Cryptocurrency is a dynamic field that keeps growing with new and innovative solutions being created on the blockchain. Smart contracts are key to this progress, allowing the creation of chains, protocols, consumer apps, and various blockchain products that benefit both users and developers.
As of August 2024, Statista reports over 12,000 cryptocurrencies, highlighting a market with a global capitalization of $2.1 trillion. This expansion has led to a surge in cryptocurrency projects, with many innovators now exploring decentralized finance (DeFi) to offer new solutions.
However, despite the growth opportunities, there are certain challenges. Due to the dilution of projects, startups face difficulty penetrating the blockchain market. Besides, investors also struggle to find the right projects to invest in. This problem is what launchpads strives to solve. So, what are crypto launchpads, and how do they work? Let’s explore.
What is a Crypto Launchpad?
Launchpads serve as incubators that guide crypto projects through the process of penetrating the market, gaining visibility, and raising funds to expand their business. They function like traditional incubators but are specifically focused on crypto, assisting early-stage projects with marketing, fundraising, initial token launches, and distribution.
How Does a Crypto Launchpad Work?
Launchpads simplify crypto fundraising by organizing sales where you stake some crypto to gain access to the initial Dex Offering (IDO). In such a system, your stake determines your tier, which in turn affects how much of the sale you can participate in. Furthermore, payments are typically made with stablecoins such as USDT, USDC, and DAI, with minimum and maximum limits for investors.
Before the sale begins, you’ll need to register, and if the sale is undersubscribed that is, fewer tokens are claimed than available, there might be extra tokens offered in a first-come-first-served phase.
Furthermore, some sales use a lottery system where you stake tokens to enter, and the system randomly selects winners who then purchase the tokens. Once the sale is over, you can claim your tokens based on your tier and also decide whether to hold, stake, or trade them.
Launchpads commonly utilize lockup periods and vesting schedules to ensure commitment and regulate price volatility. Additionally, many launchpads implement staking mechanisms where participants who stake more tokens may receive higher allocations or rewards during the token sale. However, the specifics of these rewards and staking benefits can differ between launchpads and projects.
Different Types of Launchpad Token Sales
Crypto Launchpads have several ways of facilitating investments between startups and investors. They offer crypto assets to early investors using various methods. Below are some launchpad token sales.
Initial Coin Offering (ICO)
Cryptocurrency projects often crowdfund from early investors to enhance scalability. While ICOs are similar to Initial Public Offerings (IPOs) used by traditional companies, they differ because ICOs involve exchanging a portion of future coins rather than shares for investment. Furthermore, projects participating in ICOs may use their websites or third-party platforms such as CoinList for investment access. For example, Ethereum’s ICO in 2014 and Tezos’s ICO in 2017.
Initial Dex Offering (IDO)
IDOs occur on decentralized exchanges (DEXs). On such platforms, Automated Market Markers (AMM) facilitates transactions. The project utilizes liquidity pools to directly release its token onto the market and, as a result, allows investors to buy the token by lending liquidity. These processes are usually controlled by smart contracts, which automatically manage transactions and modify token prices in response to supply and demand. However, since the trading activity within the pool determines the token’s price, this also carries concerns like reduced liquidity and possible price volatility.
Initial Exchange Offering
Centralized exchanges (CEXs) handle initial exchange offerings or IEOs. This exchange, in turn, carries out the vetting of the project for credibility and success and helps them manage their token sales process and listing. As a result, the project leverages the exchange’s credibility and wide user base to raise capital. Therefore, before users can participate in such investments, they must have accounts on the exchange.
Initial NFT Offering (INO)
Crypto projects utilize Initial NFT Offering (INO) to raise funds. In order to achieve this, they launch Non-Fungible Tokens (NFTs) on platforms such as Magic Eden, OpenSea, Rarible, Magic Eden, etc. The price of the INO depends on the project’s mint price, and oftentimes, the project collection is limited in supply to create scarcity and value.
Projects can launch these NFTs by first creating a mintlist or allowlist. This list, similar to a presale, allows active community members or potential investors to purchase at a lower fee before the sale is open to the public as a public mint. Additionally, investors can buy a piece of this art using the native coin of the blockchain which the project will launch.
Initial Game Offering (IGO)
When a gaming project is nearing its launch, the team may conduct an Initial Game Offering (IGO) to secure funding. During an IGO, early investors support the project in exchange for valuable in-game assets such as characters, weapons, skins, or tokens that will be important for in-game purchases.
What are the Advantages of Crypto Launchpads?
Crypto Launchpads provide several benefits for projects and investors.
For Projects and Founders
Crypto launchpads provide a wide range of opportunities for crypto projects and founders. Below are some of the ways launchpads benefit them:
Streamlined Fundraising
Launchpads enable projects to crowdfund from early investors in a streamlined manner. The platform plays a crucial role in this process by allowing projects to leverage their existing user base to raise capital. At the same time, it provides a straightforward process for fundraising, enabling projects to efficiently utilize the funds for scaling their product, expanding operations, and allowing the team to focus on other important aspects of the project.
Visibility Boost
Launchpads play a crucial role in marketing and promoting crypto projects. They enhance a project’s visibility by leveraging their platform’s extensive user base and reaching out to potential investors. For instance, exchange launchpads like Binance and Bybit engage in various promotional campaigns to attract investors. They typically utilize content marketing through channels such as newsletters, social media posts, and banner ads. Additionally, they may employ other strategies like staking rewards, offering exclusive access, and hosting special events to further boost the visibility and appeal of token sales.
Trust and Community Building
Crypto launchpads help founders build a community of supporters, gain investors’ trust, and establish credibility. Founders can leverage the reputation of exchanges and launchpads to earn the trust of potential investors. They can use Question and Answer (Q&A) sessions to address concerns, host webinars for greater project clarity, and utilize launchpad support services to build credibility before the launch.
Additionally, projects can strategically employ social media contests and offer exclusive access to token sales on launchpads to cultivate community engagement before their official launch. These incentives for active participation increase support and help in creating a dedicated community of long-term investors.
For Investors
Crypto launchpads are beneficial to investors by providing them with access to several exciting access, and rewards. Below are some of the advantages of crypto launchpads for investors:
Early Access to Investment Opportunities
Crypto launchpads allow investors to fund early-stage startups in return for future tokens or NFTs. This enables investors to fund promising projects and profit from them as they gain traction to maximize their return on investment (ROI).
Flexibility and Accessibility
The simplicity of launchpads, especially on centralized exchanges, makes it easier for crypto investors to contribute to high-potential startups and potentially earn future rewards. In order to do this, investors typically need to stake a specified amount of cryptocurrency, complete KYC (Know Your Customer) verification, and then receive tokens following the launch. Although it may seem unfamiliar to new investors, centralized exchanges help to simplify the investment process.
Additionally, launchpads streamline the vetting process for investors. Since they have already evaluated the projects, it makes it easier for potential investors to discover promising opportunities. This reduces the need to conduct thorough research on numerous projects, though investors should still perform their due diligence.
Reduction Of Price Volatility
Crypto launchpads use vesting and lock-up periods to prevent investors from selling off their assets all at once. These mechanisms require investors to lock up their stakes for a specified period, which can range from a week to several years. This helps to ensure price stability and promotes long-term holding among investors.
Safety and Security
Crypto launchpads enhance security for investors through smart contracts and multi-signature wallets. Smart contracts automate various processes, including vetting projects, managing token sales, tracking investor contributions, and ensuring fair distribution of tokens, whether through level or lottery systems.
While centralized exchanges like Binance and Bybit do provide these benefits, but decentralized launchpads such as TrustPad and Polkastarter might offer additional advantages due to their decentralized nature. This helps to further enhance transparency and trust.
Furthermore, launchpads employ multi-signature wallets to strengthen security. These wallets require multiple keys to authorize transactions which helps to protect against fraud and unauthorized access.
Disadvantages of Crypto Launchpads
While launchpads are highly beneficial, they also pose some risks for both founders and investors:
For Founders
Although founders get access to key project opportunities through launchpads, they are not excluded from certain risks. Below are some of the disadvantages of crypto launchpads for founders:
High Competition Rate
Cryptocurrency launchpads feature diverse projects on their platform, and as a result, projects may need to fight for visibility spots to stand out. Also, due to the numerous numbers of projects, raising funds can be competitive among various projects. This is because launchpads provide potential investors with varieties, and this might allow them to commit little across various projects.
Legal or Regulatory Risks
Since cryptocurrency is still growing, projects sometimes face legal scrutiny from financial and government authorities if they’re unable to adapt to new regulations. This helps to ensure the project meets legal requirements, and it differs across regions. At times, legal non-compliance issues may arise, which may result in penalty of the team and in cases where projects fail to fulfill their promises to investors, it may lead to a legal prosecution or a fine.
For Investors
While investors may benefit tremendously from crypto launchpads, there are also challenges. Here are some disadvantages of launchpads for investors:
Project Failure
In cryptocurrency, nothing is fully guaranteed. Although launchpads provide vetting systems before approving projects, the success of these projects cannot be ascertained. Volatility and market manipulation may impact tokens, causing prices to plummet and affecting liquidity.
Non-Compliance Risks
If a project fails to comply with legal requirements, it may face several legal battles that could ultimately be detrimental to its growth. This may impact the token’s value by creating speculation among investors. Additionally, legal cases may cause projects to divert funds meant for operational efficiency into fines and other legal settlements.
Lanchpad VS Launchpool: What is the Difference?
Launchpads and launchpools both help investors stake crypto to earn token rewards for future sales. However, while a launchpad is a platform that helps projects raise funds and allows investors to contribute to crypto startups, a launchpool is a specific feature of a platform that allows investors to stake crypto for token sale rewards. Examples include the Trustpad Launchpad and Binance Launchpool.
Frequently Answered Questions
Below are some frequently asked questions:
How can I get my project on a crypto launchpad?
To get listed on a crypto launchpad, you must first submit your project details, whitepaper, and team information for evaluation. After due diligence, including background checks and technical verification, you will set up fundraising goals and token sale parameters. The launchpad then handles marketing, promotion, and the execution of the sale while managing investor contributions.
How can I invest in a token sale?
To invest through a crypto launchpad, start by registering and completing identity verification (KYC). Research the listed projects, focusing on the team, technology, and market potential. Participate in the token sale by staking your stablecoin or other crypto assets for a specified period. After investing, monitor your token’s performance, access your tokens, and explore trading options.
Bottom Line
In summary, crypto launchpads play a crucial role in helping projects gain visibility, raise funds, and build communities. Besides, they also offer investors early access to promising opportunities. Despite these, both founders and investors are prone to regulatory risks and unguaranteed project success. So, understanding these factors can help you make informed decisions in the crypto world.
Additionally, the industry is growing, and in the next few years, launchpads may offer more opportunities as well as potential risks. Therefore, always be on the lookout for updates and conduct research before launching or investing in any project.
Disclaimer!: This article is solely for educational purposes, and no piece of information should be considered financial advice. Always do your own research (DYOR) before investing in any area of crypto.
