What is DPO or Prime Offering?
A DPO (Direct Premium Offering) is a fundraising approach based on offering tokens of a project to contributors on a cryptocurrency exchange. The exchange performs the whole fundraising cycle. Individuals interested in acquiring the token in its initial offering go through the exchange and can trade the token immediately thereafter. In order to mitigate periods of extreme volatility when the market opens, and to reduce the risk of adverse impacts on investors, there is a period of tiered price limits. The concept is similar to Initial Coin Offerings (ICOs) but includes the immediate listing of the token, thus much more closely mirroring Initial Public Offerings (IPOs) on traditional stock exchanges. It presents the next iteration in crypto’s journey to offer reliable crowdfunding mechanisms for promising projects.
More information about the details of the DPO process can be found here.
A brief history of crowdfunding options.
Crowdfunding through the internet became a popular and powerful new fundraising options through centralized platforms such as famous Kickstarter.com. Kickstarter and similar services allowed people from all over the world to offer new ideas and products, raise money for product development, or invest money in something promising. The approach unlocked the potential of the internet’s broad accessibility to create a financial P2P application that offered new opportunities outside ordinary banking credit or VC funding. It allowed the flourishing of a variety of new physical products and digital services.
More recently, blockchain technology enabled a more decentralized fundraising process, leading to the appearance of the ICO (Initial Coin Offering) concept. An ICO features community contributions in cryptocurrency to a project that is seeking funding in exchange for the native token used in the new project. The main advantages of ICOs are the possibility to contribute or attract funds from all over the world without barriers (although, from the legal side, there are significant restrictions in some jurisdictions like the USA), trade tokens whose value is linked to the project development after the ICO and fund projects that cannot be funded in other ways. The first project funded using ICO approach was Mastercoin, which was re-branded to OmniLayer, a protocol for Tether USD (USDT) issuance and operation. Several of the most notable projects in the industry, including Ethereum, EOS, and Binance were funded using ICOs. According to icodata statistics, during 2017 and 2018, ICO projects collected more than $14 bln. However, the ICO process also has a lot of drawbacks: a big percentage of fraudulent projects, a mess in regulation that sometimes results in offering unregistered securities to retail investors, and the absence of trusted due diligence and project scoring. At the present moment, ICOs have fallen out of favor as a trusted and reliable funding approach.
In response to the fall of ICOs, the Initial Exchange Offerings (IEOs) emerged as a new favorite in the industry to conduct crowdfunding for promising projects. A key upside is that an exchange acts as the due diligence agent, doing their own research on projects, and selecting only the ones they trust. An IEO is also more convenient for contributors as they can use funds from their deposits at the exchange for contribution and be sure that token will be listed in a short time. For projects, it is a possibility to focus on project development while a significant share of fundraising activities will be carried out by an exchange. Thus, it is a more effective and safe fundraising approach for all parties in comparison with ICO.