In the world of cryptocurrencies there are many basic concepts that we must know in order to be able to manage better. One of them is IFO or Initial Farm Offering. In Spanish, it means Initial Farm Offering. When it comes to launching projects, fundraising is a crucial step to guarantee a correct development of the project and an IFO is one of the best ways to achieve it.
IFOs are a form of fundraising in the crypto world, just like an ICO, IEO, IPO or any other form of fundraising. The novelty of IFOs is that they seek to take advantage of the initial fame of DeFi platforms capable of yield farming. In this way, the necessary capital is raised to develop a specific project. Let’s understand it better…
The idea of IFOs started thanks to PancakeSwap and its CAKE token. In this project the idea started from letting LPs (liquidity providers) provide liquidity to the group, in exchange for delivering a token as a reward to the project, while burning CAKE tokens. In this way, everyone wins; project developers get the required funding (in tokens) and the PancakeSwap platform automatically burns the CAKE tokens, which would ultimately cause a benefit to the CAKE holders with an increase in the value of the token.
How does an IFO work?
As I said before, IFOs operate differently from what we are used to seeing in ICOs or IDOs. This particular way of operating makes IFOs a more transparent form of financing than ICOs, although ICOs are more frequent and better known. The transparency of IFOs comes from a certain function known as “Overflow”. This function makes developers indicate the amount of funds they want to raise and subsequently create a smart contract where the goal of the IFO (e.g. $8 million) is embodied.
With this operation, users will be able to inject the liquidity they want to the project and when the sale is over, the same users who have become liquidity providers will receive the % of tokens that correspond to them according to the capital contributed in the IFO.
Example of IFO
Let’s put this explanation into an example to better understand it: If only half of the 8 million dollars set as a goal in the project is raised, i.e. 4 million dollars, and of those 4 million dollars a supplier has contributed 4,000 dollars of liquidity, this supplier will receive 2,000 dollars in IFO tokens and the other half of the capital contributed will be returned to him in the tokens used to provide liquidity.
Although not a very common procedure, it ensures that all users will have a fair and equal level of participation. In addition, it prevents large amounts of IFO tokens from remaining in the hands of a few or a single user. In short, IFOs seek to achieve the greatest possible decentralization. For this reason they are the most transparent and decentralized form of financing, even above ICOs or any other financing method in the cryptocurrency world.
How to participate in an IFO?
If, after understanding how it works, you are willing to participate in an IFO, we will tell you how to do it easily and safely. The first thing to do is to find the official PancakeSwap website. Once you are on the website, look for the “IFO” option and click on it. Once you have done so, you will see an interface that allows you to participate in the IFOs available on this DEX.
Before choosing an IFO to participate in, we would like to remind you that it is very important to investigate the conditions of each project before you start participating in an IFO. After this step you will only need to activate your participation profile (which is quite simple) and finally you will have to follow the activation system to join the IFO you have chosen.
Do I expose myself to any risk by participating in an IFO?
Like everything else in this world, IFOs also have their risks. Among the dangers that all forms of fundraising present, IFOs stand out for two of them:
- That the project ends up not being so promising for users. This would mean that its use and value would not take off. If this situation were to happen, it would mean the loss of the investment transformed into IFO tokens, since these would have almost no value. This situation can occur whether there has been an overflow or not.
- If the overflow happens, the investment put into the project could be drastically diminished. This means that if the project is revalued, our earnings will decrease drastically.
Clearly, this type of financing and investing in it carries its own risks. That is why it is important to do our own research before deciding to invest.
If, despite knowing the risks, you decide to participate in an investment of this type in PancakeSwap, here are some security measures that may be useful to you:
- It is recommended that you use a browser oriented to the interaction with smart contracts and, on the other hand, use another one for your daily browsing. This is advisable, since in this way you will prevent any malicious script from breaching the security of your wallet and being able to extract the assets you store in it.
- Another tip to follow is to scan the network in which you interact with the IFO. The objective of having the network you are working on well located is to avoid loss of funds due to erroneous transfers between networks.
- If this is not a problem for you, it would be ideal to use separate wallets for each project. This way you can better control your cryptocurrencies, as well as access to your funds and wallets from IFO-related smart contracts.
Finally, we always recommend that you do your own research. It is crucial to know the project, as well as its developers, the community, the community behind it and other related elements. If you are sure you want to invest in a certain project, make sure you know its real objectives, the predicted evolution and the real chances of its success.
