We are familiar with the term Initial Coin Offering (ICO). In fact, 2017 and 2018 were the year of ICOs. The startup firms in the crypto field raised money for their projects through ICOs. The company first prepares a whitepaper which is a detailed layout of its plans and future goals. The investors invest in cryptos in exchange of their fiat money or crypto they hold.
The firms can easily raise funds with ICOs because they don’t have to go through the rigorous capital raising process as required in banks or venture capitalists. But there is a major issue with an ICO. They are unregulated and so the investors very easily fall prey to frauds and scam artists. And without the backing of any financial authority like SEC, the funds lost through fraudulence are never recovered. Few countries have even restricted ICOs. To overcome this situation we were introduced to another option IEOs. Let us first understand what an Initial Exchange Offering (IEO) is.
Initial Exchange Offering (IEO)
The Initial Exchange Offering is the sale of tokens done through an exchange. The exchange acts as an intermediary between the firms who want to launch their projects and investors. Therefore, IEO is not open to the public. You have to first open an account with the exchange in order to participate in the token sale. Put your ethers into the account and use them to purchase cryptos directly from the exchange.
The exchange and the firm reach an agreement where the exchange provides the firm its platform to raise funds. The exchange thoroughly reviews the project using their conditions to make sure that the project is really authentic. After satisfying itself, it unveils the date on which the tokens will be issued. It also mentions the fixed price per token and also caps the contribution per individual.
IEO Vs ICO What is the basic difference between an IEO and ICO?
- The biggest drawback of an ICO was that there was no third-party to monitor it. Anyone can launch an ICO if they have a white paper to convince the investors to invest their money. IEO has a completely different model. Here the exchange acts as the administrator and monitors the whole process strictly. The exchange itself verifies the projects for which the money has to be raised.
- The investors are completely protected in the case of IEOs. You may argue that the exchange can join hands with the firms to scam investors. But remember this will put the exchange’s reputation at risk and if they want to build a sustainable business model they will never take such an unethical move. But recently a cryptocurrency IEO exchange Bgogo made a false announcement of Algorand token sales even before the Algorand team made it. Regarding this false information, the Algorand officially announced on their twitter tweet.
- Those who participate in IEOs completely trust the exchange and need not to worry regarding the project authenticity. So they can invest early and make a profit once the value starts increasing. The developers also don’t need to worry about the promotion, liquidity, operational hassles, etc. Last month, Bittrex International cancelled one of its first IEO of RAID tokens. Bittrex made this announcement officially on their website with proper reasons for RAID’s business status transparency.
- IEOs are very easily and immediately tradable compared to ICOs.
- The projects under IEOs generate tokens and send them to the exchange whereas in case of ICOs the tokens are minted after the funding process gets completed.
It is also to be noted that recently many industry players criticized IEOs for being a centralized thing. Jeff Dorman of Arca Funds feels “The irony, of course, is that this is directly at odds with the decentralized ethos embedded in crypto, but this has been conveniently ignored as long as it’s working.”
How to Launch an IEO?
The process of launching an IEO is similar to ICO launching but there will be slight changes here and there because of the involvement of Exchange. Let’s see the whole process in detail:
You need to take utmost care of the basic things of your project which are as follows:
- Tokenomics — You need to give proper use case of your project in the real world. Your whole project idea lies in this Tokenomics.
- White Paper — I don’t think I need to tell more about this document as this is the base for your project.
- Team — Make sure that your team is having individuals from all business sector to take of executing the project plans.
- Financial Model of your Project — You should have proper plans on how you are going to use the raised capital for the development of your project further.
- Description, use cases, advantages and usefulness of the created product/technology — A to Z about your product that you are going to create using the capital raised.
All the above-mentioned things should be crafted with care. Because all these things will be reviewed by the Exchange team where you are planning to launch your token sale.
Getting Legal Opinion
Mostly every exchange will ask for a legal opinion and some even will have its own requirements that your project should meet if you want that exchange to list it.
Choosing the Exchange where you want to list your Project
Here comes the main part of the IEO launching process because this is when you will send all the above-prepared things to the exchange review team. You can get in touch with the exchange through the agencies and exchange partners.
It is advised to get your project reviewed from various exchanges before you chose the exchange for the listing. The following are some of the famous exchanges which have IEO platform.
- https://launchpad.binance.com/ — IEO Application Form
- https://international.bittrex.com/ — IEO Application Form
- Huobi Exchange — https://www.hbg.com/ — IEO Application Form
Marketing & PR
It is not much required for you to focus/invest in marketing about your project because the exchange will take care of this part. But still, it is advised to have a small SMM team to take of care public announcements and other things before and after listing your project in IEO.
It’s very much important to interact with the community on various forums and social media such as Reddit, Bitcoin Forums, Telegram Channels, Medium blogs, etc. This will create a good positive effect on your project which in turn will obviously help in generating good sales during the IEO.
The IEO model has shown a lot of potentials and has proved to be beneficial for both project developers and investors. Therefore, as long as the firms do justice with their coins and exchanges conduct proper research- All is well! The investors get a safe environment to invest in new coins, the exchange get new users to trade and invest and the project receives publicity along with the necessary funding. IEO is the future of the crypto industry without any doubt.
Originally published at http://insights.turinglabs.io on April 29, 2019.