An IDO uses a decentralized exchange (DEX) to facilitate the token sale. A crypto project provides their tokens to the DEX, users commit their funds through the platform, and the DEX completes the final distribution and transfer. These processes are automated and occur via smart contracts on the blockchain.
The rules and stages of an IDO depend on the DEX running it, but there are some common methods:
- After a vetting process, a project is accepted to run an IDO on a DEX. They offer a supply of tokens for a fixed price, and users lock their funds in return for these tokens. Investors will receive the tokens during the token generation event (TGE) later.
- Usually, there is an investor whitelist. You might have to complete marketing tasks to join the list or simply provide your wallet address.
- Some of the funds raised are used to create a liquidity pool with the project's token. The rest of the funds are given to the team. Investors can then trade the token after the TGE. Typically, the liquidity provided is locked in a certain period.
- At the TGE, the tokens are transferred to the user, and the LP opens for trading.