After the Mastercoin project conducted the world's first active Initial Coin Offering (ICO) in July 2013, several blockchain ventures have used this method to raise funds. The ICO fundraising model, on the other hand, has a number of flaws, which has contributed to the creation of alternative tools for cryptocurrency projects to raise funds. The Initial Exchange Offering is one of these relatively modern approaches (IEO). IEOs first appeared in 2019 as a response to investors' the skepticism of initial coin offerings (ICOs). Since then, this form of fundraising has increased in popularity.
Initial Exchange Offering
An Initial Exchange Offering (IEO) is a new way for blockchain companies to raise money, in which the cryptocurrency exchange takes over the task of assessing and choosing ventures and selling tokens. IEOs are, in effect, a new type of ICO, with an exchange serving as a main project partner. The coins are mentioned only a few days after the campaign has ended.
Binance and their IEO website, Binance Launchpad, were the first major exchange to offer an IEO and popularize the practice. Binance launched its first IEO in January 2019, the BitTorrent Tokens (BTT) auction, which sold out in less than 18 minutes and raised more than $7.1 million. The new token was added to Binance's listings a few days later and saw an almost immediate price spike of over eight-fold. The success of BitTorrent's token sale on the most popular cryptocurrency exchange triggered a chain reaction. Other cryptocurrency exchanges also shown an interest in hosting similar asset offerings, and promising blockchain startups have begun to flock to them.
How an Initial Exchange Offering works?
The first steps in conducting an IEO are similar to those in conducting an ICO, with a few notable exceptions. IEOs are usually carried out in the following manner:
1. Developers come up with a blockchain product concept and write a white paper for their venture.
2. They then send an application to the crypto exchange that handles IEOs.
3. Experts from cryptocurrency exchanges assess the white paper, current trends, and the project's future prospects.
4. A date is set for the IEO if they agree.
5. To draw buyers, the cryptocurrency exchange and developers run a marketing campaign.
6. The sale will begin at the scheduled time. The crypto exchange's own token is frequently used to buy the IEO's product.
7. The new coin is added to the list of assets exchanged on the exchange a few days after the IEO.
Phase of verification
Since a crypto exchange's integrity could be harmed if a project turns out to be fraudulent, crypto exchanges usually conduct a comprehensive review of projects. Until agreeing to execute an IEO, reputable crypto exchanges conduct a thorough review of the white paper and other aspects of the project. This greatly decreases the costs to investors as well as the time they spend analyzing the plan on their own.
IEO Benefits and Drawbacks
An Initial Exchange Offering (IEO) is a form of investment with numerous benefits for investors, developers, and crypto exchanges.
Investors are better safeguarded against fraud. The project is being introduced on a cryptocurrency exchange that is conducting a comprehensive investigation into the project's feasibility and potential prospects.
Since the IEO is managed by an exchange, developers don't have to worry about the protection of the token sale. The exchange also manages KYC/AML procedures, reducing the need for developers to deal with them.
The exchange lists new tokens much more quickly. This is one of the most crucial things to remember. With ICOs, there have been several instances where a seemingly successful project received the requisite amount of funding but was not listed on common exchanges for an extended period of time, negatively impacting the popularity and price of the distributed tokens. Some tokens did not begin trading on online exchanges at all, resulting in the failure of ventures and investor losses. For an IEO, this is not the case.
The pace at which you can raise money. During an ICO, the initial distribution of tokens will take anything from a few days to a month. When an IEO is released, a predetermined number of coins are distributed to their owners in a matter of minutes or even seconds. As a result, startups are not left in a state of uncertainty for long periods of time, and investors are not forced to wait weeks for a project to collect the requisite funds.
The demand for the chosen projects' tokens is higher due to their greater durability, and investors benefit much faster.
It is simpler and less expensive for developers to run a marketing campaign, allowing them to concentrate more on the product development.
Crypto exchanges that participate in IEOs benefit from reverse marketing as well as a sizable listing fee.
Unfortunately, there are many drawbacks to this strategy of attracting investment in blockchain startups.
The entry barrier is incredibly high. Starting a project with an IEO is not inexpensive, and it is only open to developers who have some financial resources.
Since exchanges guarantee the viability and potential of projects chosen for an IEO, they lose their credibility if their analysts fail to properly assess the project.
Legal ambiguity exists with IEOs, just as it does with ICOs, which may cast doubt on the projects' prospects.
Potential investors must go through KYC/AML procedures to participate in an IEO, which can discourage some investors.
How to Get Involved in an IEO
As an investor, it's reasonably simple to participate in an IEO.
1. After you've agreed on an IEO to invest in, you'll need to figure out which exchange the token sale will take place on.
2. Sign up for an account on the crypto exchange if you don't already have one.
3. Verify your account and complete the KYC/AML requirements.
4. Determine the cryptocurrencies you can use to participate in the IEO and purchase the required sum.
5. Wait for the IEO to begin before buying tokens. Keep in mind that the tokens for the potential project could sell out quickly.
Also, keep in mind that, while an IEO is a safer investment option than an ICO, it is still extremely risky. Just invest money that you can afford to lose.
