The Ugly Truth Behind IEOs, and What We Should Expect in 2020
By CryptoNities on The Capital
Let’s face it
Let’s face it, you won’t be able to conduct a successful IEO unless you have a fully-operational and fully compliant prototype and unless you’ve clinched a listing deal with a major exchange with actual liquidity within its community of retail investors, and traders.
Among all the IEOs that were held in 2019 on cryptocurrency exchanges, only a few projects have been able to raise decent capital and only on selected exchanges.
Public token-sale vehicles such as ICOs and IEOs have always been a subject of positive and negative scrutiny from every party involved in crypto. Regulators, lawmakers, cryptocurrency exchanges, retail and private investors, developers, Blockchain applications, and crypto enthusiasts have all contributed to the current state of this “cryptonised” crowdfunding model, whether by elevating it and making more accessible or by stifling it.
Nonetheless, the Initial exchange offering (IEO) is a very powerful fundraising mechanism powered by cryptoeconomics to raise capital for your Blockchain application and has been very lucrative for a lot of blockchain and crypto companies in 2019, but the big proportion has failed to sell any of their tokens to the public on the exchange(s) where projects hosted the IEOs, and this because of many simple reasons. but very hard to fulfill for projects that haven’t crossed two checkboxes: Prototyping and prior-funding ( whether through a private sale or an angel investment/classical seed round)
IEOs are institutionalized
We can clearly claim that public token sales have matured enough to become institutionalized and regulated. Binance was the first one to kickstart this model with the BitTorrent IEO, and other major exchanges have taken notes and adopted the system along the way. What happened after that was a trend effect, just like bubble tea shops in Asia and around the world, Meaning that almost every established and fresh exchange has implemented an IEO launchpad to help projects raise capital within their institutions — which hasn’t been a success for most of them, besides Tier 1 exchanges, just like Binance, Gate, Huobi, Okex, Kucoin, Bittrex, Bitfinex, Liquid, or Coinlist for private investors.
What we notice is that the “public token sale” and initially the ICO model has shifted from being this truly decentralized crowdfunding mechanism based on smart contracts that allowed Blockchain applications to sell their tokens freely to retail investors in a transparent and seamless manner ( and not so regulated ) into a more centralized and institutionalized model that is the Initial exchange offering. The IEO has certainly undeniable perks such as regulatory compliance, KYC, efficient token collection and distribution, etc… But it has to go through a third party, which partially removes financial inclusion and decentralization that the ICO stood for, and It comes with “beautiful” monstrous fees
Why the IEO market is centralized within a few exchanges?
On one hand, Simply because Tier 1 exchanges are the only ones that conduct thorough technical, regulatory, and financial due diligence on projects prior to listing them, and retail investors have become highly aware of that.
For retail investors and the general public, an endorsement by a Tier 1 exchange implies that the project has been thoroughly vetted and is actually adding value to the blockchain and crypto industry from a technical standpoint, whether by delivering a performing blockchain protocol, enabling blockchain interoperability and scaling or shipping a DeFi ( decentralized finance) product for enterprises and individuals.
In 2019, The Tech and open-source code along with venture-backed Cash made the whole difference for the vetting process, and thus for projects willing to go public-sale
Source: cryptorank.io
Above is a representation of some of the major IEOs of 2019, that does not include Token sales that were held on Coinlist ( not an exchange ) Bittrex, Bitfinex, or Liquid, and some other prominent exchanges
We can visualize the dominance of a handful of exchanges over the IEO space and especially Asian exchanges both in amounts raised, and ROI for retail/private investors.
Building a strong perceived-value for your IEO… Not a simple task.
Cryptonities, one of the leading IEO development and marketing agencies that has helped projects raise over $18 million in 2019 through public token sales, clearly states that the way you can strongly position your IEO in the market has a direct dependency on the exchange where you list your token sale. Unfortunately, you need to pass the gates, and what will open the doors to the negotiation is an operational prototype, a testnet, a developer/crypto enthusiast community, strong open-source code, renowned VCs and crypto funds backing up your team and your vision, and reliable Token-sale development partners
In other words, the perceived value of an IEO from an investment perspective is highly correlated to the exchange where the token sale is listed, which means that the way retail and private investors will perceive your IEO and your overall brand has a symbiotic relationship with the financial entities you partner with.
Coinvestment behaviors have significantly changed in 2019 with the rise of IEOs, and below is a graph displaying All-time high ( ATH ) ROI and current average ROI ( as of the time of writing ) on IEOs held on some Tier 1, Tier 2 and even Tier 3 exchanges.
What we first notice is a tremendous All-time high ROI on IEOs on many exchanges, with Binance, Gate, Huobi, and OKex leading the board, but the ugly truth behind these metrics is that there is currently a negative average ROI on the IEOs that were held on almost every exchange, except of Binance and Gate, Which on a first hand, demonstrates the high volatility behind Coins that did an IEO in 2019, and on a second hand, Justifies the skepticism of retail and private investors towards investing in IEOs on certain exchanges.
Source: Cryptorank.io
IEOs and Token sales in 2020 — What to expect
A new decade is upon us, and the crypto industry has come a long way since the first Bitcoin Genesis Block mined on January 3rd, 2009, and since the first public token-sale held in 2013 by Mastercoin, and The Ethereum ICO in 2014.
What emerged during the following years was a consistent batch of token-sales totaling billions of funds raised between 2016 and 2019, and the embracement of the Coinvestiment concept across the world.
Now that 2020 is opening its doors, a reflection is required to evaluate and visualize what we should expect from this upcoming year in terms of the IEO and token-sale space, behaviors adopted by projects and retail/private investors, and of course, regulatory challenges and opportunities.
1. Private token sales, Private token-sale platforms, and STOs
On one hand, We will witness in 2020 the rise and birth of new private token-sale platforms that only accept coinvestments from accredited / private investors across the globe, Coinlist is a great example that has demonstrated the fundraising efficiency of this model throughout 2019.
On another hand, we will observe the prominence of private token-sales during this upcoming year. The most promising early-stage projects that are shaping relatively uncharted territories, Like next-gen blockchain protocols, new internet infrastructures, and DeFi applications, will mostly focus on selling their tokens to the private investor community through private token-sale platforms, instead of listing their token-sales on cryptocurrency exchanges for a retail investment purchase.
On a third hand, Security token offerings,( STOs ) are believed to undergo a major breakthrough in 2020 and that’s what will be sidelining the classical venture capital model at a greater scale.
With many Security token issuance firms popping up, as well as Security token exchanges and STO launchpads, we can only expect this fundraising mechanism and this new tokenized asset class to strongly formalize its ecosystem and its network of builders, issuers, investors, and traders.
2. More IEOs, More IEO launchpads, but more market-share centralization on tier 1 exchanges
Cryptonities states that the number of projects conducting an Initial exchange offering will soar in 2020, along with an increase of new exchanges that embed an IEO launchpad within their systems.
It can be expressed that this increase of supply is a result of the constant increase of the demand coming from start-ups looking to go IEO during 2020, which will also result in having all major exchanges placing IEOs on their loops. Perhaps, American and European exchanges are figuring out, at this very moment, a way to surf the regulatory challenges to fill the demand occurring in their territories.
More IEOs in 2020, More IEO launchpads, but the dominance of Tier 1 exchanges on this space, in terms of amounts raised, will only accentuate in this upcoming year.
Note: For all projects looking forward to adopting an initial exchange offering in 2020, make sure to clinch a deal with a top exchange if you wish to raise a 7 figure round.
3. Higher amounts of dollars fundraised through private and public token sales
We will experience in 2020 another huge wave of Institutional investors who are pouring their cash into established and new cryptocurrencies and are looking for the next big returns.
Firstly, Many venture capitalists and hedge funds are also diversifying their assets under management by investing in tokenized equities across different Blockchain start-ups that are building new cryptonised economies and applications, and we will only see this trend evolve at a faster and bigger scale in 2020.
Secondly, another Bull run is on the horizon in 2020, and retail investors are hodling their coins, but will be ready to liquidate their alts bags and make new bets for fresh investments in promising IEOs or even ICOs once the crypto market takes off.
Meanwhile
Meanwhile, let’s not dwell on making financial assumptions and predictions, but we should all focus on building products and communities that are useful to individuals and enterprises around the globe. The only path to a decentralized and censorship-resistant digital world starts with solving the right social and technical equations, in other words, keep building and deploying the right message.
