A Deep Dive into IEO: Average Return on Investment of 760%, Which Exchange Gives the Highest Return?
Binance reopened its Launchpad division with the BitTorrent(BTT) offering in January 2019, this token sale saw incredible demand and a significant rise in BNB price.
Author: Carol Li Editor: Tong Bee Source: PANews
Binance reopened its Launchpad division with the BitTorrent(BTT) offering in January 2019, this token sale saw incredible demand and a significant rise in BNB price. After Binance tested new waters, more and more crypto asset exchanges and investors joined in the Initial Exchange Offering (IEO) frenzy. Following its footsteps, Huobi has created its own IEO platforms called Huobi Prime and Prime Lite, OKEx created an IEO service called Jumpstart and Gate.io created a platform called Startup. Other exchanges that have joined in include Bitfinex, Kucoin and BitMax.
Some people say, IEOs can help projects to raise money and enjoy liquidity, bring cryptocurrency exchanges with reputation and financial well-being and benefit investors from good projects. It seems to be a win-win-win business model, but is it true behind the data? PAData have collected the IEO trading data on five volume-tiered exchanges, namely Binance, Huobi, OKEx, Gate.io and Bibox to get an insight into project parties, exchanges and investors behind IEO.
Total Raised about $500M, Booming in Q2
According to ICObench, by July 15, it is roughly estimated that there are 198 projects published on IEO platforms since 2017, of which 136 projects have been completed, $1.492B has been raised altogether. In addition, there are 50 ongoing IEOs and 12 to be upcoming.
However, LEO (Bitfinex exchange token) related people told PAData, “Bitfinex was planning to raise $1B via IEO of LEO, but following a $1B private sale, the IEO was not conducted.” Thus, it is roughly estimated that there are 197 projects published on IEO platforms since 2017, raised about $0.492B.
According to the statistics, Latoken Launchpad is the most popular launchpad for IEOs where 44 projects chose this launchpad and raised about $12.22M in total. The IEO model was spearheaded by Binance, whose token sale platform Launchpad has raised over $100M in a total of 8 IEOs, that is $13.37M on average, the highest numbers of funds raised per project among all IEO platforms.
In fact, the first IEO appeared in 2017, but more projects choose to raise funds via ICO at that time. IEO does not become a hype until at the beginning of 2019. According to ICObench statistics, 186 projects have participated in an IEO in 2019, accounting for 94.44% of the total, of which 127 projects published in the second quarter, accounting for 58.32% of the total.
Since the launch of IEO platforms by many exchanges from March, the monthly total amount of raised funds has fluctuated slightly within a certain range. This means the size of the “cake” does not change substantially. The more IEO projects participated, the less “cake” will be distributed.
Open Low and Skyrocket on the First Trading Day, 100x Coin Turns out to be A Image Project
Can the price of IEO project token really skyrocket after getting listed on exchange?
PAData analyzed the initial offering price and transaction data [1] of every IEO tokens on Binance, Huobi, OKEx and Gate.io and found that the opening price on first trading day of some IEO token in some exchange was even lower than its first-round public sale price [2], such as the latest IEO project on Binance Launchpad — ERD, and BKC, DREP, CNNS offered by Gate.io.
“Low opening is just for the sake of good consequences, for example, the first-round of CNNS IEO priced at $0.006, let’s make it the opening price, then the highest price only rose by 10 times on the first day. But under the actual opening price, the highest price was soared by over 300 times,” explained by a CNNS IEO participant. He believes that if the 100x coin from 2017 to 2018 is a wealth myth, then the 100x coin of IEO is just an image project made by exchange and the project team.
In fact, comparing the first day’s highest price with the actual first-round crowdfunding price can more accurately reflect the investor’s first day’s highest return. From the highest multiple of the first day [3] that investors can obtain, the average maximum multiple of the first day is about 8.44 times. Among them, the investors who participated in the Binance IEO project had the highest average maximum return on the first day, with an average of 12.62 times, followed by Huobi, with an average of 8.82 times. The lowest was Gate.io with about 5.25 times.
It can be seen that the first day’s highest return in IEO is relatively optimistic, but there are two preconditions in front of such a huge profit temptation. One is that investors must have enough chips. Each platform has clearly defined the stacking amount of exchange tokens before the purchase, especially for IEO projects with multiple sale rounds. The threshold for participation is often higher in the first round. This also means that the actual return that retail investors get may be lower than the theoretical value. Another premise is that the high returns on the first day are often accompanied by a sharp intraday volatility. A suitable selling point should be chosen in order to obtain high returns.
The maximum amplitude of the first day of all IEO [4] projects on all platforms is much higher than the historical average daily maximum amplitude. The two values (median) differs about 11 times on average. The maximum amplitude of CNNS on the first day is 3,047 times than historical average daily maximum. In order to accurately sell at the top, besides an accurate judgment, the amount is also an important factor to consider. The greater amount it get, the higher probability of a successful sale it will be, that is, the higher probability of obtaining the highest theoretical gain. Similarly, this is also beneficial to large investors.
Highest Return with 53x, Investment or Speculation?
Among the 25 IEO projects launched by Binance, Huobi, OKEx, Gate.io and Bibox this year, there are 12 projects whose historical highest price equals the first day high, which means 48% of these projects never breakout their first day high after that. There are 8 projects, accounting for 32% of the total, whose lowest historical price equals the first day low.
This means that investors have a 48% chance of holding a project token whose highest price shows on the first day. Selling at the top on the first day is more likely to obtain the highest theoretical yield. In addition, investors still have a 32% chance of selling for a loss on the first day, but because some coins deliberately open lower, the actual first-day selling loss is less likely to happen. Conversely, if not sell on the first day, both probabilities will rise, the investor will even have a 68% chance of holding a token with a historically low price, which is twice as likely as selling on the first day. It is worth mentioning that 18 out of the 25 projects fell on its first day of trading, accounting for 72%.
[The probability here refers to the likelihood that the highest/lowest price appears on the first day of trading, according to the occurrence of highest and lowest price of all IEO projects. If the probability of selling top on the first day is 48%, then the investor may have a 48% chance of holding a project token with the highest price on the first day.]
On the other hand, in view of the range of historical profit multiples, the overall average is about 7.63x. Among them, the historical average profit range of Binance is the highest, about 9.17x, followed by Gate.io, which is about 8.41x. OKEx has the lowest, only 4.78x.
Among them, SERO and ERD have the highest profit multipliers. The two projects have been pumped up by about 50 times. TOP and GMAT have been pumped up by more than 20 times. But participating in IEO can bring not only profits, but also losses. 7 out of the 25 projects may result in a loss, that is, the historical lowest price fell below the first round of the initial crowdfunding price, including TT, ERD, ALV, CNNS, DREP, and MBL. However, considering the possibility that individual token may deliberately open low, the actual possibility of losses due to the decline in the price of IEO tokens is relatively small.
The median value of the 7.63 times historical profit range is actually higher than the median value of the first day profit range, which is 5.40 times, but the value in each exchange differs slightly. The median of historical profit range of Huobi and Binance IEO project is consistent with the overall trend, lower than the median of the first day profit range, which means that investor holding the IEO tokens of the two exchanges may gain more by not selling on the first day. In contrast, the median of historical profit range for IEO projects of OKEx and Gate.io is lower than their median of the first day profit range, especially for Gate.io, which is 8.41 times and 3.36 times, respectively, more than 5 times higher. This means that investor who hold IEO tokens of the two exchanges may get more profits by selling on the first day. A thick speculative color is revealed inevitably.
Low Average Liquidity, Trading Volume Not Related to Exchange Token Price
According to the exchange, the purpose of IEO is to bring good projects to the market. After the token get listed, better or worse, it will be completely determined by the market. To some extent, better market liquidity of token means higher quality of project. However, from the statistics of CoinMarketCap, except for BTT, most IEO tokens lacks high liquidity.
BTT has been listed on 40 exchanges at present, with a total of 85 trading pairs. It is the most liquidized project in IEOs. Overall, the liquidity of project on Binance Launchpad is higher than that in other exchange, at least in a wider range .
However, the circulation depth of all IEO projects is roughly the same, that is, the ratio of exchanges and trading pairs is roughly close, and the average value is about 2. That is, each IEO token listed on an exchange will get an average of 2 trading pairs. Among them, ONE has the deepest circulation, and the ratio is 3, which is equivalent to one more transaction pair on each exchange than the general IEO token.
Moreover, most IEO projects are highly dependent on the initial exchange, with an average of approximately 66.13% of the transaction volume coming from the initial exchange. Among them, ONE and ERD depend heavily on Binance, SERO is strongly dependent on Gate.io, and BLOC highly depends on OKEx. More than 96% of the tradidng volume of these four tokens are from the initial exchanges. In contrast, more than half of BTT, MBL, MATIC, FET, and RSR’s trading volumes come from other exchanges, and BTT is least dependent on the initial exchange.
Since the IEO setup in most of the exchanges require investors to use the exchange token to participate, this actually bundles the platform token with the project token. Since BNB, HT and OKB are currently the more mainstream platform tokens, the correlation observed here is only between the three and IEO tokens.
Looking from the week before each IEO began, as of July 16, BNB has been risen by 6.38 times, HT has increased by 1.57 times, OKB up to 1.24 times, showing that Binance, which issued the first IEO, got the biggest piece of cake.
Moreover, the correlations between BNB and some IEO tokens are also high. For example, the correlation between the price of BNB and MATIC is over 0.7, as well as with BTT, which is a significant positive correlation. HT has a negative correlation with most IEO tokens. For example, negative correlations are more than 0.5 with TOP, NEW and TT, which may be related to the unclear stacking requirements in the initial phase of IEO. This makes HT face a relatively high selling pressure.
However, if we examine the correlation between the trading volume of each IEO token and the price of each exchange token, we can find that there is no significant correlation between these two, which means that if the IEO project drives exchange token price up, the motivation may come from IEO’s advertising effect on the reputation of the platform, rather than the performance (volume) created by the IEO token.
