52. What is an Initial Farming Offer (IFO)?
If you search the depths of the Internet for interesting topics related to cryptocurrencies, you have surely seen the acronym IFO. It sounds similar to an ICO, doesn’t it? No wonder – Initial Farming Offer is an evolution of the ICO we know from previous lessons.
Both IFOs and ICOs are used to raise capital for early-stage cryptocurrency projects. The difference, however, is that an IFO uses DeFi and yield-farming platforms for this purpose to prepare presentations of projects seeking capital.
In this way, IFO maintains decentralization while allowing potential investors to earn rewards for the capital they put into IFO.
You can read about how the whole system works in the following sections!
How does the Initial Farming Offer (IFO) work?
As we mentioned earlier, how an Initial Farming Offer works depends largely on the DeFi and Yield Farming platforms on which the capital raising in question is currently taking place. Simply put, it is a fundraising model for decentralized finance projects (DeFi) that uses farming. How it works. The person responsible for the project in question asks the platform to put them on a list of people willing to host an IFO. The people responsible for the platform then receive all the necessary project data and carry out an initial analysis of the project. What is the purpose of this analysis? The platform checks whether a project can arouse the interest of the DeFi Platform community.
Once the project has passed the first stage, the preliminary project review, the DeFi platform responsible for the IFO asks for tokenomics and other necessary things about the project to be developed. Once this is all done, the stage of listing the project and the corresponding IFO begins.
At this point, all you have to do is prepare your portfolio and decide how much you want to invest in the project. Investors attend these pre-sales events and raise capital for the project by investing in its native tokens. Remember that the teams at DEX carefully screen all potential participants and then introduce them to investors. At this point, however, we have an important tidbit for those in charge of farming: We are talking about a concept called spillover.
What is the idea behind this concept? The inventors of a certain project can raise as much money as they want to be able to fully develop it. Let us say this amount is USD 3 million. Once this ceiling is reached, the smart contract responsible for controlling the Yeld farming pool starts to allocate an appropriate percentage of the IFO tokens to those responsible for farming, taking into account, of course, the amount raised during the campaign.
Such a model helps to maintain decentralization of the future project as well as capital control. Moreover, it serves to initiate the entire market needed for the development of the project’s tokenomics, as the liquidity of the Yeld farming pool will foster this development.
Tokens raised through an IFO campaign are not particularly more advantageous than those raised through other fundraising models. Although exchange platforms carefully and thoroughly audit a project, the value of these tokens depends on market conditions.
Platforms implementing the Initial Farming Offer model include:
- Binance Smart Chain.
- Sushi Swap.
Interesting fact: The majority of Initial Farming Offers are conducted on PancakeSwap. Users of this platform receive rewards from fundraising campaigns. In addition, project owners can benefit from the liquidity pool on this platform. Also, remember that the vast majority of tokens presented during IFOs are community-driven and fully decentralized.
Types of IFO campaigns
- Basic sales, where investors can bet a limited number of tokens without paying a participation fee.
- Unlimited sales, where investors pay a set fee upfront and can bet as many tokens as they can.
If you want to participate in an IFO campaign, you first have to register on the DEX platform, which runs such projects. Then, as already mentioned, you place your tokens and participate in the IFO! As such, you as an investor are responsible for providing liquidity for the entire process, but you will be rewarded with tokens at the end.
Safety when participating in an IFO – what should you look out for?
- If a project proves uninteresting to the platform users, it will not take off.
- If a project is re-evaluated, the investments and shares will be reduced. This more or less means that your profits will drop drastically, or…you will lose everything.
- For IFOs, you should use a dedicated browser to interact with smart contracts. Preferably protected with a suitable antivirus program.
- Before interacting with IFOs – get to know the project and the network. This will help you avoid losing money due to faulty transmissions between networks.
- It would be good if you had a separate wallet for each project. This way you have more control over the coins and can manage access to the portfolio funds through the IFO smart contracts.
- Get to know the project before you invest in it. Pay special attention to the people in charge, the community and any other relevant data.
- With an IFO, there are no intermediaries involved in the whole process. The transactions are based on a Peer-to-Peer model, which saves time and money.
- IFO helps users maximize the benefits of using a particular DEX platform, so to speak.
- Thank you to decentralization, every IFO transaction is transparent.
- Initial Farming Offering campaigns are popular with new members of the cryptocurrency community who are looking for ways to make a quick profit.
- However, IFO tokens are also a great way to build a crypto portfolio and generate additional income.
ICO or other fundraising models mainly rely on investments from venture capital. In the case of the Initial Farming Offer, it’s a bit different, as we explained in today’s lesson. Of course, with IFO, the funding is much longer and the returns themselves are not particularly reliably defined. However, given the growing popularity of DeFi projects and the increasing number of them being submitted for this type of funding, IFO may become increasingly popular.
Complete your knowledge!