Initial Liquidity Offering - A New Fundraising Mechanism
As this crypto globe echoes the term DeFi loudly, the impact of Decentralized Finance has merely drifted the global cryptocurrency market to the next level as a whole.
With new innovations and solutions each day, DeFi plays a major role in the digital world. The main term of DeFi, the “Liquidity” through the Automated Market Making (AMM) mechanism has paved a new way for all startups to raise funds, which is “Initial Liquidity Offering (ILO)”.
Let us know the concept of “ILO - Initial Liquidity Offerings” in detail with insights on how it will benefit and uplift the crypto industry by moving ahead of ICO and IEO.
Before The Arrival of ILO
Initially, all startups who are in need of funds as capital investment to start their business created crypto tokens and sold those tokens through Initial Coin Offerings (ICO) & raised funds to launch their own business.
The concept of Initial Coin Offerings (ICO) was popular since its arrival in 2017. Following ICO, there emerged a concept known as Security Token Offerings (STO) which is termed as new ICO.
In 2019, many cryptocurrency exchanges like Binance supported new token listing or offering which is termed as Initial Exchange Offerings (IEO).
All the above-listed fundraising mechanisms such as IPO, ICO, STO, IEO are being a choice among the individuals who want to raise funds for their businesses.
The rising DeFi Sector added a new fundraising method, Initial Liquidity Offering, ILO to the above list.
What is Initial Liquidity Offering?
Initial Liquidity Offering (ILO) is a new fundraising mechanism through which many projects and startups raise funds by selling tokens on the DeFi based Decentralized Exchanges without undergoing the process of ICO.
This Initial Liquidity Offerings (ILO) is taking the cryptocurrency globe to the next level and many reports say that it is emerging as the most popular way to launch new tokens which will overtake the significant value of the ICO.
Why Initial Liquidity Offering?
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.
How Does ILO Works?
As said already, ILO is a new fundraising strategy through which you stake your own capital in return for gaining a profit. Now, you will be the third-party funder for all those who lack money.
You will be receiving shares of the financial outcomes based on the process like Initial Public Offerings (IPO).
In the process of ILO, the liquidity contributors will receive the new tokens in the exchange for the contribution to the pools for the AMM to work for new tokens.
Since these liquidity contributors take risks to buy the new tokens, they are offered bonuses known as yields.
The contribution of liquidity is in the form of stable coins. If the token holders sell a lot of new tokens through AMM, the liquidity pool for that token will become skewed, as the token holder receives stable coins held in the pool.
ILO will be the best and attractive way of fundraising through a release of new tokens, as it ensures the release of tokens into the ecosystem where the market is ready for buy/sell of the tokens.
Benefits of Initial Liquidity Offerings ( ILO)
Listed here are the benefits of the Initial Liquidity Offering Mechanism.
The main benefit of ILO is the faster sale of the tokens, as the new tokens are released on the decentralized exchange with AMM mechanism, there is no need for waiting to buy/sell tokens and thus the sale of the tokens occurs immediately with the help of computer programs on AMM
All we know, liquidity is the ability to buy/sell any assets easily in the market or how quickly one can have the assets on hand.
As ILO is carried on the DeFi based DEX exchanges or DEX exchanges with AMM, the liquidity to the newly released token is gained immediately. Since AMM itself pays the price of the tokens without waiting for the buyer or seller.
This model of fundraising will cost lower when compared with the cost of launching your own Initial Coin Offerings (ICO) or Initial Exchange Offerings (IEO).
Thus you can choose Initial Liquidity Offerings to raise funds for your projects.
The new token is released on the decentralized exchanges in the ILO does not require anyone to kickoff or reject the fundraising. As it is open-source, ILO does not need any permission to list and sell tokens on DEX platforms.
In the ILO, when the token sale goes public, the private investors can buy a large number of tokens for a lower price.
They can resell the tokens to the public for gaining more profits.
Recent ILO Projects
- TrustSwap, a DeFi Token launched an ILO earlier this year for its SWAP token and has a market capitalization of above $50 M.
- Curve Finance, a popular DeFi Protocol, locked $1B worth of ETH when launching IDO for its CRV token.
There are so many ILO projects launched recently in the market which gained much liquidity and exposure.
Future of ILO
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.
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