Why is there an IEO if there is already an ICO?
The amount of ICOs has developed rapidly over the past few years, but by the end of 2018, it had practically exhausted itself. The reasons for this are legal uncertainty, the emergence of a multitude of scam projects, the fraud, the lack of mechanisms to protect the rights of investors and harsh measures by financial regulators.
It was obvious that the improved method of fundraising will appear as the result of the evolution of token sale.
What benefits an IEO has for investors?
The exchange assumes due diligence of projects, assessing their investment attractiveness, the viability of the products, risks, financial capital, market position and etc. The fact that the exchange platform assumes reputational risks increases the level of investor confidence.
Lately, ICO began to replace private offers, which are generally accessible only to large investors. IEO makes the process of investing more democratic, making it accessible to a wide range of participants.
What are the benefits of an IEO for exchanges and fundraiser organizers?
The main advantage of this approach for the organizers is an already existing base of potential IEO participants from a huge pool of exchange platform users. This reduces marketing costs.
In addition, not only the exchange is engaged in marketing, but also the organizers of IEO. Such an approach not only saves money but also creates a synergy effect, which increases the efficiency of promotion to the market.
The main source of income for exchanges - trade commissions. More users and coins in the listing - more transactions and higher income from commissions. Holding IEO on its own platform gives the exchange the opportunity to attract new users and offer sometimes exclusive coin sale that is not available at other platforms.
IEO optimizes the process of putting the coin to the marketplace. The asset almost immediately after the end of the campaign becomes more or less liquid, because it turns out in the listing of a large stock exchange.
This method of raising funds is mutually beneficial for both stock exchanges and issuers of coins. Despite the seemingly significant costs for the organizers, IEO increases the chances of success in the long term.
What are the flaws of an IEO?
Unfortunately, there is nothing free in the world - coin issuers will have to pay considerable sums for listing. A price range may differ on different exchanges. Also, the exchange platform may require a percentage of the total amount of funds raised.
Startups distributing tokens through IEO may have to pay considerable marketing costs. These expenses are high, their total amount can easily reach $100 thousand or more.
Exchange platforms staff should consist of qualified analysts who are able to systematically evaluate the long-term potential of projects and the viability of their business models. This may mean high labor costs. In the event of a campaign failure, the exchange carries significant reputational risks.
Only the holder of a verified account on the exchange can participate in IEO, and not anyone who wishes. In addition, most exchanges are centralized sites. Users have to trust their blockchain-assets to a third party, which is associated with the risks of failures and hacker attacks.