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 crowd offerings (ICO), a new approach Initial Exchange Offering ( IEO) came as a hot trend of 2019
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!!
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 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.
Is It Safe?
Usually, when you buy tokens through an IEO, you also own the knowledge that exchange did its own research for launching a coin that has a future. Its all depends on the exchange’s interest to not burn its customer base by issuing dogy tokens. It is always better to be careful of the exchange you’re buying from. Also, consider the potential motivation it will have for listing IEO.
You also have to undergo know-your-customer(KYC) and anti-money laundering (AML) checks, depending on the exchanges you choose. Suppose if it gets well implemented, it will add an extra layer of investor protection, making it difficult for illicit investors to participate in.
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 Initial Exchange Offering 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, Initial Exchange Offering 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 Initial Exchange
- 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!
Exchanges Offering IEOs
Binance was the first IEO-conducting exchange which 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.
Basically, 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 made an attempt to launch its first token in the mid of March 2019 but due to some unforeseen behavior, the Initial Exchange
Bitmax also launched its launchpad by presenting Decentralizes Oracle Service (DOS) to its investors. OKEx also announced its own program called OK Jumpstart. This is the one which aims to incubate high potential projects and support to early entrepreneurs. Furthermore, EXMO cryptocurrency platform launched an IEO in February 2019. They chose Paytomat as its first project partner. Other major launchpad projects that 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 in the form of a token being sold or a listing fee in bitcoin or
- As exchange will work closely with the marketing department of the project to sell tokens, the exchange will use this opportunity to sell its services to the public.
- As Initial Exchange
Offering requiresits investors to sign up on the exchange, it is possible for the exchanges to 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 need to consider, prior to the partnership 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. Suppose, if the exchanges don’t see success in the project, then they will not want to associate themselves in 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.
- Basically, 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, major exchanges don’t yet support trading of security tokens. Eventually, if you are willing to hold an IEO, it is very much advisable to have utility 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!