IEOs Represent the Next Transformative Step Forward in Digital Fundraising
Blockchain is a reactionary technology that arrived at the end of an economic crisis, and it exists at odds with dated financial paradigms. It was undoubtedly invented as an experiment, with no intention to be as popular as it has now become. The technology’s purpose was to explore questions about the cost-efficiency of finance and digital transactions. Is decentralized blockchain infrastructure able to provide the same security and utility, while also lowering costs enough to make financial products and services more accessible to wider populations?
The answer was a confident yes, and blockchain (alongside fintech) slowly began its ascent into mainstream finance, or at least its peripheral sectors. For a bank, a simple activity like transferring payments across borders has always come with a minimum fixed cost, so it has never been realistic to offer tiny remittance payment services because it simply wasn’t profitable. Before its digital transformation, the sector was similarly incapable of determining creditworthiness or issuing loans in a lean manner, leaving businesses and individuals to hurdle many bureaucratic obstacles before being able to obtain credit.
From these ideas sprung Bitcoin and eventually the initial coin offering (ICO) on Ethereum’s blockchain, which uses smart contracts to help companies issue “future utility” in exchange for cryptocurrency working capital. ICOs were the killer app of blockchain for a good few years, but they sacrificed transparency and liability for speed. Regulators needed to act, and they did, mostly by installing warning signs that were too large and costly to ignore.
Coupled with a pending bear market, rampant fraud, and a severe lack of investor protections, countries began brandishing the regulatory hammer at this tokenized fundraising and in many cases slammed it down harshly. In response, IEOs present one of the industry’s newest and most promising utilities, ultimately helping return blockchain fundraising to an era of leanness that reflects the underlying technology itself.
Rules Relegate ICOs to Dustbin of Blockchain History
Even in jurisdictions where cryptocurrency is relatively left alone, like in the United States, regulatory entities have adjusted their ICO language enough to be quite threatening. The SEC demands that each company considering an ICO or that have completed one in the past go through an in-depth checklist to determine if their token is a security or not. Noncompliance consequences are obvious, as the SEC is not an organization to mess with, but merely determining the definition of your token is an expensive endeavor.
It gets even more pricey if you find out your token is a security, as you’ll then need to pursue an SEC exemption or register your asset. In total, becoming compliant as an individual ICO of any type (if you want to serve the US market) is at least a six-figure expenditure. At this juncture, the financial benefits of blockchain fundraising are very much diminished. Regulations have succeeded in protecting investors, but only by imposing punitive and inappropriate standards on the projects they can invest in.
For an individual blockchain project that would have once pursued an ICO, the IEO — or initial exchange offering — is now a clearly better alternative. Exchanges are now responsible for a compliant token sale’s administrative checklist with the IEO crowdfunding model. This includes maintaining KYC (Know Your Customer) and AML (Anti-Money Laundering) standards, creating and protecting the issuing smart contract, hosting the crowd sale, marketing and listing the token responsibly, and more. Consider that these are all puzzle pieces which have never contributed to a blockchain project’s underlying purpose, and IEOs ostensibly grow even more valuable.
It’s an enormous advantage to have expert organizations like Binance, Huobi, and BitForex take the reins. Platforms like BitForex are exchanges that list tokens but also help blockchain projects issue tokens as well. Instead of the DIY approach (an ICO), innovative companies like Evedo choose to launch their tokens through a standardized process overseen by the exchange itself that will concurrently be the first to list these tokens. BitForex handled the sale of EVED — tokens for blockchain events management platform Evedo — through its own exchange. That meant collecting regulator-required information from members using their wallets to exchange for EVED, listing the token against other cryptocurrencies, and technical upkeep.
Exchanges Take on the Role of Regulators
BitForex is one of the latest and most successful in the small handful of major exchanges taking on this unique role within the budding blockchain industry. Alongside others like Binance Launchpad and Huobi, BitForex is starting to ramp up its IEO output with Evedo, and soon afterwards tokens for Shariah-compliant exchange FICE. IEOs are more than a simple stopgap measure putting the onus of compliance on exchanges. Instead, they are the result of the significant resources allocated towards building regulator-approved “express lanes” around the obstacles blocking small businesses from growth and external financing.
Compliance used to be a bottleneck, but IEOs show that the right blockchain infrastructure is able to streamline ideas regardless of their complication. The market just needs to get accustomed to the idea that ICOs were a haphazard, lawless shortcut to where blockchain fundraising should’ve been hosted all along. It also encourages responsibility for tokenized companies, who can now afford to keep some equity off the blockchain and only raise as much as their timeline necessitates.
With five IEOs under its belt included the highly-anticipated launch of EVED, exchanges like BitForex have already ushered in a new dawn for retail investment and on-chain business. The killer app has been revived and is inarguably a factor in the hesitant return of the bull.
