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).
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.
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.
Know here the benefits of Initial Liquidity Offerings.