Everything You Wanted To Know About IEO

What is the initial exchange offer? Why is there an IEO if there is already an ICO? What benefits IEO has for investors? What are the benefits of IEO for exchanges and fundraiser organizers? What are the flaws in IEO? How to participate in IEO? What exchanges do an IEO? Will IEO create the next fundraising boom?

All these questions answered below.
What is the Initial Exchange Offering?

In 2018, an alternative to ICO appeared - Initial Exchange Offering (IEO). The main difference between these methods of attracting investment lies in the key role of the exchange platform, which selects promising and viable projects.

In ICO, the listing of tokens on the stock exchange may not be carried out immediately, but several months after the completion of the token sale. In the case of IEO, the exchange is initially the key partner of the organizer of the token sale. So, project issues tokens and sends them to the exchange. Exchange platform, in turn, distributes digital assets among interested investors, who are verified users of the trading platform.

Instead of sending funds to a smart contract, the IEO participant needs to register and verify oneself on the exchange, transfer funds to the account and buy coins from the exchange directly.

The agreement between the exchange and the organizer of IEO may contain various conditions: the maximum sales volume of tokens per investor, a predetermined asset price, hard cap and soft cap, the percentage of sales and etc.
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.
How to participate in an IEO?

First, you need to make sure that this or that project actually holds IEO and not ICO. After that, you should find out which exchanges IEO is held.

After selecting a suitable exchange, you should create an account on it and go through the KYC ("Know Your Customer") procedures.

You also need to find out what cryptocurrency the IEO project accepts and deposit them into your exchange account. Then it remains only to wait for the start of coin sale and, finally, to buy new assets directly on the stock exchange.

What exchanges do an IEO?

More and more exchanges began to create IEO. One of the first in the lineup was Binance, which released its IEO Binance Launchpad platform. In January, BitTorrent, bought by TRON, initiated the sale of tokens on the Binance Launchpad and collected $ 7.2 million in less than 15 minutes. The next IEO on the platform broke this record and closed in just 22 seconds.

Watching the success of Binance Launchpad, other well-known exchanges announced the launch of their own IEO platforms. IEO platforms include Bitmax Launchpad, Bittrex IEO, OK Jumpstart (OKEx), KuCoin Spotlight and Huobi Prime.

Will an IEO create the next fundraising boom?

IEO provides an increased level of confidence in cryptocurrency projects because the exchanges on which are actively involved in the fundraising process, which increases the efficiency of the crowdsale. Consequently, IEO can become a standard model for raising funds in the crypto space, and maybe even create the next fundraising boom.
APRIL, 16 / 2019

Text author: Ruslan Golovkin
Photography: Unspalsh

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