IDO valuation – What blockchain industry should know?
This article will discuss the concept of IDO and valuation.
In the last few years, we have seen explosive growth in the crypto-industry and blockchain technology. The market capitalization of cryptocurrencies is estimated to be $870.81 billion, with new currencies being added daily, and the potential for growth continues to increase. IDO, or Initial DEX Offering, refers to new crypto tokens that are sold through a decentralized exchange (DEX). You might ask what is special about IDO, why you should consider it, how to value an IDO, how crypto IDO works, and so on. This article will discuss the concept of IDO and valuation.
Crypto token and IDO valuation
In essence, crypto tokens refer to coins, digital assets, or currencies that are issued and traded in a blockchain. These tokens can be a cryptocurrency, utility token, or any other token that can be traded or exchanged for value. For instance, Bitcoin and Ethereum are examples of cryptocurrencies; these are traded on open markets on the blockchain. The value of a crypto token can be determined by many different factors, including supply, demand, and usage. On the other hand, before the crypto is launched in the market, the tokens are valued on the basis of expected value, projections, and potential.
While IDO or Initial DEX Offering is a process whereby new crypto tokens are sold to a particular community through the decentralized exchange (DEX) and then traded on the blockchain, IDO valuation denotes the value of a crypto token at the time of DEX offer. The goal of IDO is to offer new tokens at a low value and then increase the value over time, usually within a period of weeks or months.
What is the initial DEX offering (IDO)?
Initial DEX Offering (IDO) is a concept where new cryptocurrencies are offered through the decentralized exchange (DEX). Typically, it is the first public debut of a new cryptocurrency on the blockchain. Unlike Initial Coin Offering (ICO) and Pre-sale, IDO should be viewed as a separate concept, and thereby, it is a way to raise funding from retail investors. As a result, IDO can help companies get recognition and social attention and exchange value faster. The success of the IDO lies in meeting the expectations of potential investors, as well as creating a strong reputation for the upcoming crypto token.
How does IDO work?
The initial DEX Offering concept has been around in the crypto industry for years. It involves creating a new crypto token and offering it on the DEX platform. The value of the new crypto token is set during the IDO and depends on multiple factors, including the production cost, marketing costs, and the developer’s intended plan for the new token. To create an IDO, a project launching new crypto tokens should have a strong team behind it and ensure funding capabilities.
Then, the project needs to develop a plan for its token, list it on a DEX platform, and use the funds from the Initial DEX Offering to fully develop the project. The mechanism to raise funds through IDO allows developers to get funding in an easier way than usual. Thus, developers are able to test the potential for their new token, which will give them a sense of how much demand there is for the token. Seeking assistance from the experts for this valuation will give you a clear picture of the value.
Advantages of the IDO model
Initial DEX Offering offers several advantages to the company launching new crypto tokens and its potential investors. Here are a few advantages of the IDO model:
- Fair fundraising – With the help of IDO, companies can raise funds from a wide range of investors. This provides a framework for fair fundraising and helps prevent fraud, especially in the cryptocurrency industry, where companies have a hard time raising funds. In this respect, the IDO model is a lot safer than the ICO and Pre-sale models.
- Instant liquidity – The IDO model provides instant liquidity for investors, as they can trade their newly acquired tokens immediately after the tokens are available to the public. The liquidity and transaction speed depend on the blockchain platform you choose for your token, but DEX is the most efficient.
- Instant trading – With Initial DEX Offering, you can launch your token and begin trading it immediately on the blockchain. This is possible through DEX, a decentralized exchange that offers instant transactions.
- Reliable transaction – IDO allows your token to be listed on the DEX platform, which ensures reliable trading and transaction processes. The IDO model also allows you to use smart contracts, which can enable two or more parties to come to an agreement regarding a transaction.
- Lower cost – IDO is a straightforward process wherein crypto assets are quickly listed on the DEX and traded without third parties involved. This process requires less time and money compared with traditional fundraising models (ICO & Pre-sale).
How does valuation work for IDO?
In simple terms, the valuation of a crypto asset is the process of determining a coin’s or token’s value. Usually, factors such as private sale, pre-sale, burn, airdrop, and liquidity are used in the process of valuation. When evaluating crypto assets for IDO, it is crucial to accurately consider each and every one of these variables. In order to better understand the process of valuation, it is important to look at the key metrics that are used in the process of valuation. Given below is the explanation of each metric.
IDO valuation metrics you should know
The key metrics for IDO valuation are:
- Private Sale – In a private sale, investors can get tokens before they go public, and the price is usually determined by a certain number of crypto assets that investors want to buy. The term “pre-sale” means that investors take part in the token purchase before it is offered to the general public. In such a case, you need to consider how much investors are willing to pay for your crypto token.
For instance, Uniswap sold 10% of the token circulation through a closed private round. Where 870BNB was the hard cap, a minimum contribution was 1BNB, and the max was 15BNB. This implies that the company was valued at $3,888,900. In mathematical terms, the price of BNB on the private sale date 20th of August amounted to $447, which is multiplied by the hard cap of 870BNB = $388,890. Since they sold 10% in the private round, Thus, we then divide by 0.1 (10%), resulting in the $3,888,900 valuation.
- Public Sale – The public sale is when a crypto token is available to everybody, and the price depends on the number of tokens sold. The public sale is a process to generate liquidity, and this usually takes time, depending on the blockchain platform. It is important to take into account that crypto tokens might have a different value in the public sale than their intended value in the Initial DEX Offering (IDO).
For example, public sales started on the 25th of August. The BNB was trading at $497, and the company had a soft cap of 2,250 BNB, wherein they were looking to raise $1,118,250 for 45% of market tokens. Thus a hard cap of 4,500 BNB. The valuation was estimated from $2,485,000 ($1,118,250/0.45) to $4,970,000 ($2,236,500/0.45). In comparison, we use the higher hard cap; thereby, in this case, $4,970,000 is to understand the lay of the land of valuation metrics.
Valuation methodologies for IDO
Now that you know about IDO valuation, you should be able to choose the appropriate method for your project. Following are the main valuation methodologies that can help you with your IDO valuation:
Equation of exchange
The relation between money supply, the velocity of money, price level, and an index of expenditures are the key factors determining a token’s value. The equation of exchange, or M x V = P x Q, suggests that the value of money is equal to its supply multiplied by its turnover (velocity).
- M = The money supply
- V = The velocity of money
- P x Q = Nominal Gross Domestic Product (GDP)
Discounted Cash Flow (DCF)
Discounted cash flow is a valuation model for valuing certain cryptocurrencies. This method is used wherein cryptocurrencies are able to generate cash flows through the application of technological advances and financial transactions in the economy. In this method, the cash flow is discounted back to the present value.
- S = Token supply
- P = Token price
- MC = Market capitalization
Relative Value Analysis (RVA)
Relative value analysis is a method of evaluating the worth of one crypto asset compared to another or comparing it to the worth of another currency. Not only does RVA allow you to compare your token with other assets, but it also gives you an idea of how much people are willing to pay for your token.
Implicit Value Analysis
Implicit value analysis is used for utility tokens and is an important element in IDO valuation. Under this method, the value is given by the product or service accessed when it’s redeemed in the token. This value of the token is derived from blockchain analytics and smart contract applications.
- P = Token price
- T = Token required
- U = Utilities
How to launch an IDO?
This section contains step-by-step instructions on how to launch an Initial DEX Offering (IDO) – a simple and straightforward overview to help you manage your crypto project. Here’s what it includes:
- Create a business strategy – For IDO, the business strategy is an important aspect to consider. In most cases, you should consider creating a value proposition for your token. You can also create a whitepaper to help investors understand your idea in detail.
- Create market collateral – Market collateral is a tool that allows you to communicate your token in a way that will help investors understand the concept and also get funding. The collateral can be in the form of a website, business plan, white paper, etc.
- Get valuation – Valuation of the token is a method that helps you to estimate its value. This can be done by using several methods, including equation of exchange, discounted cash flow, relative value analysis, or implicit value analysis.
- Get approval from the DEX launchpad – Before launching your IDO, you need to get approval from the DEX platform that will help you in the process of IDO launch. This can be done in several ways, including filling out this form or getting it from your partners.
- Create the cryptocurrency – After you get the approval for launching the Initial DEX Offering (IDO), you can begin to create or start with the mining of new cryptocurrency that will be traded on the DEX platform.
- Launch token and start raising funds – Once you have defined your token, created a cryptocurrency, and are ready to launch your Initial DEX Offering (IDO), you can start getting investors.
How can Eqvista help with launching and getting a valuation for your IDO?
Eqvista is the leading valuation service that helps you value your crypto token and launch it on a decentralized blockchain platform. Eqvista uses its proven valuation methodologies and proprietary algorithms to provide you with a fair and accurate valuation. By using Eqvista, you can get a clear idea of what your crypto token is worth. Setting up an IDO with Eqvista is quick, easy, and without confusion while getting an accurate valuation.
Get your IDO Valuation with Eqvista!
We understand that launching and valuing an Initial DEX Offering (IDO) is a daunting task; thus, Eqvista is here to help you make this process quick, easy, and effective. We will guide you through the valuation process and launch your IDO on a decentralized platform. The high-tech software and mechanism that we use have made us the best valuation service provider in the market today. It is time to revolutionize the Initial DEX Offering (IDO) process and make it simpler, faster, and better with Eqvista. Get in touch with us for more information about launching your Initial DEX Offering (IDO) or to get an expert review of your project.