Fundraising is a huge part of the crypto ecosystem. Like the rest of the industry, crypto fundraising methods have undergone a series of changes in recent times. These changes have made it easier for investors and developers to access and raise funds for projects.
Older examples of fundraising techniques include Initial DEX Offering (IDO), Initial Exchange Offering (IEO), Initial Coin Offering (ICO). However, more modern approaches such as Cardano’s Initial Stake Pool Offering (ISPO) have gained attention in recent times.
Before going into detail about ISPO, let’s look at other fundraising techniques briefly.
- IDO: IDO simply involves giving tokens in exchange for liquid cash. You’ll mostly find this approach in sports fan tokens. It is also an easy and quick way to raise cash from investors.
- ICO: ICO is the original crypto funding model and was used by some of the early projects. So, ICO simply involves raising funds from investors via whitepaper. The investor stands to profit if the token soars and the projects success as speculated. However, one of the limitations of this model is that it requires custodying an investors capital.
- IEO: IEO is a model that offers investors with registered accounts coins on an exchange market.
Are you considering participating in an #ICO, #IEO, or #IDO? Before you do, make sure you know how to protect yourself from scams. Follow these best practices and red flags to watch out for.
— Flagship (@FlagshipFYI) January 8, 2023
Now, let’s look at ISPO and what it’s all about.
What is ISPO?
The ISPO model takes place on a Cardano staking pool. The process simply involves developers setting a variable margin then collect the rewards and pay delegators with their utility tokens. A pool has a higher likelihood of it being selected as a validator node for a block if it has a high stake in it.
Unlike other fundraising designs, this model demand investors to trade a token to buy and stake project-specific tokens. So, ISPO allows users to stake their ADA in the project’s staking pool to earn the platform’s native token as a reward rather than staking ADA in Cardano’s proof-of-stake (PoS) ecosystem.
Also, an ISPO is safer for investors than other forms of fundraising. Users are merely forgoing their ADA incentives in exchange for project-specific rewards, making it a less risky option. The staked ADA remains in their individual, non-custodial wallets and is still their property.
Another advantage is that an ISPO does not have a lock-in period. This makes it pretty flexible. So, a user can decide to use their ADA as they wish. You can trade, unstake, sell or use your ADA to buy NFTs. Unlike other models, ISPO gives you total control over your assets. Here is an example:
Hey guys, if you are staking with @AdaSquirrel stake pool you can now claim @VyFiOfficial tokens on Drip Dropz and stake them on https://t.co/mYXcGmtMoA at 16.70% APR or earn Drip token at 20.56% APR !!! 🐿🔥#Cardano #Ada #Ispo #Airdrop https://t.co/nfrAwxTADF
— Nadia – SQRL Pool 🐿️ (@NadiaCNFTModel) January 8, 2023
How Does an ISPO Work?
Cardano stake pools adopt the PoS (Proof-of-Stake) consensus mechanism. So, validators are necessary for the network to validate transactions and create new blocks. Users (delegators) can stake their funds with the help of validators, which function as efficient “nodes” or stake pools.
The network, based on the Ouroboros protocol, selects the staking pool with the greatest number of stakes to distribute validator incentives. As a result, validator’s ADA incentives are distributed to the delegators of the successful staking pool. They are based on the amount of ADA staked by each user at the end of each epoch. In Cardano that is five days.
Does ISPO Have a Future?
Due to its numerous advantages, ISPOs have become more popular in recent months and have clear advantages over other models. There’s also every possibility that ISPO will remain a part of the trend in the coming months. ISPO does not discriminate investors based on how much they have. Instead, investors receive rewards based on the magnitude of their investment.
Ravendex is one of the first decentralized exchanges created on the Cardano blockchain.
Users of the NFT shall atleast hold 30,00 in the same wallet and must stake at least $50 ADA in RAVEP, Ravendex’s ISPO pool. More than $9 million in ADA. #Ravendex pic.twitter.com/0XVBW4HYvR— 𝐊𝐢𝐛𝐞𝐭 (@KenyanWalter) March 22, 2022
Finally, the ISPO funding approach provides investors complete control over their ADA, protects their stake, and allows them to withdraw at any time.
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