Initial Exchange Offering: Fresh Face for ICO or True Novelty?
Recent IEO of Fetch.AI Token (FET) was over in ‘about 10 seconds’ with 600 % price rush and $6M raised. Initial exchange offering or IEO seems to appear as one of the hottest trend of crypto in 2019. Swap.online explains whether it is really something game-changing and which other tendencies of 2019 it correlate with.
Initial Exchange Offering is the scheme of initial offering of cryptographic asset. Within the framework of classic ICO, the crypto is sent to the issuer of token to the specific address (most commonly, in Ethereum network for ERC-20 tokens). This address is specified on the project site. Usually, there are some stages of tokensale (‘early birds’ sale, pre-sale, private sale etc.) and the token price grows from stage to stage. Also, there is list of private important investors, ‘white list’, the members of which enjoy the privileges of special offers.
The IEO is quite another matter.
The IEO team sells the tokens on the exchanges from the very first day of offering. So, the exchange instead of the issuer is a counterparty for the buyer. The price for token is market-driven and is not announced by the issuer. Neither ‘white-lists’ nor stages of sale with different prices are envisaged. As a result, the purchasing of the new project’s token is quite similar with the ‘old’ tokens.
IEO or ICO?
In a word, IEO is much safer for the purchaser and much harder for the team than the ICO.
With the significant reputational risk, cryptocurrency exchanges are strongly incentivized to check the token issuer and analyze the quality of their offering. As a consequence, IEO exchanges develop a fiduciary relationship with token buyers as they perform the due diligence that institutional investors traditionally heavily invest in. Given the prevalence of fraud in the ICO world, this is a huge benefit for token buyers that purchase IEOs from reputable cryptocurrency exchanges.
There are also advantages to exchanges that complete successful IEOs. This advantage is access to new and, potentially, exclusive markets depending on the negotiating power of the exchange.
Finally, there are some obvious advantages of IEO for the teams-issuers. From the very first day of offering, they get the access to audience already addressed by the exchange. The teams are also got out of troubles with payment infrastructure as all the proceedings are conducted by the exchanges’ means.
By the way, the IEO scheme represents some disadvantages for teams.
This type of offering is rather costly, as the offering fee amount starts from 20 BTC in the South Korea.
Also, the marketplace may require a certain percentage of the total amount of funds raised. Finally, assuming the security risks, the exchanges impose severe compliance procedures putting projects, teams, investors, their business and marketing activities under the microscope.
Brief History of IEO
For the first time, this scheme was used in far December 2017 for the offerings of BREAD (ERC-20: BRD) and Gifto (ERC-20: GIFTO). These tokens were disseminated via Binance Launchpad, the platform by the well-known centralized exchange, Binance. There’s one interesting thing: the term ‘IEO’ wasn’t used; both offerings were called ‘the fastest ICOs’.
The first one lasted four minutes, the second one — minute and a half.
The term itself started making the rounds in Summer, 2018 in lockstep with the growing interest to STOs, Security Token Offerings. Thus, the STOs and IEOs should be considered as two facets of one process — the aspiration to combat the vulnerabilities of ICOs. The exchange in the IEOs and the regulator in the STOs play the same role as them both eliminate the lack of trust between investor and the project team.
In December, 2018, the South Korean Blockchain Association published the guideline for the IEOs in this country. It consists of 166 points which the IEO participants are to comply with. It resulted in the new stage of interest to initial exchange offerings due to the PR-activity of the Binance exchange promoting Binance Launchpad.
So, we see one more attempt to regulate the coin offering anarchy. Well, maybe the exchanges, not the governments, will be the best regulators…