Ehe objective of the same is to serve as a vehicle to raise capital for the start-up of projects cripto, using a very different formulation to the already known ICO.
To do this, IFOs seek to take advantage of platforms DeFi and yield farming in order to prepare the presentation of projects seeking seed capital, using a huge attraction: a farming strategy. Thus, the IFO manages to maintain the decentralization in the acquisition of seed capital for the project. And, at the same time, it allows investors the chance to earn rewards for the capital put into the IFO.
But How does it work this system? What advantages does it offer? Well, we will see that and more below.
How does an Initial Farming Offering (IFO) work?
The operation of an Initial Farming Offering (IFO) depends on the DeFi Yield Farming platforms that host the fundraising request. In an IFO, the person in charge of the project asks the platform for the listing of their project to carry out an IFO. At this point, those in charge of the platform receive all the project data and make a preliminary study of it. The purpose of this study is to study the feasibility of the project and the level of interest that it can generate within the community of its DeFi platform.
Once the preliminary study has been passed, the DeFi platform requests the creation of a clear tokenomics and all the necessary points to generate an applicable yield farming strategy under favorable conditions for the platform, the farmers and the project to be developed. Once these points have been made, the process of listing the project and its respective IFO begins, in addition to showing the capital that is sought to be collected during this event.
Once the listing is done, farmers have the option to view and review the project, see its tokenomics and more. At this point, it is enough to prepare the wallet and decide the totality of its participation. Here too, farmers should be aware of a curiosity about IFOs: a concept known as spillover. The idea behind this concept is to allow the developers of the project to raise the amount they want to be able to develop it. For example, if a project wants $2 million, the developer indicates this, and it will be noted in the project listing. Once that capital is reached, the project's smart contract (responsible for controlling the yield farming pool generated for the project), begins to assign farmers the corresponding % of IFO tokens, taking into account the total collected during the IFO.
Thus, if a project seeks to raise $2 million USD, but only raises $1 million USD, and if there is a farmer in said project with a participation of $100.000 USD, then what will happen is that his participation will be reduced by 50 %, the same level of remaining percentage to reach the total desired for the collection. In this way, the "overflow" seeks to keep the participation within the project's yield farming pool controlled and adjusted, preventing the rewards from being diluted in the hands of a few.
This model helps maintain the decentralization of the future project, as well as a decentralized control in the injection of capital, which additionally serves to initiate the necessary market for the development of tokenomics. token of the project, since the liquidity of the pool serves to promote said development.
Platforms to deploy IFOs
There is a wide variety of platforms for the creation of IFO, among them we can mention:
- Pancake swap It is a well-known DeFi platform within the Binance Smart Chain ecosystem and which is the origin of the IFOs, since the model began in this DEX.
- Sushi Swap, is another well-known DEX on Ethereum which has interesting options to launch IFOs, which on this platform are known as MISO (Minimum Initial SUSHI Offering).
- polkastarter, is another well-known platform for launching IFOs and auctions on the Polkadot and Kusama ecosystem.
Risks and safety tips for participating in an IFO
Participating in an IFO has clear risks that you should be aware of. But among them, there are two that you should pay special attention to:
- If the project is not interesting to users, it will most likely not take off, so its use and value will not take off.
- In the event of a spillover, the investment and participation you wanted will be reduced. This means that if the project is revalued you will see your profits dramatically decrease or you may even lose everything if the first risk is met.
Taking this into account, it is good to take into account the following safety tips when participating in this type of operation. Among these measures we can mention:
- If possible, use a dedicated browser to interact with the smart contracts and another for your daily navigation. This will prevent any malicious script from exploiting any vulnerability in your wallet and extracting funds from it.
- Recognize well the network in which you are interacting in the IFO to avoid loss of funds due to erroneous transfers between networks. BSC and ETH addresses are identical and if you get them wrong you can lose money.
- If possible, use separate wallets for each project. In this way you can have better coin control and you can manage access to the wallet funds from the IFO smart contracts.
- Get to know the project, who is behind it, the community and all the relevant data related to it. If you are going to invest in a project, knowing what its objective will be and how it expects to evolve over time is vital to recognizing its value and knowing if your investment will really pay off.