The last couple of years have seen a drastic shift in how crowdfunding is staged, side-lining Initial coin offerings (ICO), an Initial Exchange Offering (IEO) has emerged as a hot trend of 2020.
Are you wondering what IEO is all about? Is this similar to ICO? How does it work? And many more questions might be striking your mind right now!!
Well, keep your eyes glued to the screen while we clear your doubts!!
On due diligence, I have gathered detailed information on IEO. Let’s get started…
Table of contents
What is IEO?
An Initial Exchange Offering (IEO) is the crowdfunding platform that enables crypto projects to fundraise directly on exchanges. IEO’s are similar to Initial Coin Offerings (ICOs) and are administered by crypto exchanges instead of the startups that seek to raise funds with their newly issued tokens.
It is a new way of crypto-banking that is steadily attracting the interest of traders across the globe. This is a unique type of approach where the exchanges act as a middleman/broker between contributors and projects.
How Does An Initial Exchange Offering (IEO) Work?
When a token sale is announced, instead of submitting contributions to a smart contract, IEO participants create an account on the respective exchange platform.
They add funds to their coin exchange wallets. These funds can purchase the tokens of the startup of the fundraising blockchain. In return, a listing fee and a percentage of the tokens are sold during the IEO.
This whole mechanism is regulated by crypto exchange, along with the marketing process.
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 Initial Exchange Offering. Once you find a relevant project, follow the below steps:
Step 1: First of all, by reviewing the startup or development team’s website, you need to be sure whether an IEO can take place.
Step 2: You need to know about the exchange that the IEO is going to execute. You will move on to the next stage if you are already listed on the exchange and have a wallet. If not, to participate in the IEO, you need to open an account on the exchange.
Step 3: You will have to go through a sought-after verification process to reduce safety risks once you are registered with an exchange.
Step 4: You now have to find out which crypto alternative is available. The options for ETH Ethereum and BTC Bitcoin over the exchanges are usually open.
Step 5: Finally, you must wait until your IEO Initial Exchange Offering begins.
Exchanges Offering IEOs
Binance was the first IEO-conducting exchange that opened its token launchpad service in 2017. Bread ($6 million) and Gifto ($3.4 million) token sales were the first projects to jump off the launchpad. These were followed by BTT, Fetch.ai, and Celer Network token launches.
The exchange accepts its own BNB utility token as payments for IEO tokens. Also, there are many more projects to be added in the future. Various other exchanges also followed the suit. Bittrex exchange attempted to launch its first token in the mid of March 2019 but, due to some unforeseen circumstances, the ICO was discontinued.
Bitmax also launched its launchpad by presenting Decentralized Oracle Service (DOS) to its investors. OKEx also announced its program called OK Jumpstart. This is the one that aims to incubate high potential projects and support to early entrepreneurs.
Furthermore, the EXMO cryptocurrency platform launched an IEO in February 2019. They chose Paytomat as its first project partner. Other major launchpad projects that were confirmed were the KuCoin Spotlight and Huobi Prime.
How Do Exchanges Benefit From IEO?
After you know about the exchanges offering IEOs, the next question that pops up is how can these exchanges benefit from IEO:
- An exchange could request payment for tokens sold or a listing fee in bitcoin or Ethereum.
- Exchanges work closely with the marketing department of the project to sell the tokens. They use this opportunity to sell it’s services to the public.
- As Initial Exchange Offering requires its investors to sign up on the exchange. The exchanges can keep a record of the increased user registrations as well as trading volumes.
Cryptocurrency Projects Qualifying To IEO
There are a few critical points that the projects should consider, before partnering with an exchange. After a detailed study of the early Initial Exchange Offering success stories and also about the exchanges that are launching IEO platforms, here are a few factors to be considered:
- Most of the ICOs have no business crowdfunding from knowledgeable and discerning investors. If the exchanges don’t see success in the project, they will not want to associate themselves with it.
- It is quintessential for any project to have a clean website and detailed documentation about how the project can succeed and why the associated token will increase its value.
- It is compulsory to have a large and active community. This will be beneficial to attract new users to their platforms.
- It is also beneficial if you have a reputable team with quality advisers. Because the projects with an under-qualified founding team, or with no real team to speak of will be immediately dismissed by exchanges.
- You can always build strong public relations by publishing PR on leading fin-tech and crypto publications as it will help expose you to new audiences.
- Security tokens are quite trending these days. But, the majority of exchanges do not yet support the trading of security tokens. Eventually, if you are willing to hold an IEO, it is much advisable to have utility tokens.
Differences between IEO and ICO
1)Fundraising is carried out on the token issuer‘s website in the case of ICO, while IEO makes use of the digital exchange platform that conducts token sales.
2) The ICO crowd sales counterparty is the developer of the project, but it is the cryptocurrency exchange in IEO.
3) The smart contract is operated by the company or startup conducting the ICO token sales; In the case of IEO, it is the cryptocurrency exchange that operates the smart contract.
4) In ICOs, the marketing budget needed by fundraising firms is considerably high. To get the attention of investors the project will have to spend a lot of money. The marketing budget is relatively limited in the Initial Exchange Offering as the exchange aggressively markets the startup’s tokens.
5) There is no screening necessary before an ICO. It can be launched by a startup, but it is essential in case of IEO. The exchanges screen the companies before they enable it to fundraise on its website.
6) Another difference is that ICOs mint their tokens only after the funding is completed while tokens are created by the project and sent to the exchange platform in the case of IEO.
7) The IEO offers greater liquidity, accountability, and stability than the ICO does.
Advantages of IEOs
- CEOs 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 CEOs on different platforms, crypto exchanges are indirectly confirming the reliability and prospect of a project.
- Token issuers need not worry about the crowd sale security as the exchanges manage the IEO’s smart contract.
For investors, exchanges, and ventures, IEOs provide excellent opportunities. Also, they are becoming an increasingly significant component of the crypto ecosystem. While users can not yet participate in most of them in countries like the United States, such cooperation between exchanges and users brings more legitimacy to the altcoin space.
This, in turn, may tip the scales towards more effective regulations for all. However, IEO does not come with guaranteed returns, despite being an attractive choice!!! So be cautious and responsible with your hard-earned cash.
If you ask me whether IEO is the alternative for ICO? Absolutely yes! IEO will be the future of the crypto industry!