What is blockchain crowdfunding?

What is blockchain crowdfunding?

Blockchain crowdfunding is a way for blockchain projects to raise money from many small investors instead of banks or big financial institutions. It works by selling crypto tokens or coins through different methods like Initial Coin Offering (ICO), Initial Dex Offering (IDO), and Initial Exchange Offering (IEO). After the sales, the token is gradually distributed to the investors using different vesting models.

For example, Ethereum did exactly this in 2014. It raised money from thousands of regular people through an ICO, long before becoming the second-largest cryptocurrency today.

What are common blockchain crowdfunding methods?

The most common methods for blockchain crowdfunding are ICO, IDO, and IEO. The crowdfunding methods determine if the projects are listed on major crypto exchanges.

1. ICO (Initial Coin Offering)

ICO is also known as Initial Coin Offering. Investors buy new tokens directly from the project, usually at a discount. Every participant will be allowed to buy a specific number of tokens depending on different tiers, which we can dive into further later.

Depending on where the ICO takes place, it has different names:

• If the ICO is done on decentralized exchanges (DEX), it's called an IDO.
• If it's done on centralized exchanges (CEX), it's called an IEO.

2. IDO (Initial DEX Offering)

An Initial DEX Offering (IDO) is an ICO launched on decentralized exchanges like Uniswap or PancakeSwap. IDOs are popular because investors can trade directly from their wallets, which gives them greater control and transparency.

IDOs typically have fewer restrictions compared to centralized exchanges, so it's easier for new projects to launch tokens this way. But easier doesn't always mean safer. Tokens launched via IDOs can be risky, especially in a tough market or during bear markets, when prices can drop below the sale price quickly.

3. IEO (Initial Exchange Offering)

An Initial Exchange Offering (IEO) is when a project's ICO happens on centralized exchanges (CEX), like Binance or KuCoin. The exchange acts as a trusted middleman, carefully vetting projects before allowing them to sell tokens.

Since projects must meet strict requirements, tokens launched through IEOs are generally seen as safer investments compared to IDOs. Another benefit is that tokens launched through IEOs usually get listed immediately, giving them instant access to liquidity and a large pool of other investors.

How do blockchain crowdfunding platforms work?

Participating in blockchain crowdfunding involves different steps depending on whether you're using an IDO or IEO. Whether you participate on IDO or IEO, it isn't for everyone to participate. Every user has to do certain tasks to have an allocation to buy a token. You can find the list of popular blockchain crowdfunding platforms on Crypto Rank.

How to participate in IDO

Step 1: Pick the decentralized exchange (DEX) or launchpad where the IDO will happen. Each layer 1 blockchain network has its own platforms. For example, PancakeSwap is for Binance Smart Chain, and Polkastarter is for Polkadot. Some launchpads, like PinkSale, support multiple networks. You can use ICO drop to find the upcoming IDO.

Step 2: You’ll need a crypto wallet like MetaMask or Trust Wallet that is accepted by the platform, along with some tokens to cover gas fees. Gas fees are transaction costs paid using the blockchain's native tokens (for example, BNB on Binance Smart Chain, or ETH on Ethereum).

Step 3: Check the eligibility criteria. Some IDO platforms like Polkastarter require you to stake a platform token (POLS) for a specific period. A decentralized exchange like SushiSwap may require you to provide liquidity to earn points. Depending on the amount of tokens you stake or your activity on the DEX, you will gain a specific purchase allocation. You can not buy more than what you are allocated.

Step 4: Use your crypto wallet that is compatible with the IDO platform to participate. Given that you meet the participation criteria, you can buy when the sales start. Make sure to have the gas fees to pay for the purchase transactions. Otherwise, you can't buy the tokens.

Step 5: After the sales end, the tokens will be sent to your wallets or you have to manually claim it. You may not receive all the tokens all at once. Depending on the vesting schedule, you will receive or claim a number of tokens at a time, until you receive all of them.

How to participate in IEO

Step 1:  Pick a centralized exchange where the IEO will happen. For example, Binance Launchpad, KuCoin Spotlight, Bybit Launchpad, or OKX Jumpstart.

Step 2:  Login or sign up for an account on your chosen exchange. Most centralized exchanges require users to complete a Know Your Customer (KYC) verification. Be ready to provide personal identification documents like your ID card or passport and complete facial verification.

Step 3: IEO platforms typically require you to hold or lock specific tokens before participating. For example:

• Binance Launchpad often requires participants to lock BNB tokens when the sales happen to get the purchase allocation.
• Other exchanges may ask you to lock up specific token pairs (like USDT/BNB or ETH/USDT) for a set period during the IEO.

Step 4: After you meet the eligibility criteria, the exchange calculates your allocation and the maximum amount of tokens you can buy. This usually depends on how many tokens you've held or locked.

Step 5: Once the IEO starts, you can buy the tokens directly on the exchange using stablecoins (such as USDT or BUSD).

Step 6:  When the token sale ends, your tokens are usually credited directly into your exchange account. Sometimes you'll receive them all at once, and sometimes you'll get them gradually based on a vesting schedule. Check the details of the specific IEO to understand how you'll receive your tokens.

Step 7: One advantage of participating in an IEO is immediate liquidity. Tokens from IEOs are often listed on the exchange immediately after the sale, so you can trade them right away if you want.

What are popular blockchain crowdfunding platforms?

Here are some of the most popular blockchain crowdfunding platforms, grouped by crowdfunding type:

1. Popular IEO platforms

• Binance Launchpad: The most famous IEO platform, known for launching top projects like BitTorrent, Fetch.AI, and Axie Infinity. Binance strictly vets projects, offering high-quality and reliable token launches.

• KuCoin Spotlight: Similar to Binance, KuCoin Spotlight selects high-potential projects and offers investors secure access to new tokens with built-in liquidity.
• Bybit Launchpad: Popular for user-friendly participation and carefully selected projects. Users must hold specific tokens to qualify for sales.

2. Popular IDO platforms

• Polkastarter is a decentralized launchpad compatible with wallets like MetaMask and Trust Wallet. To participate in token launches on Polkastarter, users must stake the platform's native POLS tokens. Your allocation is based on how many tokens you stake and the length of staking.
• PancakeSwap is the most popular decentralized exchange on the Binance Smart Chain. It supports wallets such as MetaMask, Trust Wallet, and Binance Wallet. Gas fees on PancakeSwap are paid using BNB tokens. Most IDOs on PancakeSwap require staking CAKE tokens.
• PinkSale is a multi-chain decentralized launchpad, meaning it works with several blockchain networks. Wallets like MetaMask, Trust Wallet, or any WalletConnect-compatible wallet can be used. Gas fees depend on the chosen blockchain (e.g., BNB, ETH, or AVAX). Usually, PinkSale projects are open to everyone, though some may have whitelist, staking, or liquidity provision requirements.

3. Platforms supporting ICOs and mixed offerings

• CoinList: Known for high-quality ICOs and private token sales. Famous projects launched include Solana, Filecoin, and Near Protocol. CoinList requires participants to sign up and complete KYC verification before investing. Once verified, users can join token sales or private rounds. These token sales typically have strict purchasing limits, and due to high demand, securing a spot often requires queuing.

• DAO Maker: A platform hosting ICOs, IDOs, and private token sales, offering users opportunities based on their staking tiers. DAO Maker has a unique staking system. Participants stake the platform's native token, DAO, and their allocation size depends on the amount staked and the staking duration. Users with higher staking tiers have priority access and can participate in more exclusive investment rounds.

What are the advantages of blockchain crowdfunding?

Blockchain crowdfunding offers several advantages compared to traditional fundraising methods. Here are some of the most important ones:

1. Global reach: Blockchain crowdfunding lets projects reach investors around the world, not just in one country. Anyone with the internet and a crypto wallet can participate.
2. Faster fundraising: Traditional fundraising can take months or even years. Popular blockchain crowdfunding during bullish market conditions can raise millions of dollars in just hours. For example, BitTorrent raised $7.2 million in only 15 minutes through Binance Launchpad.
3. Building a strong community: Crowdfunding doesn’t just raise money—it builds a community. When projects are launched on trusted exchanges like Binance, investors feel confident about the project's quality and tend to stick around for the long term.
4. Access to more investors: Tokens launched through IEOs are usually listed on exchanges right away. It gives your project direct access to a large number of potential investors and ensures liquidity from the start.

What are the disadvantages of blockchain crowdfunding?

Blockchain crowdfunding can be great, but it also comes with real risks you should understand before joining:

1. Risk of scams and fraud: Not every blockchain crowdfunding project is genuine. Some projects raise funds quickly, then disappear with investors’ money. Always do careful research before investing.
2. Whale factor: Large investors (whales) who stake significant amounts of tokens on crowdfunding platforms often have bigger allocations or better token prices. This means regular investors might face unfair competition and miss out on buying tokens at the best possible price.
3. Risk of price dumps after listing: Projects listed on centralized exchanges after an IEO can experience sudden price drops. Early investors from the IEO often sell quickly to take profits, causing token prices to crash and leaving late investors at a loss.
4. Regulatory uncertainty: Blockchain crowdfunding isn't fully regulated in many places. Laws can suddenly change, and certain token sales might become investment contracts.

Should you participate in blockchain crowdfunding?

Blockchain crowdfunding is an exciting way to invest early in promising projects. It allows you to buy tokens with high potential, often at attractive prices. But it’s not without risks.

Before joining, carefully research these key points:

Project fundamentals: Understand clearly what problem the project solves, its long-term vision, and its roadmap for future growth.

Tokenomics: Check how tokens are distributed among the team, investors, community, and advisors. If the team and private investors hold a large number of tokens, review the reasons behind it and the vesting schedule. Knowing when these tokens unlock helps you avoid investing just as early holders start selling.

Vesting schedule: Understand exactly how and when tokens will be released to investors. If tokens allocated to the team or private investors are not locked for the long term, there’s a high chance they'll sell their tokens early, driving down the price.

Private sales and early investors: Determine whether the project had private or seed funding rounds before the public sale. Early investors typically receive tokens at much lower prices, increasing the risk of significant sell-offs once tokens are publicly listed.

Market conditions (bull or bear): Be aware of the market situation at the time of investment. Tokens launched during a bear market tend to struggle, whereas tokens launched in bullish conditions might rise quickly but can also crash just as fast.

Team behind the project: Evaluate the experience and credibility of the founders and team members. If the team has launched multiple failed projects in the past, that’s a significant red flag you should avoid.

Finally, always remember: only invest what you can afford to lose, and approach crowdfunding with care.

FAQs

How does blockchain technology ensure the security of crowdfunding contributions?

Blockchain secures crowdfunding initiatives by recording all transactions on a decentralized, immutable ledger, preventing fraud and unauthorized changes. Smart contracts automate fund distribution, ensuring that funds are only released when conditions are met. Transparency allows investors to verify contributions and track fund usage in real time. This eliminates the risk of fund mismanagement or corruption.

What are the main benefits of using blockchain technology for crowdfunding?

Blockchain technology offers transparency, security, and automation through smart contracts, reducing the need for intermediaries. Transactions are immutable and verifiable, preventing fraud and ensuring trust between fundraisers and investors. Cross-border transactions become easier and cheaper, making crowdfunding more accessible. Additionally, tokenization enables unique funding models, such as equity sharing or rewards.

How does blockchain-based crowdfunding compare to equity crowdfunding methods?

Blockchain crowdfunding removes intermediaries like banks or payment processors, lowering fees and increasing efficiency. Unlike traditional platforms that can freeze or restrict funds, blockchain-based crowdfunding is decentralized and censorship-resistant. Smart contracts provide automated fund management, reducing reliance on third parties. However, regulatory uncertainty and technical barriers still pose challenges for mainstream adoption.