Are IEOs the New ICOs?
An overview of raising funds through Initial Exchange Offerings and how to know if doing one might be a fit for your blockchain project.
As the operator of a popular initial coin offering (ICO) directory, CoinJinja.com, we have witnessed first-hand the decline in popularity of this form of fundraising for blockchain projects over the past year. The bearish market sentiment has been particularly strong over the past few months.
ICOs will continue to evolve and may eventually make a comeback. However, in the meantime, we have been looking around for other interesting opportunities to present to our audience and came across initial exchange offerings (IEOs).
How We Discovered IEOs
To tell you about IEOs, which, as far as we are aware, are a Korean invention, we must take you on a trip to Seoul, one of the world’s most prominent destinations for blockchain technology and home to some of the most enthusiastic crypto investors. We hope you enjoy the new perspective — and the photos!
We operate the all-in-one cryptocurrency app, CoinView. Over the past year, it has gained substantial recognition in Korea and our user numbers there have grown. As a result, we have been spending more time in Seoul talking to industry leaders, including crypto exchange operators, with the primary aim of better understanding our Korean users’ needs and how we can better serve them.
During this process, we encountered IEOs, which have recently become popular in Korea. Impressed with their potential, we have started offering consulting services to blockchain projects interested in holding an IEO, help them find an exchange that is a good fit for their objectives, and negotiate terms on their behalf.
IEOs vs. ICOs — What’s the Difference?
An IEO is a fundraising event administered by a cryptocurrency exchange on behalf of a token issuer. Token issuers tend to be new blockchain startups that are seeking to raise capital. They typically pay the exchange a listing fee and percentage of the tokens sold through the IEO.
In return, the exchange is obliged to sell the newly-issued tokens and later list the token on the exchange after the fundraising event’s conclusion. This arrangement incentivizes the exchange to market the token and may also gain it exposure as the project markets their IEO being run on their exchange.
IEOs differ from ICOs in two main ways:
- The token sale takes place directly on an exchange instead of a smart contract. Sometimes, more than one exchange will participate in an IEO.
- The token sold will immediately be tradeable on an exchange.
The IEO Process
- Token Generation: Prior to the IEO, the developers will create tokens. Some “mint” tokens on the Ethereum blockchain and use the popular ERC20 standard. Others will launch their own blockchain. After minting, the developers send tokens to the exchange.
- Exchange Terms: Some exchanges request a certain number of tokens to complete the token sale. The exchange stands to profit nicely if the project is successful. Other times, the exchange charges a flat fee in either fiat or crypto. Alternatively, the arrangement may be a combination of these two.
- IEO Terms: Projects can stipulate that tokens are sold at a fixed price throughout the IEO period or they can set a cap per investor to prevent whales from purchasing a large share of tokens. Some projects let the exchange to control pricing based on supply and demand.
Benefits for Blockchain Projects
First of all, please note that we are not trying to sell you the idea of doing an IEO over an ICO or other methods of fundraising. You should examine all options carefully and choose the one that best fits your long-term objectives. That said, some projects find that the following features of IEOs are attractive to them when compared to ICOs.
- Less Work: With an ICO it is up to the developer to make sure that everything goes as planned. With an IEO, these obligations need to be done by the exchange. This can result in substantial time and cost savings. This way, the project’s developers can focus more on their core business.
- Users: The exchange has an existing user base which can be tapped to solicit contributions. Furthermore, these users have already been vetted via the exchange’s AML (anti-money laundering) and KYC (know your customer) procedures.
- Safety: IEOs make it significantly more difficult for scammers to exploit the token sale because contributors know that they can only purchase the token from the exchange.
- Credibility: Holding an IEO implies a vote of confidence from the exchange, which has to conduct its own due diligence before listing the developer’s project.
- Flexibility: Each project can negotiate different terms, deals, and conditions with the exchanges. For example a percentage for the exchange, a flat fee, or other conditions. They can also shop around asking different exchanges to find the most competitive conditions.
- Listing: Having the token listed on the exchange where the IEO was held will be a natural conclusion.
Benefits for Crypto Exchanges
The following are some reasons why an exchange might want to hold an IEO.
- Competition: Faced with growing competition for users, exchanges must find new revenue streams and ways to differentiate themselves. Offering compelling IEOs can be helpful in this regard.
- Fees: Exchanges may charge fees to hold an IEO and later another fee for listing a token. This can vary significantly between exchanges.
- Users: An attractive project can bring an influx of new users and their deposits. Some may become regular users of the exchange. Several exchanges are attempting to carve out a niche by running IEOs.
- Exposure: The IEO team will be marketing their project and link to the exchange, thereby helping the exchange gain attention and SEO benefits. This may also give them improved visibility to market segments that hadn’t previously been aware of the exchange.
To ensure success, the IEO exchange will need a team comprising engineers, business strategists, and experts in compliance that can evaluate each project before allowing an IEO to proceed.
How to Join an IEO
As with ICOs, IEOs should be regarded as a speculative investment and you should do thorough research before deciding to contribute to one. Only ever invest what you can afford to lose.
If a project you are intending to invest in is conducting an IEO, and you want to participate, here are the steps.
- Exchange(s): Find out which is hosting the IEO. There may be more than one exchange involved in a single IEO. IEOs tend to be a Korean phenomenon thus far, so you are probably going to be looking at Korean exchanges.
- Sign Up: Create an account on the exchange by passing their whitelisting (AMC and KYC) procedures.
- Fund: Check what cryptocurrencies will be accepted during the IEO and fund your account appropriately.
- Purchase: Wait for the start of the IEO to purchase your tokens.
Conclusion
Over the past decade, we have a range of crowdfunding platforms come to prominence. In recent years, we have seen ICOs and now IEOs become gain recognition. Meanwhile, traditional venture capital hasn’t disappeared, rather it has evolved to fit the times.
There is no perfect way to raise funds for a blockchain project. If you are seeking to raise funds for a blockchain venture, we recommend you thoroughly research all options to find the one that is the best fit for your objectives.
About Us
CoinJinja’s mission is to inform, educate, and connect the global cryptocurrency community while removing barriers to making transactions.
We operate the ICO listing website, CoinJinja.com, and all-in-one crypto app, CoinView. We also offer promotion services to blockchain projects seeking to grow in Asia.
Recently, we have started offering services to blockchain projects interested in holding an initial exchange offering (IEO) and will act as a consultant, helping them find an exchange that is a good fit for their objectives and negotiating terms on their behalf. Please contact us for more details.
