Initial Exchange Offerings: A Primer
This report analyses the new method of selling utility tokens to retail investors known as Initial Exchange Offerings (IEOs). An IEO is essentially just a token sale that is hosted by an exchange, and this is the crucial difference between IEOs and Initial Coin Offerings (ICOs). ICOs were held on a projects own website or facilitated by a specialised token offering platform. There is general consensus that the days of ICOs are over following the 2017 bull run, but it seems like IEOs have started to generate a similar excitement that was caused by ICOs.
An exchange hosting an IEO reduces two inherent risks that ICOs entailed for retail investors. Firstly, an exchange would not like to damage their reputation by hosting a fraudulent project, so they conduct thorough due diligence to determine the potential of the project and to determine that it is not fraudulent. Secondly, when an exchange hosts a projects token sale they are removing a risk that ICOs presented, which is if or when the token will be listed on an exchange. Following the ICO hype, exchanges made large amounts of money by charging incredulous listing fees, some ranging upwards of $1M USD. Since ICOs are declining, IEOs present a new opportunity for exchanges to extract revenue where they charge projects a fixed fee ranging from $50K to $500K in addition to 5–10% of the total sale amount.
Binance ignited the IEO hype by hosting the BitTorrent IEO in January 2019 on the Binance Launchpad. The BitTorrent IEO sold 6% of their total supply which is 59.4 billion BTT tokens in two sessions, taking 15 minutes to reach its hard cap of $7.2M. Binance then made this a monthly affair, hosting one IEO a month. In February Fetch AI sold 69.2M (6% of token supply) FET tokens to raise $6M in 11 minutes. After seeing the success of IEOs on Binance, other exchanges followed by launching their own launchpad platforms. The latest to join the foray are Bitfinex and Ethfinex who announced their partnered creation of a new IEO trading platform, Tokinex.
First to follow was Bittrex who announced to host the RAID IEO in March, but cancelled it last minute as a partnership deal for RAID fell through. Huobi launched their first IEO in March on Huobi Prime, with BitMax also launching their first IEO. In April Bittrex, KuCoin, and OKEx each held their first IEOs, while Tokinex held its first IEO in June. Across these seven exchanges, IEOs have raised over $86M year to date, with Binance leading the way with five projects that collectively raised $27M. Reputable exchanges seem to have put a hard cap on the IEO amounts raised at $7M, and the average amount being raised by IEOs on these exchanges is approximately $4M.
A majority of the tokens that have conducted IEOs have generated significant positive returns for investors based on the IEO price. Table 1 displays the percentage change in the token price of the IEOs held on the Binance Launchpad and Bittrex. The most significant change was Matic which had a 1041.67% increase in the token price since the IEO.
The number of smaller exchanges that have gotten involved with IEOs has increased over the past few months as the model has somewhat proven to be successful to result in revenue and users for the exchange. Appendix item one is the list of IEOs that were conducted on reputable exchanges as discussed above, this list contains twenty-three IEOs held over seven exchanges. Appendix item two is a list of all other IEOs that we were able to find with information that was disclosed by either the exchange or the project. This list displays fifty-three IEOs that were held over thirteen exchanges. Twenty-four of these, disclosed information regarding the token sales, raising a total of $60.4M, with the average raise amount between them being $2.5M. A point to note is that some projects that conducted IEOs on the smaller exchanges, conducted multiple offerings over multiple exchanges. For example, Adab Solutions conducted an IEO on four exchanges and raised a total of $2.25M. The largest amount raised in these IEOs was by Ecomi and Izichain, who both raised $10M on BitForex and Coineal, respectively.
Binance led the way this year with conducting IEOs but they also led the way in only allowing the purchase of IEO tokens using their own token, BNB. Many other exchanges, like Huobi and KuCoin, who also have their own token, adopted this method. Over the past three months, Binance, Huobi and KuCoins exchange tokens have all gone up over 120%. The increase in the price of these tokens seems to be correlated to the IEO announcements made by the exchanges and various announcements associated with the exchange itself.
IEOs are presenting a valuable opportunity to projects that have a good use case to raise a reasonable amount of capital by conducting a token sale. Some of the possible reasons that reputable exchanges are only doing one a month are that there are not many projects that meet their standards and/or they don’t want to overwhelm investors with too many offerings. The smaller exchanges, on the other hand, have conducted many IEOs since the start of this year. We can expect to see more exchanges start to host IEOs and a possible increase in the total numbers being offered. As the popularity and volume of public token sales shifts from ICOs, the benefits presented by IEOs are much too lucrative to be ignored.
Appendix Item 1: IEOs held on reputable exchanges as of 15/06/2019
Appendix Item 2: IEOs held on smaller exchanges as of 15/05/2019
Disclaimer: This report is provided for informational purposes only and is not intended to provide commercial, financial or legal advice. Nothing in this post constitutes an offer of securities or regulated financial products or financial services to any person.
