At present, we can notice the rise of a new phenomenon, which has gripped the tech world and is changing the way in which startups raise capital, shifting away from Initial Coin Offerings (ICO), a new approach Initial Exchange Offering ( IEO) came as a hot trend of 2019.
On due diligence, I have gathered detailed information on IEO. Let’s get started…
Is this approach a good idea for traders? Well, a huge crowd in the crypto-world see the potential in this system and encourage others to get on-board.
What is an IEO?
An Initial Exchange Offering ( IEO) is the crowdfunding strategy that enables crypto projects to fundraise directly on exchanges. IEO’s are similar to Initial Coin Offerings (ICOs), and are administered by a crypto exchange instead of the startup that seeks to raise funds with its newly issued tokens.
Basically, it is a new way of crypto-banking that is steadily attracting the interest of ICOs and traders across the globe. This approach contributes to a unique type of exchange where the exchange acts as middlemen between contributors and projects.
How Does An Initial Exchange Offering (IEO) Work?
In both ICO and IEO, the startup is selling tokens to investors to fund the project. Startups that conduct an IEO depend on multiple exchanges to complete the crowdfunding campaign. During an IEO, investors will transfer money to the exchange’s wallet or smart contract. Further, the exchange will send tokens to the user.
With the introduction of token sale on the exchange’s platform, initially, token issuers need to pay a listing fee in addition to the percentage of the tokens sold during the IEO. In return, the tokens of the crypto startups are sold on the exchange’s platforms, and their coins are listed once the IEO is completed. As the cryptocurrency exchange takes a percentage of the tokens sold by the startup, the exchange boosts to help token issuer’s marketing operations.
Unlike ICO’s, IEO participants don’t transfer contributions to a smart contract. Instead, they create an account on the exchange’s platform where the IEO is conducted. Further, the contributors fund their exchange wallets with coins and use it to purchase the fundraising company’s tokens.
How to participate in an IEO?
Initially, the first step to participating in an IEO is to check if the project you are planning to crowdfund is conducting an IEO. Once you find a relevant project follow the below steps:
- Analyze which exchanges are conducting the IEO.
- Create and log into your account on the exchange by passing their KYC procedures and whitelisting.
- Find out which cryptocurrencies are accepted in the IEO and fund your account in a proper manner.
- Wait for the IEO to start and further you can purchase your tokens!
Advantages of IEOs
- IEOs make it easier for a huge crowd to participate in the crowdfunding process.
- The IEO process mainly aims to eliminate scam in the crypto fundraising sector.
- By hosting IEOs on different platforms, crypto exchanges are indirectly confirming for the reliability and prospect of a project.
- Token issuers need not worry about the crowdsale security as the exchange is managing the IEO’s smart contract.
Considering all things, there is no doubt that IEO will continue to rise with time. This new approach may bring a new group of users. It might help to make cryptocurrencies and exchanges more engaging in the crypto market. As time flies, the IEO may upgrade the present crypto-banking for something better .
If you ask me whether IEO is the alternative for ICO? Absolutely yes! IEO will be the future in the crypto industry which cannot be denied!