Speculations and Manipulations: Why Crypto Exchanges are in need of IEOs
After successful launch of Binance Launchpad, Initial Exchange Offering (IEO) trend for have been picked up by at least 5 more crypto exchanges. This new tool allows projects to raise millions in just a few minutes. But what is there behind ICOs of a new generation?
Binance, KuCoin, Bittrex, Huobi, EXMO — it’s just a small list of trading platforms that decided to conduct stock exchange placement of their coins. IEO per se, is the same ICO, with the only difference — there is a middle person i.e. a currency exchange between the project and its investors.
It might have seemed like there are some advantages in the new instrument: it seems that the project successfully raises funds, and investors receive an asset, which grows in price over time, and the exchange increases trading volume, and the internal token, through which the fundraising of the trading platform takes place, rises. But the crypto community is being disturbed and there are good reasons for that.
The early bird catches the worm
One of the main reasons for expressing the dissatisfaction is that investors simply do not have enough time to buy tokens, since the crowd sales close in within few minutes. Basically, crypto exchanges are the one to be put the blame for the problems appear, since very often it is the platform which is not ready for such influxes of users, that lead to technical issues, like dead buttons or the inability to conduct transactions.
It was Binance to be the first encountering a similar situation — during the BitTorrent token sale. However, crypto exchange attempted to fix that during the consequent IEOs.
Something similar happened on the Huobi crypto exchange during the TOP Network crowd sale on the Huobi Prime platform. There were just three rounds of fundraising held, each one continuing just a second. As a result, the project managed to get $ 3.5 million in just three seconds in Huobi (HT) tokens.
However, most potential investors were left unhappy with the results of IEOs, as they were not able to buy coins due to technical problems.
According to Andrei Grachev, the head of Huobi Russia, such situations were caused by a public excitement between the users of the site and now when “a lesson have been drawn” mistakes are being corrected.
“In this case, the rule of large numbers works — with the number of applicants more than 130,000 people, only about 3,500 were able to invest. Of course, with such a hype, most ones simply won’t have enough time. At the moment we are collecting feedbacks from HT tokens holders — in order to improve the process” a cryptographic representative says.
At the same time, according to Andrei Grachev, IEO is beneficial for all participants of token sales, both for investors and for crypto exchanges as well as for the crypto project itself.
“It is very simple — for the exchange, IEO provides an influx of new users and trading volumes it needs, for investors — a guaranteed listing on the exchange and an opportunity to trade their investments at the secondary market,” the specialist claims.
However, the main goal of IEO — is to give a chance to raise money by quality projects and expand investment opportunities for investors, since the ICO market has almost disappeared, he adds.
Lucky Crypto Ticket
Binance is among those who are adamant on trying to manage the massive flow of potential investors. From now on only the lottery winners, who will be chosen by the randomiser, will be able to take part in token sales. Moreover, participants of the draw must be only those ones, who are stacking the inner Binance BNB coin for at least 20 days. Deposits are to be checked on a daily basis.
Since the value of the asset depends on the demand and the token holding period, Binance is likely to have chosen the perfect tactics, since besides the high demand for BNB due to the monthly ICO exchange, the lottery conditions do not allow to get rid of the coin immediately. And the longer investors hold the token and do not sell it, the more expensive the asset becomes.
According to Kir Kelevra, an independent crypto trader, the Binance token ecosystem has similar principles to the ones of Ethereum. After all, all the previous ICOs were mainly held in ETH and BTC. So, in order to invest in a crypto project, the investor needed to purchase ETH tokens first, the move that was causing a higher demand for a second cryptocurrency. Now, during an IEO, it is BNB token, that plays the used to be ETH role, and if such, it keeps growing in terms of its value.
“Binance copied the need of buying tokens of a global project for the purpose of further investments. In that case, the creators of an cryptocurrency get the major share of their tokens stake” explains Kir Kelevra.
However, according to him, most of the BNB tokens are concentrated among the project founders and thus, sooner or later they are going to have to sell those tokens.
“In order to reduce the desire to sell those tokens, Binance decided to implement a lottery demand, where it is also necessary to steak a part of the cryptocurrency. This is also expected in the future in the Ethereum network, which is going to be caused by the blockchain’s transition to the Proof-of-Stake consensus” the crypto trader explains.
Due to such simple schemings, a pump (manipulative growth) of internal crypto exchange tokens takes place, so this technique was adopted by the majority of trading platforms.
“As for me, all those are just smart fraudulent schemes, so BNB will continue to grow. There is a possibility, that there had been a huge scam placed with the Binance Coin launch. And what is more — all the rest of crypto exchanges got the point. Now both Huobi and Bittrex are trying to copy it, ”says the expert.
According to the crypto trader, IEO can repeat the fate of the most of ICOs, but on a smaller scale.What is more, it continues to compromise the market and the digital financial asset industry.
The problem can be solved solely by the big four auditors intervention. Only after a fair and clear methodology on ICO conduct has been adopted by all the crypto market participants, which later on would be approved by the FINRA (Financial Industry Regulatory Authority), the market shall cease to be so manipulative, Kir Kelevra believes.
In addition, the audit of those crypto projects that hold IEO on crypto exchanges is being carried out by the stock exchange founders themselves, who are too far from being called “neutral market players”.
“As long as there is no regulation, those will be schemes for manipulation and ways of making money “in not quite an honest way,” the crypto trader says.
In general, the lotteries from Binance and the many “angry” Huobi to-be investors talk about the high demand for IEO tokens. But so far, apart from speculations and pumps of exchanges’ internal crypto coins, such events hasn’t brought anything new to the market.
It goes without saying, that cooperation of this kind is beneficial to both trading plarforms and crypto projects, since thanks to crypto exchanges support, startups receive funding and listing with no problems whatsoever. Whether the new ICO bubble, this time on a smaller scale, is being inflated, we shall be able to see in the nearest future. The lack of crypto regulation, however, as well as clear, transparent rules of the game, deprives investors of protection, and manipulators — of the punishment.
Author: Annabella Lapshina