What is an Initial Exchange Offerings (IEOs) – An Overview
Unlike Initial Coin Offerings (ICOs), Initial Exchange Offerings (IEOs) is administered by an exchange on behalf of the crypto startup that seeks to raise funds with its new coins.
As the coin sale is conducted on the exchange’s platform, issuers need to pay a fee along with a certain % of all the tokens sold during the Initial Exchange Offerings (IEO).
In return, the tokens of the startups are sold on the exchange’s platforms, and their coins are listed for sale after the end of IEO.
As the cryptocurrency marketplace takes a percentage of the coins sold by the startup, the exchange make the marketing process easier.
Initial Exchange Offerings (IEOs) participants do not send contributions to a smart contract. They’re simply required to signup for an account on the crypto exchange’s platform hosting IEO.
The contributors then fund their wallets with coins and use those funds to buy company’s tokens.
History of Initial Exchange Offerings (IEOs)
The long list of negative press coverages as a result of so many fraudulent ICOs between 2017 to 2018 forced blockchain startups trying to seek alternative ways to fund new crypto projects.
As opposed to ICOs, new projects began to launch Initial Exchange Offerings (IEOs). The new funds raising method allows the innovators to get much needed money for their blockchain projects without breaking the law or be in the crosshairs of authorities.
IEO vs ICO
Initial exchange offerings are pretty much the same as ICOs, except for the fact that the coins are offered through an exchange, rather than offering them directly to investors.
Initial Exchange Offerings (IEOs) vs Initial Coins Offerings (STOs)
STO stands for Security Token Offerings. As the name suggests, STOs sell securities. And most importantly, they are regulated.
Companies must abide by certain rules, and investors enjoy more safety. Also, because of higher requirements, Security Token Offering are expensive to launch than ICOs.
Initial Exchange Offerings (IEOs) are the latest to join the crypto fundraising family. Companies make coins available to purchase on a crypto exchange, rather than soliciting funds from investors directly.
The advantages include an ensured listing, access to the exchange’s database, and coin validation.
Impact of IEOs on Crypto Exchanges
The IEO method is simpler, easier and more streamline in the eyes of crypto traders and investors. That’s one of the big advantages IEOs enjoy.
While with Initial Coin Offerings (ICOs) a prospective investor has to seek for them and learn how to participate; making the process complicated -, with IEOs you’re ready to participate from the start. Assuming the IEO is backed by an exchange site you’re registered with; all you need to do is log in and purchase your crypto.
There’s no need to register using random sites or look into what payment methods the project accepts. Whatever payment method the exchange is always using, the IEO will accept also.
Beware that IEOs max supply are often lower than ICOs. This means that, for projects with high media coverage, the Initial Exchange Offerings (IEOs) tokens might sell out within minutes.
There are reported cases of crypto exchanges hosting certain popular IEOs going down; making it hard for participant to get in at lower prices.
While some crypto exchange websites try to anticipate the number of users that may attempt to access an IEO at a particular time, it’s almost impossible to account for bots and automated software. At the end, developers can only ‘wait-n-see.’
Pros of IEOs
Trusting the team and exchange conducting the IEO is can give it some advantages over others. Crypto exchanges are very careful who their partner with and let into their systems. Why? Because their reputation is at stake. Every IEO project wishing to be listed on their platform goes through a strict screening process.
By using crypto exchange platforms, IEOs are considered more trust worthy because most exchanges have already proved and established themselves with the crypto community and investors.
Token issuers do not have to worry about crowd sale security as the exchange is managing the IEO’s smart contract.
The AML and KYC process is also done by the cryptocurrency exchange as most providers do KYC and AML on their customers after they finish creating their accounts. – KYC means Know Your Customer while AML stands for Anti-Money Laundering -.
Token issuer startups benefit from the more flawless process of launching IEOs on exchange platforms compared to doing their ICOs by themselves.
Any blockchain or crypto project wishing to raise fund through an exchange with IEO must pay the exchange owners a fee and/or percentage of money raised. The IEO project enjoys many benefits; including having access to the exchange’s existing customers.
As a result, less marketing dollars and efforts are needed to promote the project. That was not the case with ICOs.
IEO investments tend to have higher returns than ICOs due to the fact that most have real use cases.
Cons of IEOs
The crypto exchange holding the fund raising for the project will be the initial exchange or listing place for the coin or token.
Running a IEO, however, is not cheap. The costs can add up very quickly. As a startup, it’s imperative to implement cost-cutting measures in order to have a successful Initial Exchange Offering.
Final Thoughts on Initial Exchange Offerings (IEOs)
Initial Coin Offerings (ICOs) pioneered the fundraising scheme for crypto projects in 2017. At the high of the ICO gold rush between 2017 to 2018, it is estimated that investors pour in a whooping $117b in ICO projects. However, a significant percentage of the crypto projects were frauds.
On the other side, IEOs provide an increased level of trust for cryptocurrency projects, because the exchanges hosting the crowd sales actively participate in the fundraising process, which improves the efficiency of the sale.
As a result, IEOs have, over the pass few months, created win-win situation for blockchain project owners, crypto exchanges, and investors.
However, as Initial Exchange Offerings (IEO) is still on its early stages, legal authorities need to step in to help make IEO projects a win-win for all parties involved.