What is IEO?
Initial Exchange Offerings (IEO) appeared in 2018. How does it work? What is the difference between ICO and IEO? Let’s see together!
The key difference between an ICO and an IEO is the exchange’s key role in the selection of promising and viable projects.
Tokens in an ICO may be listed on an exchange several months after the tokensale concludes, rather than immediately. In the case of IEO, the exchange is initially the key partner of the alternative tokensale organizer. As a result, the latter creates tokens and sends them to the exchange. In turn, the exchange distributes the digital assets to interested investors who are verified trading floor users.
An IEO participant must register (and usually be verified) with an exchange, transfer funds to an account, and purchase coins from the exchange directly after the start of the token sale, as opposed to sending funds to a smart contract as is customary for an ICO investor.
The agreement between the exchange and the IEO organizer may include terms such as a maximum volume of token sales per investor, a predetermined asset price, a hardcap and softcap, a percentage of sales and a fixed amount of funds for the trading floor, the distribution of marketing costs, and so on.
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Why do we need IEO, when we already have ICO?
The field of initial coin offerings (ICOs) has grown rapidly in recent years, but by the end of 2018, it had nearly exhausted itself. Legal uncertainty, the emergence of many pacifier projects, fraud by token-sale organizers, a lack of mechanisms to protect investors’ rights, and the tightening of financial regulators’ measures are all contributing factors.
The improved method of raising funds may be a natural result of the evolution of initial coin offerings, repeating their success and restoring trust in tokenseals.
Why is IEO attractive to investors?
The exchange performs due diligence on projects, assessing their investment attractiveness, product viability, risks, financial condition, market position, and so on. The fact that the trading floor takes on reputational risks boosts investor confidence.
ICOs are increasingly replacing private coin offerings, which are typically only available to large investors. IEOs democratize the process of investing in digital assets by making it available to a broad range of participants.
The possibility of so-called “gas wars” is eliminated if the exchange with IEO is centralized. This is a scenario in which Ethereum-sending tokensale participants compete by setting high gas limits. This is done to speed up transactions and to be the first to obtain the coveted tokens.
What are the benefits of IEO for exchanges and organizers?
The main benefit of this approach for organizers is a ready pool of potential IEO participants drawn from the large number of exchange users. This lowers the marketing costs.
Furthermore, not only the exchange, but also the IEO organizers, engage in marketing. This method not only saves money, but it also creates a synergy effect, increasing the market efficiency of token promotion.
Trading commissions are the primary source of income for exchanges. More users and coins in the listing means more transactions and, as a result, more commission income. Conducting an IEO on its own platform allows exchanges to attract new users and, in some cases, offer exclusive coins that are not available on other platforms. All of this increases trade turnover and, as a result, income.
In the case of an ICO, listing on an exchange is the next logical step after tokenization is completed. The listing procedure is frequently expensive and time-consuming. There is no guarantee that a coin will quickly become liquid on a popular exchange.
IEO essentially streamlines the process of getting a token onto a trading floor. Because the asset is usually listed on a major exchange, it becomes more or less liquid almost immediately after the campaign concludes.
This method of fundraising benefits both exchanges and token issuers. Despite the apparent high costs for the organizers, IEOs increase the chances of project success in the long run.
What are the drawbacks of IEO?
Nothing in the world is free — token issuers will have to pay a significant fee for listing, which will vary depending on the exchange. In addition, the trading floor may require a percentage of the total amount raised.
Startups that distribute tokens via IEO bear the majority of the marketing costs. These expenses are not insignificant; their total cost can easily exceed $100,000.
Exchange personnel must be qualified and technically savvy analysts who can assess the long-term potential of projects and the viability of their business models competently and methodically. This can result in high labor costs. If the campaign fails, the exchange will face serious reputational consequences.
Only the owner of a verified account on the exchange can participate in IEO, not anyone else. Furthermore, the majority of exchanges are centralized platforms. Users must entrust their blockchain assets to a third party, which comes with the risk of system failures and hacker attacks.
Overall, some experts believe that the IEO model is only a temporary substitute for ICOs in the face of widespread legal uncertainty.
How to participate in IEO?
To begin, ensure that a project is truly conducting IEO rather than ICO. Following that, it is necessary to determine which exchanges the IEO is held on.
After selecting the appropriate exchange, you must open an account and go through KYC (“Know Your Client”) procedures.
It is also necessary to understand which cryptocurrencies are accepted by the IEO-project and to add them to your exchange account. The only thing left is to wait for tokenseal to begin and then purchase new assets directly on the exchange.
What are your thoughts? If you have anything to add to the IEO, please leave your comments below!
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