Our world and people are adapted to coming up with new innovations on a daily basis. The thought of having advanced enough and relishing the benefits of what we have already created has never struck humankind. We keep evolving and innovating and along with us all our creations.
The crypto world is one such creation of humankind that is still engulfed with speculations but keeps growing rapidly. The innovations in the crypto world are beyond imaginations which is another reason for all the speculations. With the sun rising high every day, the crypto market is soaring high. One of the recent trends in the crypto world is Initial Liquidity Offering. Keep yourself updated with it as it is considered to replace ICO.
What is ILO?
ILO, the abbreviation of Initial Liquidity Offering, is a new method adopted by startups to raise funds for their business. The startups create crypto tokens and sell them directly in the DeFi based Decentralized Exchanges by bypassing the process of Initial Coin Offering.
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.
Alternative Fundraising Methods Already In Practice
Fundraising for a startup to grow is a practice that has been here for a while. In this time period of its existence, there have been numerous methods that have been brought to practice and then overshadowed by the successor method. Inform yourself of the prominent fundraising methods to understand the significance of ILO.
1.Initial Public Offering
IPO is the method of raising funds for a business by listing the crypto tokens in a centralized exchange for the public to purchase them. The drawback of this method is that the market is crowded with customers of the centralized market and not the decentralized market.
2.Security Token Offering
STO, popularly referred to as the new ICO, is the method in which tokenized digital securities are listed in the crypto exchange market. The setback of this method is, it is expensive to host an STO when compared to the other fundraising methods.
3.Initial Exchange Offering
Initial Exchange Offering or IEO came into practice by 2019. The companies list their digital assets in a centralized exchange for the public to purchase. The setback for this method is the existence of middlemen as springboards leading to high dependency on third parties.
4.Initial Coin Offering
ICO is the method that came into practice by 2017 and followed by a large number of companies. Here, the companies offer utility tokens in exchange for the investments made by the investors. These tokens may represent stakes in the company or any other utility. But the shortcoming of ICO is that it is highly volatile and prone to scams.
The Work Process Of The ILO
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.
Boons Of Opting ILO For Your Fundraising Campaign
The ILO crypto model comes along with exciting benefits. Have a look at some prominent benefits of them.
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.
4.Open and Fair Fundraising
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.
What’s In Store For ILO In The Future?
Like any model, ILO has its own pros and cons. But here, it seems the pros are highly beneficiary, and the cons are petty setbacks that can be resolved easily in the coming days. Initial Liquidity Offering has proven to be more supportive for startups and beginners. This makes it an affordable option for startups to raise funds.