INITIAL EXCHANGE OFFERINGs — the new kid in town
The primary medium of raising funds for blockchain companies have been ICOs. The fundamental difference which separates ICOs from IEOs is that the token offerings of a project in the case of IEOs are carried out in an exchange. The ICO format is completely permission-less for absolutely anyone to launch and participate in. There are no gatekeepers. The IEO reinserts the middle man and central authority in the form of an exchange. The crypto exchange administers the IEO on behalf of the startup that seeks to raise funds with its newly issued tokens. Developers mint the project’s tokens and send them to the exchange, which will then sell the tokens to individual investors. The token issuers have to pay a listing fee along with a percentage of the tokens sold during the IEO. In return, the tokens of the crypto startups are sold on the exchange’s platforms, and their coins are listed after the IEO is over. As the cryptocurrency exchange takes a percentage of the tokens sold by the startup, the exchange is incentivized to help with the token issuer’s marketing operations.
If the token offering is conducted with the help of Ether, each IEO participant has to create an account with the exchange and send ETH to this account. When the IEO commences, the participant can purchase the token directly from the exchange. The exchanges benefit with the IEO listing fees, the influx of new users during the crowd sale, and joint marketing strategies with the IEO startup.
Advantages:
- Startups are able to take advantage of the user base of exchanges to obtain contributions in their funding rounds.
- Till now, no IEO has been conducted on a decentralized exchange, ‘gas wars’ between sale participants are easily prevented.
- IEOs prevents scam since the companies can’t run with the funds collected from the contributors.
- The next steps of listing the token on an exchange is automatically skipped.
- IEOs also function as a vote of confidence for the sponsor, which has to conduct its own due diligence on the developer’s project.
- The KYC/AML process is also handled by the crypto exchange and the exchanges ensure a more secure environment of transactions for developers as well as contributors.
Disadvantage:
- Listing token sale on an exchange can be expensive. The listing price can go as high as 20 BTC.
- Some crypto experts believe that the IEO model contradicts the foundational philosophy of blockchain by introducing a centralized middleman (exchange) in the crowdfunding process. This middlemen charges fees for various assistance it provides. This has created resistance among some named investors to approve IEOs as the next welcoming step in the crypto financing mechanism.
- The token prices may face manipulations by the exchange investors as experienced in the case with the ICOs.
Below is the list of top 10 IEOs according to Novum Insights database:
What do you think about them? Tell us in comments.
About Novum Insights — Novum Insights is a frontier market intelligence company tracking blockchain, artificial intelligence, and other emerging technologies. To download our free STO Handout and request full report on Security Tokens, please visit www.novuminsights.com
