Amidst the growing technologies, the crypto world is also developing simultaneously to show its comprehensive potential. In particular, DeFi (Decentralised Finance) is at a serious peak and has already started taking the crypto market to a brand-new phase. Undeniably, the role of DeFi is indispensable in today’s crypto economy as it owns a prime term called ‘Liquidity.’ It means the ability of an asset or token to get exchanged swiftly for ready cash. In a traditional decentralized exchange, one may have to wait for a longer period to sell a newly released coin or token since the exchange follows a mechanism called the order-book mechanism. Is there a solution for such issues in a decentralized exchange platform? Yes, we definitely have one. Keep reading to unveil.
A Glance Into Initial Liquidity Offering
So how does the decentralized platform tackle this shortcoming? This is the point where Automatic Market Maker (AMM) makes its entry. It acts as a ready market for all your tokens and coins. It is basically a computer program that shows a big thumbs up to pay the price for your token. In order to pay the price, AMM has to be supported by a liquidity pool, which is in the form of stable coins. This is the point where Initial Liquidity Offering (ILO) comes into the picture. A novel token is proffered to the buyers who affirms to contribute to the pool, and now AMM can function. Thus AMM mechanism has vividly laid the path for people to raise funds through Initial Liquidity Offering.
Thus ILO is a fundraising mechanism for the entrepreneurs to elevate capital through selling tokens on DeFi-based DEX without stepping into the process of ICO. This process is also referred to as IDO (Initial DEX Offerings), Initial AMM offerings, and also Initial DeFi Offerings.
A Quick Recap Of Before The Age Of ILO
Initially, after the period of IPO, the entrepreneurs who lagged the capital to kick-start their own business, raised money through ICO (Initial Coin Offering). It became a well-known platform to raise capital for their startups and other business commitments. Gradually, DEX started lending support to new token listings called IEO (Initial Exchange Offerings). So putting it together, IPO, ICO, IEO were all the choices amid the business persons who wish to raise funds for their business.
What’s So Special About ILO?
It is the AMM mechanism that makes ILO unique. The ultimate aim for a newly introduced token is that it should have successful liquidity. AMM does it with ease. This has made ILO the most preferred fundraising platform by a dominant value than the traditional platforms. Even the projects which were about to advance with ICO or IEO to launch novel tokens are now reconsidered as ILO tops the list currently in the fundraising processes.
Workflow Of Initial Liquidity Offering (ILO)
- A third-party funder is the one who funds the business persons who are in need of capital.
- In traditional processes like IPO, the funder will get shares of the financial outcomes.
- But in ILO, those liquidity contributors will get the novel tokens in exchange for the contribution made in the pool.
- It is the AMM that works for novel tokens.
- As these contributors take a huge risk in purchasing the new tokens, they are often provided with some bonuses called yields.
- The contributions made by the contributors generally include stable coins.
- As the token holder sells a large number of tokens through AMM, the holder, in turn, receives stable coins contributed to the liquidity pool.
- This is how ILO works.
The entire process makes ILO splendid fundraising practice as it commits to present a readily available market to sell the tokens instantly.
Benefits Of Initial Liquidity Offering
Get to know the umpteen benefits of Initial Liquidity Offering.
- Rapid Sale: One of the supreme perks of ILO is the rapid sale of tokens. It eliminates the process of waiting to buy and sell the tokens through AMM.
- Prompt Liquidity: The DeFi-based DEX exchanges are phenomenal as the AMM readily pays the price, and liquidity of the asset is gained promptly without any delay.
- Economical Price: This fundraising model incurs economical fee when compared to traditional models like ICO and IEO.
- Open Fundraising: The open-source fundraising model doesn’t require anyone to commence or reject the process. These decentralized platforms will not ask for permissions to list and sell tokens.
- Unbiased Approach: This model makes the investors purchase novel tokens in large numbers at an affordable price. The same can be resold to the public, which further adds to greater profits.
We have to accept the truth that DeFi has crossed all the ways, right from its foundation to date, and offers itself as the best-in-class alternatives to the existing stumbling blocks. The year 2020 was literally the year for DeFi and is still being explored to bring out its entire potential. Since DeFi has a great future in the crypto world, assuredly, ILO will remain one of the best fundraising models. Thus Initial Liquidity Offering has proved to be a promising, well-performing, and most importantly, an instant model to raise funds with no delay.
We at Cryptocurrency Exchange Script have an adept team of experts and professionals who always keep an eye on the crypto market. They figure out the advancements & solutions through observing every nook and corner of the crypto globe. Are you in need of any ILO services? Talk with our team straight away!