Opinion by: Hatu Sheikh, founder of Coin Terminal
Crypto has largely failed retail investors. Insiders and institutions scoop up lucrative opportunities before they hit the open markets. Memecoins and purely speculative plays are the only ways for retail investors to reclaim their stake in the pie.
They remain exposed to a “crime supercycle” that began with unregulated initial coin offerings (ICOs) in 2017-18. At the time, initial DEX offerings (IDOs) emerged to provide retail investors with open, fair access to early-stage projects. Gradually, though, high threshold requirements, long vesting periods and information asymmetry put most IDOs off-limits for retail investors.
IDOs are dead in principle. But they will thrive — live longer than ever — by ensuring long-term growth and sustainable revenue generation for retail investors. Additionally, IDOs will become the most viable and go-to path for grassroots users to build generational wealth.
Retail investors’ loss of a dream
From permissionless transactions to fractional ownership, retail investors came to crypto with a dream. The unbanked and underdogs had a real shot at financial freedom for the first time in global economic history.
Yet they faced a constant slew of fraudulent projects and fundraising scams. During the so-called ICO craze, they lost over $16 billion while trying to buy into “the next best thing.”
IDOs promised a fix. They secured crypto fundraising with robust investor protection measures like rigorous, pre-listing due diligence. Solid teams and realistic roadmaps became a must-have for projects.
Most importantly, IDOs introduced token staking to ensure more skin in the game for projects and investors. It offered crypto-economic security against pump-and-dump scams. But on the flip side, higher staking benchmarks tipped the odds in favor of institutions. Retail investors were left out. Again.
Related: Binance-backed Magic Square IDO platform to democratize retail investor access
Token staking has a two-fold negative effect on IDOs. Limited opportunity for retail investors and a cold-start problem from a liquidity standpoint. And with 64% of retail investors willing to pour liquidity into early-stage projects, it’s a vicious cycle.
Crypto thrives with crowdfunding for a reason. Whales can only take the industry so far. If IDOs don’t deliver on the promise of bottom-up financial empowerment at scale, they will inevitably sink into irrelevance. Crypto, as a whole,…
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