What is the meaning of Initial Exchange Offering (IEO) and how does it work?

An Initial Exchange Offering is a less well known and diverse crowd funding strategy to Initial Coin Offerings. Since 2014, up to 2000 Initial Coin Offerings have occurred and the crowdfunding strategy has taken the main spot for crowdfundingprojects. With an Initial Coin Offering it is dependent upon the developerto ensure that the smart contract is correct, the security is tight and that everything goes as arranged. With an Initial Exchange Offering, these commitments should be executed by the exchange platform. Till moment, no crowdfunging strategy is immaculate, each with its very own imperfections. The equivalent runs with ICOs and IEOs, both have contrasts, upsides and downsides. In this article we will investigate what is an Initial Exchange Offering, prosand a concise correlation with Initial Coin Offerings.

What is an Initial Exchange Offering (IEO)?

With an Initial Exchange Offering, an undertaking depends on the exchange or multiple exchanges to make the crowdfunging, the brilliant contract in connection with the one created by project in subject and a portion of the promoting strategies. With ICOs, the counter-party is the developer, however with IEOs — the counter-party is the exchange platform in subject. So in order for investors to participate in the Initial Exchange Offering, they need to create an account with the exchanges. Instead of contributing Bitcoin, Ether or other cryptocurrency to the Smart Contract of the Initial Coin Offering, investors need to send the currencies to their exchange account.

At the point when the Initial Exchange Offering starts, investorscan purchase the tokens from the exchange platform. These tokens are made or “minted” by the developersbefore the Initial exchange offering and are sent to the exchange. Each projectcan arrange diverse terms, arrangements and conditions with the exchanges. The arrangements and terms can be a rate for the trade, a level charge, showcasing costs, more or various conditions. Be that as it may,the investment from the project can cut down someof their marketing, organizational or security expenses and prove to be a great investment in the long run.

Most Initial Coin Offering “rules” are viable with Initial Exchange Offerings, but also the conditions and deals between projects are mostly different than one another. Projects can demand for the tokens to be sold at a fixed price throughout the whole IEO process, they can demand for a token cap per investor to prevent whales and price manipulation, and many more to regulate the process. Exchanges require developers to put a hard and a soft cap to their projects, for a greater result of the Initial Exchange Offering. If there are too many coins sold, then the token economy is doomed to fail from the start.

How to take part in an Initial Exchange Offering?

Taking part in an IEO is apparently simpler than taking part in an Initial Coin Offering. Here is the thing that you have to do in a well ordered:

1. Check if an IEO will be issued: Most cryptocurrencychose to crowdfund with ICOs so the first step is to always check if the project is actually doing an Initial Exchange Offering.

2. Check if an IEO will be issued: Research which exchanges will participate: Not every exchange will participate and some of the times, only a single exchange will participate in the IEO. You need to know this earlier, because of the exchange’s Know your customer (KYC) procedures. Signing up can take some time so this is one of the main cons of Initial Exchange Offerings.

3. Sign up on the exchange: This is the next step. As I said above, the KYC procedures aren’t convenient to investors, because they require time. If you don’t have an account at the exchange the day before, the chances that you will be verified the next day aren’t that big.

4. Which cryptocurrency will be accepted: Most of the times, Initial Exchange Offerings will require Ether for investments, because of the enormous number of projects launched on the Ethereum network. But not every time, so you need to know this before you proceed.

5. The Initial Exchange Offering Start: Wait for the crowdfunding event to start, then proceed on buying the desired token.

6. Check if an IEO will be issued: Most cryptocurrency projects chose to crowdfund with ICOs so the first step is to always check if the project is actually doing an Initial Exchange Offering.

7. Research which exchanges will participate: Not every exchange will participate and some of the times, only a single exchange will participate in the IEO. You need to know this earlier, because of the exchange’s Know your customer (KYC) procedures. Signing up can take some time so this is one of the main cons of Initial Exchange Offerings.

8. Sign up on the exchange: This is the next step. As I said above, the KYC procedures aren’t convenient to investors, because they require time. If you don’t have an account at the exchange the day before, the chances that you will be verified the next day aren’t that big.

9. Which cryptocurrency will be accepted: Most of the times, Initial Exchange Offerings will require Ether for investments, because of the enormous number of projects launched on the Ethereum network. But not every time, so you need to know this before you proceed.

10.The Initial Exchange Offering Start: Wait for the crowdfunding event to start, then proceed on buying the desired token.

Most Initial Coin Offering “rules” are feasible with Initial Exchange Offerings, yet additionally the conditions and arrangements between tasks are for the most part not the same as each other. Activities can interest for the tokens to be sold at a settled cost all through the entire IEO process, they can interest for a token top for each financial specialist to avert whales and value control, and a lot more to direct the procedure. Exchanges expect engineers to put a hard top and a delicate top to their activities, for a more noteworthy consequence of the Initial Exchange Offering. On the off chance that there are such a large number of coins sold, the token economy is bound to fall flat from the begin.

What are the advantages for the Project that choses an Initial Exchange Offering?

Knowing the fact that the majority of projects chose an Initial Coin Offering for their token economy, then what benefits do projects get for picking the IEO method? I’ll leave the cons of Initial Exchange Offerings for another article and will focus on the positives. Projects that chose to execute an IEO will take advantage of the following pros:

1. Exchange listing: Negotiating a good deal with an exchange or multiple exchanges is maybe the hardest part of an Initial Exchange Offering. But if the project manages to negotiate the right deal, then listing on that exchange should be a piece of cake. Listing your project on an exchange is one of the hardest steps towards making a healthy token economy. Some exchanges have very tight listing procedures that could take months. Others require a large Bitcoin or Ethereum fee in addition to the tight listing procedures, so naturally if an exchange participates in the project’s Initial Exchange Offering, then it will help with the listing, because the project already passed the requirements.

2. The Exchange’s user base: Choosing an exchange for an Initial Exchange Offering means that the project will use the exchange’s existing users for their customers. This cuts down marketing costs, which are the highest expenses that a new project has to face. This can prove to be both a great investment in the long run and a great return of investment. The big exchanges have a user base that is far greater than most cryptocurrency marketing campaigns can reach.

3. Credibility: Projects that issue an IEO have increased credibility, because of the Exchange that has their backs. With Initial Exchange Offerings, exchanges aid developers in making sure that everything is good. This way, you can be somewhat sure that the exchange will not allow any scam activities, low security or phishing attempts.

4. Less scams: Scams can’t be fully prevented, but with IEOs you can be sure that the exchange will not phish you, that the security is of highest of quality and that the smart contract you are sending your money to was not compromised. Being able to buy the tokens only from exchanges lead to an increased confidence in the project.

5. Price manipulation: An Initial Exchange Offering can prevent to some extend price manipulation. If you’ve participated in Initial Coin Offerings, you’re probably familiar with the following scenario. The ICO concludes, the token is listed on an exchange and those that bought cheaper tokens in the pre-sale sell immediately for quick profits. These actions start an immediate downtrend, from which few recover.

How might this benefit Exchanges?

Exchanges mostly benefit from an Initial Exchange Offering. Although exchanges were mostly hesitant to issue IEOs because of various reasons, they mostly benefit from the crowdfunding method:

1. Marketing: Exchanges join forces with the project’s marketing team to market the token. This leads to an increased expertise, experience and marketing wins. Exchanges can use the marketing campaign to market their exchange or their services.

2. New users and trading volume: Exchanges benefit greatly from increased volume, because of trading fees. A newly listed token brings more volume and users to the exchange, from which they only benefit. The exchange receives new deposits from investors, a new influx of users, some of which can regulars.

3. Fees: Making an Initial Exchange Offering for a token is not free, but different exchanges have different requirements. Some require a listing fee, expenses and operations fee, IEO fee, a percentage of profit or a fee in the form of tokens.

After reading all of this you are probably wondering, why are Initial Coin Offerings more popular than IEOs. Well there are fundamental cons to IEOs. These problems are mostly unsolved as of now and that’s why CEOs of top exchangesmostly decline doing IEOs. No exchange wants to undermine their credibility, because of a project’s IEO, apparently, exchanges have no power over the developers and if they will deliver on the product.

Still, there isn’t a perfect crowdfunding mechanism and most of them are still a work in progress towards perfection. The closest to a perfect crowdfunding method are menapay.io, which are relatively new and will develop further in the future. Menapay has the potential to become the most popular crowdfunding. MenaPay Platform is the first Blockchain-based payment gateway focused on the MENA region.
More so, MenaPay Token is a utility token which will be issued and limited to 400 million tokens. 64% (256 million) of the total tokens will be owned by the public. MenaPay is the token used to distribute the platform’s share of revenue among MenaPay token holders while MenaCash is a stable cryptocurrency used by the MenaPay platform and will be used for daily transactions between three dynamics in the system: users, merchants and the foundation. Transactions between users P2P (peer to peer), transactions between users and merchants P2M (peer to merchant) and transactions between approved merchants to MenaPay foundation for converting their MenaCash to fiat currency — M2F (merchant to foundation) — will be possible using MenaCash.

MenaPay can be purchased during the ICO or from exchanges after the ICO. You can purchase directly from our website or mobile app until the end of the ICO period. MenaCash can be purchased from resellers, directly from the MenaPay App and available exchanges after the commercial launch of the platform.

This story is written by Adewole Nurudeen and references are Clemen Chiang, Coinstaker, VlaSem.

This story is published in The Startup, Medium’s largest entrepreneurship publication followed by +420,678 people.

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