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.
How Does An Initial Exchange Offering (IEO) Work?
Step 1: When a token sale is announced, instead of submitting contributions to a smart contract, IEO participants create an account on the respective exchange platform.
Step 2: They fund their coin exchange wallets and hire those funds to purchase the tokens of the start-up of the fundraising blockchain.
Step 3: In return, a listing fee and a percentage of the tokens are sold during the IEO.
Step 4: 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 start-up 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 build an account on the exchange.
Step 3: You will have to go through a sought-after verification process to decrease 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 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 Offering got canceled.
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 ethereum.
- 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 requires its 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.
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 start-up conducting the ICO token sales; In 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 public and investors’ attention, 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 can be launched by a startup, but it is needed in the IEO and the company’s exchange screen before it enables 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
- 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.
For investors, exchanges, and ventures, IEOs provide excellent opportunities. In addition, 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 it should be noted that IEO do 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 in the crypto industry which cannot be denied!