Report: "Hodlers" see returns of over 10x; What is an IDO?

Throughout the A-share market, "new listings" have always been one of the important ways to gain high returns. According to public data, the average profit per household from "new listings" in the A-share market in 2020 was approximately 38,631 yuan, with a return rate of about 19.32%. In the cryptocurrency circle, "new listings" are also an important means of obtaining excess returns.

(This article is authorized for reprint from PANews, with the original title "Reading the 'New Listing' Gameplay: IDO Returns About 10 Times, and These Keywords Need to Be Mastered," original article here)

In January 2019, Binance took the lead in launching Launchpad, followed by major exchanges launching IEOs one after another, sparking the first wave of "new listings" in the cryptocurrency circle. According to PAData's earlier analysis[1], the average return on early IEO tokens was as high as 7.63 times, meaning for investors, participating in "new listings" meant earning profits.

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With more and more IEO projects emerging, the market's existing funds are being fully utilized, resulting in lower profits from IEOs than before. At that time, coinciding with the first peak of DEX development, in June of the same year, Binance once again launched a new "new listing" project. Binance DEX listed RAVEN (Raven Protocol) through IDO. However, due to the limitations of DEX development itself, IDOs at that time did not become as popular as IEOs.

However, the demand for financing in the market has always existed. According to PAData's statistics, the initial token issuance in 2020 was still one of the main forms of financing in the industry, with a total financing amount of approximately $225 million. Therefore, when DeFi rose to prominence, IDO also made a comeback. In 2021, IDOs are becoming increasingly popular, with not only specialized IDO platforms appearing in the market but also customized IDO modules or solutions. So, from a data perspective, how much profit can participating in IDO "new listings" bring to investors? What are the advantages and disadvantages of this form of IDO that need attention?

IDO Keywords: DeFi, Auction, Whitelist

There are various interpretations of the "D" in IDO. Some believe that IDO stands for tokens issued for the first time through decentralized exchanges (Initial DEX Offering), while others think IDO represents tokens issued for the first time through DeFi (Initial DeFi Offering).

The evolution of IDO can be seen from the controversy over its name. In the initial stages, IDO was primarily conducted through decentralized exchanges. However, conducting the initial token offering on AMM DEXs had some issues and risks, such as "scientists" front-running or "whale" users manipulating the market, leading to reduced profits for regular users participating in IDOs. Due to considerations of community mobilization and fair distribution, some projects have migrated the initial token offering to other DeFi platforms with more complex trading algorithms. After the issuance is completed, they link back to decentralized exchanges for liquidity provision. Therefore, the development of IDO has essentially gone through two stages: DE X and DeFi+DEX.

Looking at the primary IDO models in the current market, Uniswap and Balancer still utilize swapping mechanisms. The main difference lies in the composition of liquidity. Uniswap, not specifically developed for IDOs, has liquidity that aligns with other pools. On the other hand, Balancer offers Liquidity Bootstrapping Pools (LBP) tailored for IDOs, allowing the issuer to customize the pool's weightings, which can be linear or exponential curves. Balancer believes that by adjusting weights rapidly, they can lower the value of tokens in the pool and prevent early speculation-induced price hikes.

Most emerging platforms adopt auction mechanisms for token issuance, with a variety of auction methods. Currently, platforms offering fixed-rate auction models are more common, including Bounce, Polkastarter, and Sushiswap. For instance, Polkastarter allows the issuer to set two exchange rates in two pools, Public and POLS (private sale), without a minimum issuance amount but with a maximum limit.

Another noteworthy approach includes Mesa's Batch Trading auction. In this model, the issuer does not need to provide buyer liquidity, and buyers can participate in the sale using various tokens. In this type of auction, prices do not go below pre-set limits, all orders in the same batch have the same price, eliminating arbitrage opportunities. Additionally, Bounce is currently the platform with the most open auction methods, offering unique auction styles such as NFT Lottery.

Compared to IEOs, IDOs have a significant difference in the eligibility aspect. IEOs are deeply tied to the exchange platform's native tokens, requiring users participating in IEOs to hold a certain amount of platform tokens. In contrast, IDOs have a much lower level of linkage with DeFi governance tokens, usually only requiring governance tokens for voting during the issuance phase, while actual participation does not consider token holdings but necessitates participants to complete KYC and register as whitelist members. However, some perspectives argue that KYC does not align with the spirit of blockchain, as it gives the issuer more control over who purchased how many tokens.

IDO Returns: Nearly 10x Returns Significantly Higher than Holding Coins or Stocks

PAData selected the two main platforms, Uniswap and Polkastarter, for observing the performance of IDO tokens in two stages, showcasing early AMM DEX IDOs with a wider range of returns and recent Polkastarter fixed-rate auction IDOs with minimal return fluctuations.

Looking at the returns on the listing day (based on Uniswap's closing price on the first trading day), the average return multiplier for three early IDO tokens on Uniswap is approximately 3.27x, while the average return multiplier for the latest three IDO tokens on Polkastarter is about 6.75x, with an overall average first-day return of about 3.81x (median).

Examining the historical highest returns (based on Uniswap's highest trading price), the average return multiplier for three IDO tokens on Uniswap reached an astonishing 57.99x, mainly influenced by the extreme value of 127.2x for UMA IDO. The average return multiplier for the other two tokens was around 23.41x, also significantly high. On Polkastarter, the average return multiplier for three IDO tokens was much lower, at approximately 7.55x, slightly higher than the first-day return. The overall average historical highest return is about 13.80x (median).

Current returns show a similar trend (based on Uniswap's trading price on March 3rd), with an average return multiplier of approximately 36.22x for three IDO tokens on Uniswap and about 6.7x for three IDO tokens on Polkastarter. The overall average current return is about 10.07x (median).

Aside from the impact of time, the initial listing price also significantly affects the range of returns. The initial price on AMM DEX depends on the funding pool's liquidity, providing incentives for "whales" and scientists to drive up IDO prices for regular investors. Fixed-rate auctions or other more complex auction methods control the fluctuation of IDO prices by restricting participant qualifications, initial prices, and maximum sales quotas, reducing user gaming and narrowing the return range of IDOs.

In summary, the current average return of nearly 10x for IDOs remains significantly higher than other investment methods.

PAData also analyzed the "new stock" returns in the A-share market since February. The results show that the average first-day closing price increase for 17 new stocks is about 1.73x (median), with the highest performer, Guanzhong Ecology, achieving 5.51x. The average historical highest return is around 2.26x, with the highest performer, Mankalon, reaching 9.43x. The average current return is only 1.55x, with only Guanzhong Ecology, Jumitech, and Mankalon exceeding 4x.

PAData also calculated the holding returns of other cryptocurrencies this year, indicating that the average holding return for the sampled 30 cryptocurrencies is around 2.74x (median). Among them, cryptocurrencies ranked 90-100 by market capitalization have the highest average holding return this year, approximately 2.81x (median), while cryptocurrencies ranked 1-10 by market capitalization have the lowest average holding return, only about 1.92x (median). Excluding the highest return from FTM, the holding returns of other sampled tokens are lower than IDO returns.

It should be noted that the return multipliers calculated here often represent the instantaneous lowest/highest prices on the market, providing a range for understanding return fluctuations. In reality, high returns from IDOs come with high volatility. According to statistics, the average first-day volatility for three tokens on Polkastarter is about 31.61%, with a historical daily average volatility of around 33.27%, significantly higher than the typical cryptocurrency volatility.

Since the beginning of this year, the daily average volatility for 30 cryptocurrencies of different market capitalizations is approximately 16.27% (median). Cryptocurrencies ranked 1-10 by market capitalization have the lowest daily average volatility, around 14.51%, while cryptocurrencies ranked 90-100 have the highest daily average volatility, around 18.10%, much lower than the recent volatility of IDO tokens.

Besides IDO, Learn about ITO and IFO

IDO has become a popular financing method in the current market. Many DeFi projects, after conducting IDOs, immediately connect to DeFi platforms for liquidity provision and initiate liquidity incentives, enabling IDOs to not only achieve fundraising goals but also kickstart new projects, maximizing user engagement.

Aside from IDO, there are other new issuance forms worth noting recently. One notable example is the Initial Twitter Offering (ITO), made famous by MASK issuance. As the name suggests, ITO is the first issuance of tokens based on Twitter, allowing users to participate in purchases by linking their wallet to their Twitter account. Following MASK's success, mTSLA (Mirror) also launched an ITO on March 2nd. Projects believe that ITO can maximize token exposure on social media, driving traffic to the project.

Another interesting format is the Initial Farm Offerings (IFO), similar to last year's popular DeFi liquidity mining. Both methods involve obtaining new tokens by providing liquidity to DeFi protocols, but IFO differs in that liquidity mining previously only rewarded the project's governance tokens, similar to "sowing beans to reap beans," while IFO mining uses liquidity from other assets to mine new project tokens, akin to "sowing beans to reap melons." For example, Pancakeswap's LP for CAKE/BNB liquidity can be used to purchase Helmet, a typical IFO scenario. Pancakeswap has stated that some IFO returns have reached 250%.

Since entering a bullish market trend in the second half of last year, the market has seen increased capital activity, heightened investor sentiment, and a plethora of high-yield new investment opportunities. However, users should remain cautious of risks such as fake coins and Ponzi schemes.