What is a Pre-IDO?
Pre-IDO, short for Pre-Initial DEX Offering, is a fundraising mechanism used by blockchain-based startups and projects to raise funds before launching a full Initial DEX Offering (IDO) on a decentralized exchange (DEX).
A Pre-IDO is typically held before a full IDO to gauge interest in a project, build a community of supporters, and raise seed funding. In a Pre-IDO, investors have the opportunity to purchase a limited number of tokens at a discounted price compared to the full IDO price.
Pre-IDOs typically take place on a centralized exchange, where the tokens are bought and sold just like any other cryptocurrency. This allows investors to get in early and take advantage of the potential upside of investing in a promising blockchain project.
Pre-IDOs are often used as a way for early stage blockchain projects to build a community of supporters and raise seed funding. By participating in a Pre-IDO, investors can get in early and potentially benefit from the potential upside of the project as it grows.
However, it's important to note that investing in Pre-IDOs and IDOs can be high risk and it's important to do thorough research and due diligence on the project and its team before investing. Additionally, investing in these types of offerings is not suitable for all investors and it's important to understand the risks involved and to only invest what you can afford to lose.
Simplified Example
A Pre-IDO can be compared to a line you wait in to buy a new toy that just came out. Just like how you and your friends might wait in line at a toy store to be one of the first to buy a new toy, in a Pre-IDO, people wait in a virtual line to be one of the first to buy a new cryptocurrency.
Imagine you and your friends hear that a new toy you've been wanting just came out, and you all rush to the toy store to be the first to buy it. But when you get there, you see a long line of people waiting to buy the toy too. So, you all decide to wait in line, and the first people in line get to buy the toy before it runs out. This is similar to what happens in a Pre-IDO. People are excited about a new cryptocurrency and want to be one of the first to buy it, so they wait in a virtual line and the first people in line get to buy it before the available supply runs out.
So, just like how you wait in line to buy a new toy, in a Pre-IDO, you wait in a virtual line to buy a new cryptocurrency. And, just like how the first people in line get to buy the toy before it runs out, the first people in line in a Pre-IDO get to buy the cryptocurrency before the available supply runs out.
History of the Term "Pre-IDO"
The term "Pre-IDO" likely surfaced around 2020-2021, aligning with the surge in popularity of Initial DEX Offerings (IDOs) as an alternative fundraising mechanism. IDOs provided projects with a decentralized exchange-based avenue for fundraising, deviating from the traditional ICO model. Preceding the launch of an IDO, projects typically engage in private fundraising rounds, offering tokens to a select group of investors at discounted rates. This pre-IDO phase serves as a means to secure initial capital, foster community engagement, and generate interest prior to the public offering. The term "Pre-IDO" emerged in this context to distinguish these private fundraising rounds from the subsequent public IDO event, aiding potential investors in understanding the project's funding history and anticipating potential stages of token price appreciation.
Examples
Private Sale: A private sale is a type of pre-IDO that is typically aimed at early-stage investors and high net-worth individuals. Private sales are usually conducted before the public launch of an initial coin offering (ICO) and offer investors the opportunity to buy tokens at a discounted rate. Private sales usually have strict investment requirements, such as a minimum investment amount and a requirement to pass a KYC/AML check, and are designed to help the company raise funds from a small group of experienced investors.
Strategic Round: A strategic round is a type of pre-IDO that is aimed at attracting strategic investors who can help the company grow and develop. Strategic investors are usually companies or individuals who have a strong interest in the company's technology or market and are able to provide valuable resources, such as expertise, connections, and infrastructure. Strategic rounds typically have less stringent investment requirements than private sales, but they may also offer lower discounts to token buyers.
Seed Round: A seed round is a type of pre-IDO that is aimed at attracting early-stage investors who can provide the company with the funding it needs to get started. Seed rounds are typically conducted before the launch of an ICO and are designed to help the company validate its technology, build a user base, and develop its business model. Seed rounds usually have low investment requirements, but they may also offer lower discounts to token buyers. By attracting early-stage investors, seed rounds can help to build momentum for the company's ICO and increase the chances of success.