Are IEOs the new ICOs? What is an Initial Exchange Offering (IEO)?
In a time where the ICO market is swamped, with new projects popping up on a daily basis, investors are more reluctant than ever to invest in the latest ICO project. Today we want to discuss Initial Exchange Offerings (IEO), what they are, as well as their benefits, and how they are a possible serious alternative to the ICO model.
What are IEOs?
First, some history to set the scene: In 2013 Mastercoin created the first Initial Coin Offering (ICO) and in the years since then thousands of ICOs have surfaced, creating a bubble that peaked in 2017, with more than 50 ICOs per month at the end of last year. This flooding of the market, along with the saturation and noise in the market, resulted in the brutal failure of more than ½ of 2017s ICOs by February of this year.
Many projects are re-evaluating and questioning the benefits of an ICO, because not only is it challenging to find a voice and market in the midst of thousands of other projects, but also regulations are coming that will further limit the effectiveness and perks of the ICO model.
Because of the change and evolution of the crypto market, new fundraising options and models must be explored and developed. One such model is the IEO: token projects are now deciding to list their tokens on one or multiple exchanges directly instead of setting up a “traditional” ICO and then hoping and praying investors will find them in the whirlwind of the marketplace.
What is an IEO?
Essentially, an initial exchange offering differs from the conventional ICO model in one key aspect. Rather than the token being distributed through the project, and the token being sent to investors wallets, the tokens are distributed through an exchange. This means investors buy the token directly on an exchange. The main benefit of this model is that once the IEO is completed, the tokens are immediately ready to be traded on an exchange, giving investors more freedom and security.
This attempts to solve a problem the ICO model is facing now more than ever. Almost 90% of ICO projects do not manage to list their token on an exchange. After the ICO is completed investors are unsatisfied and frustrated, and with no choice but to hold the token. IEOs skip this step, by combining the ICO and listing processes into one simple step. It is an easier and more efficient process for projects and traders.
In theory, serious exchanges will only host IEOs for serious projects, giving the project a more trustworthy reputation in the eyes of investors. Projects that take themselves seriously of course want this legitimacy boost and reap the benefits of the elegant solution that IEOs bring to the ICO market.
IEOs are a partnership between the token projects and the exchange, one where trust and transparency matter more. And this partnership of trust becomes a key part of the value proposition and benefit to all parties, including investors and traders.
Both token projects and exchanges are looking for that 20% of the community that is active and engaged, the part of the community that’s interested in real growth and value generation.
In an IEO the projects use this partnership for the public sale of their tokens on the exchange. In this case, the exchange acts like a marketplace for new tokens. Investors can buy the tokens directly on the exchange, and once the IEO time is up, can trade these tokens theoratically immediately.
Benefits
- A strong defense against scams: Investors can be sure that the project does not vanish once the crowdfunding is completed. The exchange itself has a vested interested that the quality of the project is high and is viable as the exchange’s reputation is tied to the projects they list. “The exchange has skin in the game”
- Ease of use: Investors sign up to purchase the token on the exchange. During the IEO period purchases of the projects, token are straightforward and no additional fees are incurred. The investor is also assured that the token immediately moves into the regular marketplace once the IEO is finished. For the developers of a promising project, it allows them to focus on their core business activities while the exchange handles the details of the fundraising efforts.
- Credibility: As an exchange has a duty to its own stakeholders and traders it performs a thorough due diligence and review of each project and because it’s actively partnering with each project the investors benefit from this enhanced vetting process.
- Transparency: The price of an IEO is set prior to the token listing itself and remains fixed during the IEO phase; investors can see exactly what they’re getting for their ETH.
- Rewards programs: Airdrops and Bounties still work with IEOs and the disbursement of reward tokens is incredibly straightforward and easy to use.
These are the main benefits an IEO holds over an ICO, and in a time where the ICO market is completely flooded, these little boosts IEOs bring to the table can help make the difference for a project.
But please notice: the token that is offered for sale does not constitute an endorsement or recommendation of those tokens by any exchange. You should always do your own research and seek your own legal and financial advice before any participation, just as you would when participating in an ICO. Whilst IEOs are supposed to increase the transparency and security of the ICO model, it can still be abused by both unserious projects and unserious exchanges.
Nevertheless, IEOs have a clear edge on ICOs in the current market state, and should be seriously considered by any project trying to stand out of the crowd. As XTECH we are proud to announce that we will be hosting IEOs when our platform launches, to provide our traders with additional investment and trading opportunities.
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