ICO, IEO, and IDO are three popular fundraising forms for projects on the Blockchain platform, each with different operational characteristics, advantages and disadvantages, target audiences, and levels of security.
These methods play an important role in the cryptocurrency ecosystem, helping projects raise funds from the global community – thus expanding development but also carrying many risks, depending on the control methods of each form.
MAIN CONTENT
ICO, IEO, and IDO are all fundraising models for Blockchain projects, but differ in processes, operational platforms, and levels of security and legality.
The advantages and disadvantages of each model directly impact investors and projects, affecting risks, profit opportunities, and the development of the cryptocurrency market.
Specific comparisons of the forms will help individuals and organizations choose the method that aligns with their goals and risk tolerance.
What is ICO?
ICO (Initial Coin Offering) is a fundraising method by issuing new Tokens of a Blockchain project to investors. This is the preferred choice for Blockchain startups when the product is not yet complete.
ICO allows projects to raise funds right from the idea stage without undergoing strict control processes, facilitating conditions but also bringing risks to investors.
— According to the PwC Global Blockchain Survey, 2022
Typically, ICO participants will exchange popular cryptocurrencies such as Bitcoin, Ethereum for newly issued Tokens. Their goal is to expect the Token price to soar when the project succeeds, providing high ROI.
How does ICO work?
ICO is usually conducted through public or private Token sales; the project will announce a whitepaper, product description, development roadmap, and explain the purpose of the fundraising round.
The major difference between ICO and IPO is that purchasing ICO Tokens does not come with ownership rights in the company, but only ownership of Tokens used within a specific ecosystem platform.
Many ICOs are conducted even though the project is only at the idea stage, without a completed product. This opens up great opportunities for startups but creates validation barriers and many fraud risks.
Advantages of ICO
ICO offers significant advantages for both project founders and investors:
Easy to initiate: Just a whitepaper, website, and development team – lower costs compared to other methods.
Less government control, loose regulations help the fundraising process to be quick and flexible.
High liquidity in a short time, easy Token exchange.
Investors have full control over their assets and money.
Allows broad fundraising through airdrop, bounty, private sale, and public sale.
ICO opens the door for startups to raise funds globally without facing geographical barriers or complex legal procedures.
— Vitalik Buterin, Founder of Ethereum, 2017
Disadvantages of ICO
In addition to advantages, ICO has many significant limitations:
High security risks: Vulnerable to hackers, fraud, and manipulation, as the approval and project control process is almost non-existent.
Not suitable for long-term investors due to strong volatility; liquidity can easily lead to pump-and-dump schemes.
Lack of legal regulations protecting investor rights.
Statistics from Satis Group show that up to 80% of ICOs during the 2017-2018 period are considered scams or did not develop successfully (source: Satis Group Crypto Research, 2018).
ICO investors must carefully assess risks, as most projects do not undergo capability checks or legal validations.
— Adam Draper, CEO of Boost VC, comments in 2020
What is IEO?
IEO (Initial Exchange Offering) is a form of fundraising on centralized cryptocurrency exchange platforms. Unlike ICO, which is self-organized by the project, IEO is implemented and monitored by large exchanges like Binance, Huobi, Gate.io.
IEO helps enhance investor trust by digitizing and validating KYC/AML, reducing risk compared to traditional ICO models.
— Changpeng Zhao, CEO of Binance, speaking at Binance Summit 2021
Investors only need an account and balance on the exchange to buy Tokens directly, without complex operations on multiple blockchains like ICO.
How does IEO work?
Projects wishing to issue Tokens must submit a vetting application to the exchange. The exchange will review and vet the legality, development team, and product before publicly selling the Token to users.
The entire Token sale, distribution, and security process is overseen by the exchange – helping to reduce the risk of fraud and increase trust. Projects gain immediate access to the large customer base of the exchange without incurring excessive marketing costs.
For example, Binance Launchpad has helped many major projects (Axie Infinity, Elrond…) successfully raise funds in IEO rounds from 2019 to now.
Advantages of IEO
Commitment to strict KYC/AML verification, protecting investor rights.
Investors trade directly on the exchange, minimizing the risk of depositing money into unknown smart contracts like ICO.
The exchange is responsible for monitoring, limiting fraudulent activities.
Project credibility is higher thanks to vetting by large exchanges.
In fact, according to Binance Research data (2022), the success and development rates of IEO fundraising projects are 40% higher than ICOs during the same period.
Disadvantages of IEO
The cost of listing Tokens and hiring exchange services is very high, and the operational process is complex.
Liquidity is lower than ICO and IDO due to dependence on the popularity of each exchange.
Investors are limited in controlling the trading process, depending on the exchange's procedures.
Concentration of power in the exchange can create imbalances and exploit the market.
In addition, legal issues when the exchange encounters problems can negatively impact IEO investors.
The exchange acts as a trusted intermediary – both protecting investors and increasing operational costs for the fundraising project through IEO.
— Henri Arslanian, PwC Global Crypto Leader, 2023
What is IDO?
IDO (Initial DEX Offering) is a form of initial coin issuance on a decentralized exchange (DEX), allowing individuals and projects to participate in fundraising without going through intermediary vetting like centralized exchanges.
IDO helps eliminate centralized barriers, fostering an open mindset towards the global investment community, but it also requires investors to take on high self-responsibility.
— Raven Protocol Team, comments on IDO launch in 2019
Launched in 2019, IDO has become the top choice for projects looking to raise funds quickly, at low cost, and distribute Tokens fairly.
How does IDO work?
Projects conduct direct Token sales on DEX platforms (Uniswap, PancakeSwap, SushiSwap…). Investors connect decentralized wallets (Metamask, Trust Wallet) with DEX and trade to purchase Tokens.
No need for permission or verification from any intermediary organization, the process takes place entirely On-chain so all forms of transactions and smart contracts are transparent and public.
Strengths include immediate Token distribution, instant liquidity – investors can buy and sell on decentralized exchanges without waiting for censorship or listing.
Advantages of IDO
No need to seek permission from any organization, open issuance for the global audience.
Provides instant liquidity as soon as the Token is launched.
Transactions are fully On-chain, transparent, and decentralized.
Issuance and operational costs are lower than ICO and IEO.
The community can easily participate, with fair access opportunities.
According to data from The Block Crypto (2023), over 70% of new DeFi projects choose to raise funds through IDO on popular DEX platforms.
Disadvantages of IDO
Lack of oversight leads to the emergence of low-quality projects, rug pulls, and fake scams.
Token price volatility is very strong when the community trades large amounts.
There is no investor identity verification layer, leading to money laundering risks and legal violations.
Additionally, the lack of backing from centralized organizations and platforms puts IDO under competitive pressure, making it easy to be left behind if the market cools down.
IDO opens a new era for DeFi but also brings challenges regarding security and transparency for both issuers and the investor community.
— ConsenSys DeFi Report, 2021
The differences between the three fundraising models ICO, IEO, and IDO
Although all aim to raise funds for Blockchain projects, ICO, IEO, and IDO have distinctly different operational characteristics, monitoring processes, and legal impacts.
Criteria ICO IEO IDO Definition Initial Token issuance sold directly to the community, self-organized. Token issuance on centralized exchange platforms (CEX). Token issuance on decentralized exchanges (DEX). Description The project self-issues Tokens, promotes them on social media and communities. The exchange is responsible for issuing, monitoring, charging fees, and distributing % Tokens. The DEX lists Tokens, the project self-operates and sells, without centralized vetting. Legal & Responsibility The project develops freely, with little legal oversight. Compliance with legal regulations, the exchange is authorized to manage through contracts. The project and the DEX share responsibility for operation, transparency On-chain. Security Low – many scam projects, easy to attack. High due to KYC/AML, project vetting, and guarantee by the exchange. Fair – everything is transparent On-chain but lacks identity control. Liquidity High, easy trading in the short term. Average, depending on the exchange's scale. Very high, instant trading on DEX. Operational Costs Low High Low Risks Very high, easy to scam. Low – there is vetting and exchange backing. Relatively high if the project is not thoroughly researched.
In practice, each form meets different objectives and risk appetites. ICO is suitable for new startups willing to take risks for quick fundraising capabilities. IEO is suitable for investors seeking safety and due diligence, while IDO offers fair distribution, flexibility, and the future orientation of DeFi.
The market will continue to diversify in fundraising models. The right choice depends on the project goals, expectations, and risk tolerance of the investor community.
— Extract from the TinTucBitcoin Research report, Q1/2024
Frequently asked questions about ICO, IEO, and IDO
What are the fundamental differences between ICO, IEO, and IDO?
The main difference lies in the operational method: ICO self-publishes, IEO is controlled by centralized exchanges, IDO takes place on DEX without intermediary censorship.
What is the safest fundraising method for individual investors?
IEO is the safest option because it is validated by the exchange, KYC, and legal controls. However, the profit is not as high as ICO or IDO.
Is ICO always a scam risk?
Not every ICO is a scam, but due to the lack of vetting, investors need to thoroughly research the project before participating.
How to participate in IDO safely?
Only use secure personal wallets, prioritize reputable DEX, and carefully check the issuing team to minimize scam and rug pull risks on IDO.
What method should project developers choose?
Depends on goals and resources: Small startups choose ICO/IDO to save costs; large projects aim for IEO to increase due diligence and credibility.
Does early stage investment have a high ROI?
ROI can sometimes be very high, especially when a project succeeds after listing, but it also carries the risk of total loss if the wrong project is chosen.
In which markets do IDOs thrive?
The IDO model is thriving in countries with large cryptocurrency communities and an open legal environment, such as the United States, Singapore, and South Korea.
Source: https://tintucbitcoin.com/ico-ieo-ido-la-gi/
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