An Initial Exchange Offering is a token sale on a cryptocurrency exchange and is exclusively available to the exchange’s users. In many ways, IEOs function just like ICOs – a set amount of tokens is available for sale at a fixed price, and there is usually minimum and maximum contribution limits set per user.
An IEO is rolled out by a cryptocurrency exchange on behalf of startups on a fundraising mission. Normally, when the exchange conducts the token sale, token issuers pay a listing charge alongside the percentage of the token sold during the IEO. In the end, the coins are listed on the exchange after the IEO closes. Furthermore, the exchange is incentivized to assist the token issuer conduct marketing.
Notable Differences Between IEOs and ICOs
IEOs are gaining popularity and they might be taking over ICOs as a way of raising funds. The main question is how the two platforms differ? Here are the basic differences between IEOs and ICOs.
Subject to the agreement between the developers and the exchange, conditions traditionally found in an ICO can be emplaced in an IEO. These conditions include capping the contribution per individual and having a fixed price per token.
With ICOs, we expect participants to send their contributions to a smart contract. However, this is not the case with IEOs. IEO participants create an account with the exchange where the offering is run. The contribution received is used to fund the exchange wallets with tokens. The funds go into purchasing tokens from the company conducting the fundraiser.
IEOs are immediately tradable once they hit a cryptocurrency exchange. The same does not apply to ICOs. In some cases, once an ICO is over the coin might not even be listed on a cryptocurrency exchange. This might be the worst part of ICOs.
Another difference is that ICOs have the potential of attracting investments. On the other hand, IEOs can make the stock markets actively participate in the fundraising process. This capability makes IEOs a promising platform to look out for.
Another notable difference is that IEOs have an intermediary to the fundraising model. This approach boosts the confidence of investors in the project. On the other Initial Coin Offerings are direct without any third party.
Lastly, Initial Coin Offerings are known to mint tokens once the fundraising comes to a close. However, for IEOs, projects generate tokens and send them to the exchange platform.
Advantages of IEOs Over ICOs
During the ICO boom of 2017/18, scammy projects dominated the market something that eroded investor confidence in the model. With IEOs, there is trust. Cryptocurrency exchanges usually do due diligence and partner with the offerer before listing the token. Exchanges seek to maintain a good reputation by conducting a thorough vetting of tokens before carrying out the IEO. As a result, IEOs can eliminate scams and dubious projects from raising funds via cryptocurrency exchange platforms, and it becomes much harder to scam contributors with IEOs.
This is a major concern for token issuers. Security factors also affect the number of investors who will take part in the crowdfunding. However, with IEOs, fundraising startups don’t have to worry about crowdsale security since the exchange is taking care of the IEO’s smart contract. The KYC/AML process is also handled by the crypto exchange as most service providers do KYC/AML on their customers after they create their accounts.
When issuing tokens through established exchanges, startups benefit from a flawless process. This is contrary to issuing ICOs. The exchange takes care of everything. The token issuers are only required to pay fees for listing and a percentage of their tokens. The cryptocurrency exchange helps with marketing. Generally, startups launching their tokens on exchanges require a lower marketing budget than if they decide to go with an ICO. Furthermore, startups can tap into the exchange’s customer base to receive more contributions to their projects.
As seen earlier, after an IEO is over, startups are guaranteed an automatic listing on an exchange. This is not the same case for ICOs. While IEOs seems like a more secure and efficient alternative the costs associated with token sales can be high for startups. Listing fees can go as high as 20 Bitcoins while exchanges can even take a 10% cut from the tokens of the fundraising startups.
Elimination of Scams
The Initial Exchange Offerings have the potential of eliminating scams within the ICO sector for good. Many investors have lost money in the past due to scammy ICO projects with many perpetrators going unpunished. By making contributions through cryptocurrency exchanges, investors will get to lower the chances of losing their funds to scammers. As seen earlier, exchanges do conduct vetting of projects before taking part in IEOs. Scams in the cryptocurrency sector are the reason behind the slow adoption for the digital currencies.
Do Exchanges Benefit From IEOs?
The exchange business is a profitable one. Exchanges earn money through ventures like trading fees. However, the exchange market is getting competitive and trading platforms need to find ways of staying ahead. So how does IEOs benefit trading exchanges?
First IEOs help exchanges boost their revenues through listing fees. The amount charged varies depending on the type of exchange. Secondly, we have an influx of new users who deposit funds to take part in the IEO. In the end, some of the users maybe become permanent and loyal members.
How to participate in an IEO?
At the moment, we have a small number of IEOs, however, their popularity is on the rise. To participate in an IEO, you need to identify one that interests you. After you have settled on one, you need to find which exchanges are hosting the crowdsale.
Register with the exchange and ensure you complete all security measures in place like the Know Your Customer and Anti-Money Laundering verification process. When the registration is done, look at the cryptocurrencies you can use to take part in the IEO. Deposit the cryptos in your account. The last step is to sit back and wait for the IEO to start buying your tokens.
A number of prominent trading platforms are already welcoming IEOs. The first exchange is Binance. The exchange recently unveiled the Binance Launchpad for IEO. In early 2019, Tron bought BitTorrent through a sale initiated on Binance Launchpad and raised $7.2 million in less than 30 minutes.
The Binance Launchpad success made other exchanges to unveil their own IEO platforms. We now have the Bitmax Launchpad, Bittrex IEO, OK Jumpstart (OKEx), KuCoin Spotlight, and Huobi Prime. Note that Bittrex had planned to take part in an IEO by hosting the RAID token. However, the IEO that was set for mid-March was dropped. The exchange has not clarified the reasons behind the decision.
Note that most IEOs are by Asian exchanges. However, the European market is waking up. Exchanges like Paytomat launched the EXMO platform. Paytomat is a ready-to-use solution for getting businesses and crypto users together. The platform seeks to push for mass adoption of cryptocurrencies. The platform supports overs 18 popular crypto tokens with over 300 registered merchants across various industries all over the globe.
What is the Future of IEO?
During the ICO boom in 2017/18 many projects hit the market. However, the results were very distractions as the projects were run by scammers. As a result,, many authorities ended up banning ICOs as a measure of investor protection. Additionally, jurisdictions such as the United States have put in place strict measures to avoid scammy projects from hitting the market. Generally, ICOs are not the perfect model of fundraising for startups.
We can now focus on IEOs because they are solving all the gaps by ICOs. With IEOs, we have trusted since exchanges conduct thorough vetting. High trust levels make the crowdfunding process very efficient. We can conclude by stating that IEOs have the capacity of turning out to be the standard platform for raising funds. Time will tell if we will witness an IEO boom just like the ICO boom.
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