The Initial Liquidity Offering is expected to take over Initial Coin Offering as the pre-eminent method to raise funds. This is expected as the tokens are released in an exchange that has an already existing market all set to purchase the tokens. Other than ILO and ICO, there are many more fundraising methods. Know about them to understand why ILO is more profitable.
We now know that ILO is a new fundraising method that is termed to be the most profitable and expected to be followed by most companies in the future. Let’s have a quick look at how it works.
A company lists its tokens in a decentralized exchange with an ecosystem that is ready to buy or sell the tokens. The investors contribute their investments for the liquidity of the token. In return, the investors are rewarded with new tokens. As the investments made by the liquidity contributors involve huge risks, they are offered yields as a bonus so they could start earning once the company starts earning.
The investments are made by using stable coins. If a token holder sells a huge number of tokens at a spree, a total turn over in the liquidity of the token can be expected as the token holder received stable coins in return for selling tokens.
The tokens are listed in a decentralized market, also known as the AMM or Automated Market Maker. Here pricing of an asset is not based on the order book; instead, it is priced based on the pricing algorithm. This allows anyone to create a market seamlessly and efficiently. Thereby offering vast opportunities to the startups to raise funds.
Every newly launched token needs liquidity or liquid to be successful.When these new tokens are listed in a centralized exchange, you need to wait for a long time to sell your tokens, since it works based on an order-book mechanism.Decentralized Exchanges with Automated Market Making (AMM) Mechanism have ready markets to sell your tokens in the form of computer programs that are ready to pay for your tokens.To pay for your tokens, these exchanges AMM are backed with liquidity pools. This is where exactly the concept of Initial Liquidity Offerings comes in.Thus, this concept of Initial Liquidity Offerings (ILO) can also be termed as Initial DEX Offerings (IDO), Initial AMM Offerings, and also as Initial DeFi Offerings.
Nadcab Blockchain - As DeFi is being the future of the cryptocurrency globe, the fundraising mechanism which emerged with decentralized finance, ILO will have a better space in the future. Apart from ICO, IEO, and STO the new crowdfunding mechanism ILO will be the best and highly chosen way to raise funds or list newly created tokens.
We believe in creating disruptive tech, that anyone can use for their project. Much like a DEX where anyone can list their tokens, our platform allows any project to host an ILO and launch their token. This means we have no say in which tokens use this platform. It is completely open. The following are some of the risks present in an ILO, and is far from being an exhaustive list:
ILO indeed is still in its infancy, similar to the technology that governs these token auctions. For sure, it will take time for the ILO ecosystem to tackle these difficulties and strike a balance between enabling decentralization while maintaining security. In the future, the ILO may become the most popular blockchain-based fundraising method.
Access to immediate liquidity is a great boon for any project. Insufficient liquidity can result in lowering the price of tokens. The liquidity pool guarantees liquidity to the token on every price with no slippage.
A startup can launch its tokens directly in a decentralized exchange. This allows investors to start trading on the new token immediately for the starting price, expecting a surge in the future. This, in turn, adds up to the liquidity of the token.
To enlist a token in exchange, the startup is required to pay monumental fees, which cannot be afforded by most of them at their beginning stages. Instead, if a startup opts to participate in an ILO, it will have to pay a budget-friendly fee to deploy its smart contract in the AMM.
The startup companies no more have to depend solely on private investors who may sell off all the tokens on a stretch once the token starts gaining traction. This may lead to a fall in the price of tokens even before the companies kickstart their functioning. Instead, the company goes public right from the start resulting in a wide distribution of tokens.
To combat the said challenges, Initial Defi Offering was introduced. ILO is a fundraising method that enables protocols for traders. It is slightly similar to Initial Coin Offering (ICO), however, the key difference being that ILO does not rely on any accountability to a central authority. nlike contemporaries like IEOs and ICOs, ILO is decentralized, and offers ways for De-Fi protocols to innovate out of the box, and develop scalable and robust open finance applications and platforms
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