Opinion by: Hatu Sheikh, founder of Coin Terminal
Crypto has largely failed retail investors. Insiders and institutions scoop up lucrative opportunities before they hit the open markets. Memecoins and purely speculative plays are the only ways for retail investors to reclaim their stake in the pie.
They remain exposed to a “crime supercycle” that began with unregulated initial coin offerings (ICOs) in 2017-18. At the time, initial DEX offerings (IDOs) emerged to provide retail investors with open, fair access to early-stage projects. Gradually, though, high threshold requirements, long vesting periods and information asymmetry put most IDOs off-limits for retail investors.
IDOs are dead in principle. But they will thrive — live longer than ever — by ensuring long-term growth and sustainable revenue generation for retail investors. Additionally, IDOs will become the most viable and go-to path for grassroots users to build generational wealth.
Retail investors’ loss of a dream
From permissionless transactions to fractional ownership, retail investors came to crypto with a dream. The unbanked and underdogs had a real shot at financial freedom for the first time in global economic history.
Yet they faced a constant slew of fraudulent projects and fundraising scams. During the so-called ICO craze, they lost over $16 billion while trying to buy into “the next best thing.”
IDOs promised a fix. They secured crypto fundraising with robust investor protection measures like rigorous, pre-listing due diligence. Solid teams and realistic roadmaps became a must-have for projects.
Most importantly, IDOs introduced token staking to ensure more skin in the game for projects and investors. It offered crypto-economic security against pump-and-dump scams. But on the flip side, higher staking benchmarks tipped the odds in favor of institutions. Retail investors were left out. Again.
Related: Binance-backed Magic Square IDO platform to democratize retail investor access
Token staking has a two-fold negative effect on IDOs. Limited opportunity for retail investors and a cold-start problem from a liquidity standpoint. And with 64% of retail investors willing to pour liquidity into early-stage projects, it’s a vicious cycle.
Crypto thrives with crowdfunding for a reason. Whales can only take the industry so far. If IDOs don’t deliver on the promise of bottom-up financial empowerment at scale, they will inevitably sink into irrelevance. Crypto, as a whole, will go down, too.
Democratization will redeem IDOs
It’s not too late. IDOs can turn around and have a bright future. What matters is staying true to their retail-first origin. Ensuring fair launches and equitable opportunities is key.
The shift has already begun. New-age IDO launchpads don’t compel investors to lock up funds. Anyone can start funding early-stage projects with as little as $100 (or even less), opening up the field for small and medium investors as much as institutions.
Going a step further, innovative launchpads offer unprecedented features like refunds so that investors can opt out of their positions if they want — because choice is one of the most critical aspects of freedom, after all.
Besides putting investors in control of their funds, emerging launchpads ensure transparent and rigorous vetting. Only high-quality projects get listed as a result, giving investors access to long-term growth opportunities with low risk and even lower entry barriers.
This retail-friendly approach effectively solves security and liquidity in one fell swoop. There’s also a focus on early-stage fundamentals, prioritizing real value over mere speculation. It also creates a level playing field where first-time investors and institutions can thrive.
IDOs have entered their next evolutionary phase. Investing in early-stage crypto projects is no longer a zero-sum game, where those with deep pockets make outsized, unfair gains.
With increasing democratization — and the will to facilitate genuine meritocracies — the space is finally becoming aligned with crypto’s foundational principles.
Holistic project evaluation based on market narrative, product-market fit, revenue distribution channels, token utility and community growth is becoming the norm. Flashy white papers and pitch decks don’t cut it anymore. The barriers to scamming are higher. The barriers to investing in such well-evaluated projects are much lower.
The demand and supply sides are reaching an equilibrium. That, too, without compromising on intrinsic value. It’s a return to fundamentals in the term’s most genuine, broadest sense.
Innovative launchpads are redeeming IDOs. They are raising the bar and setting new standards for retail-led fundraising in crypto. The next step, albeit the most important one, is for platforms in space to take the cue and subscribe to the shift at large.
IDOs have never been closer to fulfilling their promise, justifying their ethos to retail investors. Yet they’ve never been farther away. This is an inflection point.
From here, retail investors will decide the future of IDOs and crypto. They will either join in numbers or sign off for good. Innovators have their work cut out — this time for real.
Opinion by: Hatu Sheikh, founder of Coin Terminal.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
