Messari: DEX token offerings are ICO 2.0

Initial DEX Offerings on non-custodial exchanges (Initial DEX Offering, IDO) are a reincarnation of the ICO, and investors would be wise to avoid them. That is the view of Messari’s analysts.

In the latest incarnation of the ICO, several early participants typically make off with outsized returns while others are left deeply in the red.

Read: https://t.co/QIidZVuNmT pic.twitter.com/6EYNp3gPN3

— Messari (@MessariCrypto) September 28, 2020

Experts note that IDOs conducted on DEXs with an automated market maker (AMM) function, such as Uniswap, are designed with ‘fair distribution’ in mind.

In their view, in practice this often becomes a competitive game among the most advanced bots, whose task is to outpace retail investors.

These IDOs (Initial Dex Offering) conducted on AMMs like Uniswap are designed with a «fair distribution» in mind.

In practice, these IDOs often turn into a competitive game amongst the most advanced bots to front-run the retail market.

— Messari (@MessariCrypto) September 28, 2020

By default you can only buy tokens that are in the AMM pool. Bots race to be the fastest to trade, as in the initial phase there is little room for the price to go down immediately.

Analysts explain that by submitting orders within seconds of the offering going live and by bidding up gas prices to speed the transaction, profits are possible.

When it comes to these new AMM “IDO” offerings, if you can submit orders within seconds of the offering going live while bidding up gas prices to get your transaction added first, then there’s profit to be made.

— Messari (@MessariCrypto) September 28, 2020

The Messari chart shows that, despite opening with a large premium to the offering price, the prices of four of the five DeFi tokens included in the calculation subsequently fell significantly.

Experts advise that ‘average investors’ should not compete with bots and, before buying, wait for the market to settle on a price.

For the average investor however, it’s best to steer clear of these offerings and wait for the market to settle on a price before buying.

Learn how you can avoid getting dumped on by analyzing supply schedules and understanding crowd mentality https://t.co/liSUU90ct5

— Messari (@MessariCrypto) September 28, 2020

As of September 29, the total value locked in DeFi protocols stood at $11 billion. According to DeFi Pulse, Uniswap remains the leader, with a TVL of $2.09 billion.

Despite the growth in locked funds to $11 billion, activity on decentralised exchanges continues to fall from late‑August peaks. According to Dune Analytics, trading volume over the last seven days fell by 34%, though it remains 151% above the 30‑day prior period.

According to CoinGecko, the market capitalisation of the decentralised finance sector stands at $13.7 billion. On 1 September the figure reached $18.5 billion.

Earlier, Forklog explained how the AMM mechanism helped Uniswap to challenge centralised exchanges.

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