies of major countries, adopt compliant issuance methods or conduct compliant verification
• Fund raising indicators: Under the premise of meeting compliance and coverage, whether the fund raising has reached the predetermined plan is a major inspection indicator. This indicator has two dimensions: total amount and granularity

For the issue of the lock-up period of the issued Token, we believe that it is a task in the design stage and the later stage of liquidity management, not as an indicator in the issuance stage

Initial issuance of Token and Token issuance during project development

In the case of Token issuance, there are several types of research standards:

• Initial issuance amount (the initial amount is 0 and the initial amount is not 0)
• Fixed total amount and variable total amount (this dimension only affects the later liquidity analysis, which is not discussed in this article)

The figure below is a representative of an economic model with an initial circulation of 0 and a fixed total amount. This type of economic model is designed with Bitcoin as a token, without the early issue of token issuance. For the currency issuance based on the difficulty system in the later stage, it is not within the scope of this article, and it will be classified into the later stage of liquidity management for learning and research.

Token model with fixed total amount (initial circulation is 0)

The figure below shows that the initial total amount is not 0, and it is necessary to use Token issuance to raise funds or reach users more accurately. Taking Ethereum as the token is the Token issuance method we research, such as IC0, IE 0, ID 0 and other content scopes, and the scope of action is shown in the red circle in the figure. For the number of Tokens that exceed the actual application, it is necessary to use economic means to freeze liquidity.

Token model with fixed total amount (initial circulation is not 0)

For the Token issued through PoW, PoS, etc. during the operation of the project, we consider it a task in the later stage of liquidity management, and we will not discuss this part of Token issuance.

Token issuance method IxO

There are two major categories of Token issuance methods: private placement and public placement. The issuances we discuss here are all public placements, and private placements do not involve these issues.

Let's briefly summarize several common digital currency issuance methods in one sentence: the method of launching directly on the public chain is the most primitive IC0; sending it directly to the user's wallet for free is Airdrop airdrop; issuing through a centralized digital currency trading platform It is IE 0, issued in cooperation with financial regulators is STO, and issued on the decentralized exchange DEX is ID 0.

Private placement

Private equity funds refer to investment funds that raise funds from specific investors in a non-public manner and target specific investment targets. Private equity funds are recruited by means other than mass media, and the promoters gather funds from non-public multiple entities to establish investment funds and make investments.

In the field of tokens, private placements are generally investment institutions or individuals in this field, and they usually negotiate offline just like traditional financing. For this form of Token financing, it later developed into SAFT. The full name of SAFT is Simple Agreement for Future Tokens (Simple Future Token Agreement). It is a token issued by blockchain developers to develop blockchain network financing. It is similar to futures and gives investors The right to obtain the corresponding tokens upon completion.

SAFT has been adopted by many well-known projects due to its strong compliance, such as Telegram and Filecoin. SAFT is especially suitable for utility tokens, which are not securities after listing, but network construction through fundraising is an investment agreement, and the adoption of SAFT can make its compliance procedures clearer.

According to the Token issuance inspection indicators, we summarize the effect of the private placement method:

• Coverage problem of Token issuance: the coverage is very poor, all are investors, not users
• Compliance issues: Generally compliant
• Fundraising indicators: Generally, better results will be achieved, and the amount will be relatively large. It is difficult to control the granularity of funds, and they are all large users
• IC0（Initial Coin Offering）

ICO (Initial Coin Offering) digital currency initial public offering

ICO (Initial Coin Offering), derived from the initial public offering (IPO) concept in the stock market, is the first issuance of tokens by a blockchain project to raise common digital currencies such as Bitcoin and Ethereum. When a company issues cryptocurrency for the purpose of financing, it usually issues a certain number of encrypted tokens and then sells these tokens to those who participate in the project. Usually these tokens are exchanged for digital currencies such as Bitcoin and Ethereum, and of course they can also be exchanged for fiat currencies.

ICO is a project financing method derived from the digital currency and blockchain industry. The first ICO that can be checked comes from the Mastercoin project (now renamed Omni), which announced the ICO crowdfunding through Bitcoin on Bitcointalk (the largest Bitcoin and digital currency community forum) in July 2013, and generated The corresponding Mastercoin tokens are distributed to crowdfunding participants. Essentially, this ICO is a kind of barter behavior, that is, participants exchange bitcoins for tokens in the Mastercoin project. In the beginning, ICO was just a community behavior of digital currency enthusiasts. With the continuous development of digital currency and blockchain, more and more people began to accept and participate in it. The vast majority of ICOs are conducted with Bitcoin or other digital currencies.

In the field of blockchain, ICO began to be widely used after Ethereum supported the issuance of ERC 20 tokens based on the Ethereum system, and the phenomenon of ICO appeared blowout. Among them, the largest financing project is EOS, which adopts the method of daily bidding and issuance, which lasted for nearly a year and raised about more than 4 billion US dollars.

Advantages of ICOs:

It provides an online, digital currency-based method of raising funds. Simple, convenient, and convenient for the issuance of new tokens. ICO is relatively good at completing the two main tasks of fund raising and issuance of tokens.

Problems with ICOs:

Project operation risk: Most of the projects participating in ICO are in the early stage, with poor anti-risk ability and prone to operation risk. Therefore, most ICOs are similar to angel investments, facing risks in the early stage of the project and prone to investment losses.

Financial risk: Investors may face the risk of fundraising fraud and investment loss during the process of investing in ICO. At present, ICO is in the early stage of the project and lacks supervision. Some start-up companies may take advantage of this hot market opportunity to create false project information and use ICO to raise funds for fraud.

Regulatory legal risk: The current ICO fundraising is mostly based on BTC and ETH, which is still in a blank state of supervision and lacks relevant laws and regulations. Since 2017, countries have increased their supervision and control over ICOs, but various disguised ICOs also play a similar role to ICOs.

Currently on CoinMarketCap, ICO is generally referred to as a broad initial coin offering, including IEO, IDO and other methods. As shown in the figure below: the ICO Calendar at the top is a generalized ICO, and the ICO in the Upcoming Project inside is the ICO described in this section.

According to the Token issuance inspection indicators, we summarize the effect of the ICO method:

• Coverage of Token issuance: There are no restrictions on participation conditions, and the coverage is the widest. Participation rules need to be designed to screen out real customers. Because of the need for investment, ICO often attracts many non-application investment customers, rather than angel users who actually use the application. (usually combined with airdrops will have better results)
• Compliance issues: Although KYC and other content were added later, ICO is considered illegal by most regions
• Fund raising indicators: Generally, better results will be achieved. In terms of raising funds, if the ICO fails to achieve good results, other methods will also be difficult to achieve good results. It is difficult to control the granularity of funds, and there can be large users
• Airdrop

Airdrop is a way of distributing digital currency. Initially, there was only one way of digital currency, Bitcoin mining. However, in addition to mining, the distribution methods of altcoins and forked coins that appeared later can also be distributed by airdrops. Airdrop is literally a gift out of thin air, the development team will give you digital currency for free, and the currency will be sent directly to your address, without you needing to mine, buy, or hold the original currency before the fork, and you can give it to you without any conditions . Of course, more airdrops are based on certain conditions, such as accounts holding certain digital currencies. The rules of the airdrop are determined by the issuer. It can be that you will be given a certain amount of coins after you register, and many of them will be distributed through snapshots.

In the early days of blockchain development, there were not many airdrop selection conditions, but in the Web3.0 stage, many projects have made some progress before airdropping, so airdrops can be made to users who have made contributions, and airdrops can also be used Guide users through related tasks. For example, Arbitrum's airdrop design.

Advantages of Airdrop:

Distributing new tokens to desired user groups facilitates the circulation of new coins and promotes the application of new coins. Because airdrops do not involve financing, there are generally no regulatory issues.

Conduct targeted airdrops to real users of the app and guide them to complete related tasks.

Disadvantages of airdrops:

The airdrop method lacks the financing function and simply completes the issuance of currency.

According to the Token issuance inspection indicators, we summarize the effect of the Airdrop method:

Coverage of Token issuance: By setting airdrop conditions, better coverage can be achieved

Compliance issues: There are basically no compliance issues

Raising funds indicators: not up to the requirements for raising funds. But the intensity of delivery is better controlled

IEO （Initial Exchange Offerings）

IEO Initial Exchange Offerings Digital Currency Initial Exchange Offering

An Initial Exchange Offering (IEO) is a way to raise funds for new projects through digital currency trading platforms.

IEOs are usually supported by trading platforms, so project parties who choose this option to raise funds must take their project proposal seriously. In the vast majority of cases, IEO proposals are rigorously vetted by participating trading platforms. In a sense, the trading platform guarantees the approved IEO project with its own business reputation.

Through IEO, potential investors can buy assets before they are listed on the trading platform. On exchanges that facilitate token sales, registered users who provide KYC (identity verification) information can purchase tokens before the open market opens for trading.

Advantages of IEOs:

Compared with the previous ICO, the IEO initial exchange offering has a more obvious advantage. The pass is directly listed on the trading platform, which promotes the circulation of the pass. For ordinary investors, the exchange on the project currency can participate in the transaction faster. Secondly, the project party also benefits, because the direct IEO on the exchange is equivalent to expanding the audience to the users of the entire exchange, expanding the audience of investors. For truly high-quality projects and early entrepreneurs, IEO is not only a good financing method, but also saves a lot of cost and energy to go online on the trading platform and focus on project development and community operations. For exchanges, the most intuitive benefit of IEO is to expand trading volume and daily activity. Fans of the project will flood in with the project as new users and their funds, and some of them may end up as old users of the exchange. Such activities are more attractive than traditional operation methods such as invitation rebates and trading competitions.

Disadvantages of IEOs:

issue of distribution costs. Generally, exchanges have a listing fee requirement, and the amount is quite a lot. A burden for some early projects.

The IEO method has certain review requirements for projects, so the threshold for many project parties is relatively high.

According to the Token issuance inspection indicators, we summarize the effect of the IEO method:

• Coverage problem of Token issuance: it can only promote users with transaction needs, but cannot cover angel customers of real products well, it is best to cross-use with airdrops
• Compliance issues: Generally, exchanges will ensure compliance
• Fund raising indicators: relatively good, able to raise more abundant funds through transactions. However, there are market makers pulling the market and early investors exiting prematurely. Poor control over funding granularity

Compared with the first ICO, IEO has expanded the group of transaction users, which is conducive to financing.

STO（SecurityTokenOffering）

STO, that is, Security Token Offering, means the issuance of security tokens. Securities are a valuable certificate of property rights, and holders can rely on this certificate to prove their ownership or creditor's rights and other private rights certification documents. The US SEC believes that securities that meet the Howey test are those that meet the Howey Test:A contract, transaction or scheme whereby by a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party. Generally speaking According to the SEC, all investments with "return expectations" should be considered securities.

STO is a certain kind of financial assets or rights in reality, such as company equity, creditor's rights, intellectual property rights, trust shares, and physical assets such as gold and jewelry, which are transformed into encrypted digital rights and interests certificates on the chain. digitization.

STO is between IPO and ICO, and it is the hair style that the regulatory department wants to use the management method of IPO to manage digital currency. On the one hand, STO is subject to the supervision of securities regulators in various countries because it recognizes its securities characteristics. Although STO is still based on the underlying blockchain technology, it can achieve docking with regulatory standards through technical updates; on the other hand, compared to the complicated and time-consuming IPO process, like IC0, the underlying blockchain technology of STO is also It can achieve more efficient and convenient issuance of STO.

• Origin of STO

IC0 continues to break, the myth of blockchain technology is broken, and events such as no assets, no credit, cutting leeks, funds, and running away continue to occur. Fundamentally, these events are happening because ICOs have no assets and value to base them on, just hype, future portrayals, and meaningless consensus. The lack of direct supervision of important links such as ICOs and exchanges is also an important reason. STO is based on real assets, actively embraces government supervision, and tries to break the dilemma of ICO.

The United States Securities and Exchange Commission (SEC) decided to include it in securities regulation after seeing Token, a new species produced by the blockchain. This move once caused a very serious blow to the digital currency and blockchain industry, thinking that it would encounter a catastrophe.

But the subsequent development is that more and more countries and regions have begun to follow up, and have released their own regulatory policies one after another. Although these regulatory policies even have some differences in the definition of STO itself, they have made the market gradually Realize that regulation is not a catastrophe, but a legal status that can develop and grow in the open. So we can see that from blockchain projects to traditional industries, from capital tycoons to people in the securities industry, and various asset owners are actively paying attention to this industry, and even scrambling to enter this industry.

In a sense, STO and the blockchain, Token, token economics, etc. behind it are unidentified and controversial, and the regulation of the sword of Damocles is more like raising the sword of Damocles for it. A light that cleanses the stigma and guides it forward.

The STO regulation initiated by the United States has gradually triggered follow-up in many countries and regions around the world, and the global regulatory system has shown a relatively clear trend in the chaos.

STO advantages:

1. Intrinsic value: ST has real assets or income as value support, such as company shares, profits, and real estate.

2. Automatic compliance and fast settlement: ST has obtained the approval and license of the regulatory agency to automate the KYC/AML mechanism and realize instant settlement.

3. Ownership division into smaller units: Accelerate the division of asset ownership and lower the entry barrier for high-risk investment products, such as real estate and high-end art.

4. The democratization of venture capital: Expanding the ways in which capital is raised.

5. Asset interoperability: The standardized agreement of assets will facilitate the interoperability between different assets and different fiat currencies.

6. Increase liquidity and market depth: You can invest in assets with poor liquidity through ST without worrying about redemption. Market depth is also increased through the following channels:

• Rise in digital asset prices creates billions of dollars of incremental wealth to be pumped into the market
• Programmatic market makers like Bancor boost liquidity for long-tail STs
• The asset interoperability agreement will promote cross-border asset circulation

7. Reduce regulatory risk and strengthen due diligence. Applicable to regulatory offer exemptions, the country's regulations for KYC and AML are written into smart contracts, which is expected to achieve automatic programmable compliance.

8. ST is expected to reduce the circulation cost of assets. Reduce transaction friction in the process, such as using smart contracts to achieve automatic compliance and fund collection, uploading contract and accounting report data to the chain, increasing asset divisibility, and realizing T+0 clearing and settlement, etc.

9. It is regulated by the Securities Law SEC, which is legally compliant and safer.

10. 24 hours trading.

STO Question:

1. There are strict transfer and sale rules. Referring to the description of the Polymath ST-20 standard, ERC-20 tokens have no restrictions on asset transfer transactions, and anyone can transfer a bunch of ERC-20 tokens to anyone. But for security tokens, this is not OK. The purpose of ST-20 is to ensure that the issuer can ensure that Token can only be circulated among those who have passed KYC, which has the effect of narrowing the scope of the trading crowd.

2. It cannot be used as a means of payment on the platform like Utility token.

3. There are huge regulatory obstacles in the cross-platform Security Token circulation.

4. Excessive asset liquidity may bring huge price fluctuations. STO may allow a start-up company to directly become a public listed company with many ST holders. Due to the many uncertainties and ups and downs faced by startups, these uncertain signals may cause severe fluctuations in Token prices.

5. STO innovation may just pile up risks to the tail.

6. Compete with traditional finance:

• Compete with traditional financial products. From an investor's point of view, although the information disclosure is higher, it is not necessarily a yellow robe as a security token (ST), which is safer than Utility Token, but it still depends on the quality of the target, development prospects, financial health, etc.
• Compete with traditional financial funds. At present, the amount of funds and the number of investors that high-quality assets can access in the existing securities capital market far exceed STO
• Compete with traditional financial institutions. Securities financing platforms that only accept qualified investors have actually existed in the United States for many years, ranging from equity crowdfunding to real estate investment crowdfunding. For example, the real estate investment platform Fundrise allows qualified investors to invest in part of the income rights of various projects without using Token. For example, Sharepost allows qualified investors to purchase pre-IPO equity of various start-up companies, which is also based on the existing technical structure
• Compete with the traditional financial environment. Traditional financial regulation and legal maturity far exceed STO

7. Institutional investment decisions are relatively mature and rational. There is no secondary market for retail investors. Liquidity should be at a discount rather than a premium. Generally speaking, it is difficult to say that the valuation will be higher

8. Security tokens rely on financial intermediaries for risk assessment and pricing to better match assets and funds. ST needs to put the ownership of off-chain assets and information on the chain, and circulate them under the regulatory framework in the form of tokens. At present, the value of security tokens (ST) is not based on on-chain activities or decentralized networks. It is a Token certificate that maps equity or creditor’s rights under the premise of compliance with supervision, and has little to do with distributed networks and the underlying technology of blockchain

STO wants to use the current traditional methods of IPO and securities management to manage the issuance of digital currency, which is very difficult and challenging, because the characteristics of digital currency are very different from traditional securities, and regulatory policies must be changed and adjusted .

According to the Token issuance inspection indicators, we summarize the effect of the STO method:

• Coverage problem of Token issuance: only users who meet the regulatory requirements can participate, angel customers of real products cannot be well covered, and even a large part of customers who hold digital currency cannot participate
• Compliance issues: Compliance
• Fund raising indicators: Generally, due to restrictions, the fund raising situation is not good. Particle size is not easy to control
• Other IXOs

IFO Initial Fork Offerings The first fork offering of digital currency

The first forked issuance of digital currency is generally based on the fork of mainstream currencies such as Bitcoin. The forked currency involved in IFO is based on the original Bitcoin blockchain and splits another chain according to different rules, such as Bitcoin. Bitcoin forked for the first time and a new digital currency called BCH (Bitcoin Cash) was born. The "fork" not only retains most of Bitcoin's code, it also inherits data from before the Bitcoin fork.

Forks are often used in conjunction with airdrops. The generated new coins are airdropped to old users, so that old users can benefit and accelerate the recognition and circulation of new coins.

How many models of forked coins are successful? The blockchain project still depends on the continuous development of the project party. The team using the IFO method is often speculative, and it is difficult for the project to develop well.

IMO Initial Miner Offerings Digital currency first miner issuance

IMO, the first mining machine issuance, is to issue tokens by issuing mining machines.

The company or team constructs a specific blockchain, uses a specific algorithm, and can only mine the tokens on this blockchain by using the special mining machine sold by the company or team itself. Usually this kind of mining machine has the function of application, and the source of value is obtained in the continuous use of the mining machine.

IMO's financing model is simply to issue a special mining machine to generate new digital currency through mining. There have been some IMO cases, such as Xunlei Wankeyun-LinkToken (formerly Wankecoin WKC), the traffic treasure box of Kuaibo’s traffic ore-Traffic Token (LLT), and the later Baofengbokuyun-BFC points, etc. .

This method can be used for projects that require hardware device support and rely on hardware to operate business models. It can accurately find early angel users and make incentives for these users.

IBO (Initial Bancor Offering) first redemption issue

Before understanding IBO, first understand Bancor. The word comes from the concept of a super-sovereign currency proposed by Keynes and Schumacher between 1940 and 1942. In the plan proposed by Keynes, the Bancor could be used as a unit of account in international trade, denominated in gold. Member states can exchange gold for "Bancor", but "Bancor" cannot be exchanged for gold. The currencies of various countries are denominated in "bancor".

However, because the United States was thriving after World War II, the British plan represented by Keynes was not adopted at the Bretton Woods Conference. Going back to the Bancor protocol, the Bancor protocol is proposed and applied by the Bancor Network project, which aims to use a formula to set the exchange price between digital assets. The Bancor Protocol enables automated price discovery and autonomous liquidity mechanisms on the smart contract blockchain. These Smart Tokens have one or more connectors that connect to the network holding other tokens, allowing users to immediately exchange for Connected tokens buy or liquidate Smart Tokens.

In a standard IB 0 issuance, the project party needs to mortgage another Token of a certain value as a "reserve" according to the set ratio, and then realize the issuance and circulation of the Token completely through smart contracts, and the funds of the project It is locked in the smart contract and is subject to everyone's supervision at any time. Therefore, the IB 0 mode also derives the following advantages.

A case of IBO is the side chain project of EOS - FIBOS. Because of the new concept of IBO, FIBOS raised 850,000 EOS in just one week after its mainnet went live at the end of August that year.

The theory of IBO is the forerunner of the underlying theory of applications such as DEX. In DEX and IDO, the exchange between different digital currencies is smoother.

IDO related knowledge

According to Coinmarketcap and other relevant information in the industry, IDO is the current main issuance method. In this section, we will study IDO-related content in detail. From the figure in Section 2.1, we can see that most projects in 2023 will adopt the IDO method.

Basic concepts

IDO, the full name of Initial DEX Offering refers to the initial issuance of tokens based on the decentralized exchange (DEX). IDOs promote token sales through decentralized exchanges (DEX). Cryptocurrency projects provide tokens to DEX, users invest funds through the platform, and DEX completes the final distribution and transfer. These processes are automated through smart contracts in the blockchain.

In 2019, IDOs started to gain attention due to their low to zero fees and decentralized nature. As a result, IDOs became the primary platform of choice for projects looking to raise funds outside of private and early seed rounds. Since the first IDO in 2018, 2,365 IDOs have been conducted, raising over $1.6 billion in funding (source: CryptoRank, December 2022). For some details about IDO, you can browse the references for more information. The aggregated statistics linked below are more comprehensive.

Although IDO is issued on DEX, according to different specific methods, it can be roughly divided into the following channels:

Issued through traditional DEX platforms, such as Uniswap, Balancer’s LBP, SushiSwap, DODO crowdfunding pool building, etc.;

Through Token issuance platforms, such as PolkaStarter, DuckStarter, Bounce, Mesa, etc.;

Issued through DAO platforms, such as DAO Maker;

Other new channels of play: The ITO method created by MASK is announced and issued with the help of social platforms such as Twitter. (Twitter is the entrance, and the bottom layer is still a traditional DEX)

Because of the different ways of subdividing IDO, there are some differences in the process. If it is on a traditional DEX platform, there is generally no issue of review. If it is through the distribution platform, the distribution platform will complete the relevant review work. Some projects have already generated Token (generally in the form of ERC-20), and do not need to rely on the token issuance capabilities provided by the issuing platform.

Generally, if a project wants to raise funds by issuing tokens, many processes are the same. The routine is as follows:

• Build a business plan
• Prepare promotional materials (such as official website, project white paper, etc.)
• Select the Token issuance method (this can be ICO, IEO, IDO, etc.)
• Prepare according to the distribution method selected. (such as issuing ERC-20 tokens, related review materials)
• Complete Token issuance
• Receive fundraising

The general process for selecting the IDO issuance method is: choose one method from several forms of IDO, and generally choose to use the Token issuance platform for issuance, and we will also explain it in this way. The way to choose the distribution platform will vary from platform to platform.

The general platform will have review work:

• After the review is completed, the project can carry out IDO on DEX. The project party supplies tokens at a fixed price, and users lock funds in exchange for tokens. Investors will receive tokens later in a Token Generation Event (TGE).
• Usually there is a white list of investors. Investors may need to complete marketing tasks to join, or simply provide a wallet address.
• Part of the funds raised are used to create a liquidity pool for the project’s tokens. The rest of the funds are left to the team. Investors can trade tokens after TGE. The provided liquidity is usually locked for a period of time.
• In the TGE stage, tokens are transferred to users, and liquidity funds are opened for trading.

Advantages of IDOs:

• Has the characteristics of decentralized transactions (open and transparent, good liquidity)
• After the end of the primary market issuance, it is convenient to start the secondary market online
• Provides opportunities for investors to participate in early stage projects

Personally, I think the reason for the current popularity of IDO is that there is no need to worry about regulatory issues.

Disadvantages of IDOs:

• Generally no KYC or AML. In the early stage, there were many false projects, which were based on the same principle as the early false trading pairs.
• IDOs on the distribution platform often require the tokens of the distribution platform to participate, which increases the cost of participants.
• DEX is less scalable. In ICO and IEO, there are projects that raised more than 1 billion US dollars. For DEX, this has not happened so far, and the amount of IDO is generally relatively small.
• IDO is facing a balance between supervision and innovation, as well as a trade-off between decentralization and risk control in the development and change.

According to the Token issuance inspection indicators, we summarize the effect of the IDO method:

The issue of coverage of Token issuance: users who can only trade in decentralized exchanges, and angel customers who cannot cover real products well, it is best to cross-use it with airdrops.

• Compliance issues: Generally, DEX exchanges will ensure compliance, or in other words, compliance issues will be abandoned in this way.
• Fund raising indicators: relatively good, able to raise more abundant funds through transactions. Fund control is better, and the amount of a single participant can be set.
• Compared with the first IEO, the group of IDO trading users is not large in the early stage. With the development of decentralized exchanges, the effect will gradually be better than that of centralized exchanges.
• IDO distribution channels and platforms

In the previous section, we have explained several common channels of IDO, as follows:

Issued through traditional DEX platforms, such as Uniswap, Balancer’s LBP, SushiSwap, DODO crowdfunding pool building, etc.;

Through Token issuance platforms, such as PolkaStarter, DuckStarter, Bounce, Mesa, etc.;

Issued through DAO platforms, such as Dao Maker;

Other new channels of play: The ITO method created by MASK is announced and issued with the help of social platforms such as Twitter. (Twitter is the entrance, and the bottom layer is still a traditional DEX)

See the ranking for IDO from Cryptorank.io website.

The picture below is a screenshot of 2023-5-30. Take a look at the total number of IDOs for each platform, the return on value.

According to the historical data of Cryptorank, it can be seen that these IDO platform tokens have increased by hundreds or even thousands of percentage points from the issuance to the highest price in history. Among them, the tokens on the GameFi platform rose as high as 4946.3%, making it one of the representative cases with the highest growth among IDO tokens. It shows that excellent IDO platforms often have tokens with higher growth potential, which also makes them one of the most popular objects for blockchain investors.

Several typical IDO platforms

• Comparison of several major distribution methods

NFT issuance involved in the economic model

Two purposes of Token issuance:

1. Issue Tokens to users (promote users to use applications)

2. Raise funds

NFT can also accomplish the above two goals. The NFT is sent to the user, which can be sent directly to the wallet address of the destination, or distributed to the user through the NFT trading market. For the use value, it is more reflected in the understanding of the value of NFT. Many NFTs are presented in the form of collections, reflecting a cultural factor of memes. Usually it is only necessary to find a person who recognizes value among many people.

The function of raising funds can be completed by selling NFT, especially equity NFT, because it is easier for users to buy NFT in anticipation of future income.

In this segment, other members of the economics team will conduct in-depth research later, and publish relevant articles to output research results

references

*Fu Shaoqing, Hu Shuguang, "Blockchain Economic Model", Beijing Institute of Technology Press, April 2022.

• Camila Russo, "Peer to Everything-Ethereum and Future Digital Finance", China Translation Press, October 2022.
• Xiao Feng, "Web3 New Economy and Tokenization" (Three Token Model), HashGroup, April 2023.
• cointelegraph. Initial DEX offering (IDO): A beginner's guide on launching a cryptocurrency on a decentralized exchange[EB/OL] . 202 x. 。
• Ian Lee. A Deep Dive Into The IDO Landscape[EB/OL] . 2023.1.16