Until recently, the main way to raise funds for a new blockchain project was ICO – an initial coin offering. The first ICO was Mastercoin in 2013, and since then the world has seen hundreds of similar events. The peculiarity of the ICO is that the developer is the opposite side, everything revolves around him.
As for IEO (initial exchange offer), here an exchange service acts as a counterpart, for example, a cryptocurrency exchange. Developers issue tokens and send them to an exchange, which then sells them. Subject to an agreement between the exchange and the developer, various conditions can be included in the IEO, which are also suitable for IEO. These conditions include a limit on the contribution of one person or a fixed cost of a token.
- 1 What is IEO (Initial Exchange Offering)
- 2 How IEO differs from ICO
- 3 IEO advantages and disadvantages
- 4 How to participate in IEO
- 5 Specialized platforms for IEO
- 6 Examples of IEOs on exchanges
- 7 Output
What is IEO (Initial Exchange Offering)
IEO is a “mutation” of ICO. Fundraising in this case is administered by a cryptocurrency exchange that would not risk its reputation.
A token issuer is usually a new project that creates cryptocurrency as a separate asset class to attract the necessary capital for development. Usually, the issuer pays to the cryptocurrency exchange for listing, and also deducts a percentage of the tokens sold using IEO.
In return, the exchange undertakes to sell new tokens, as well as add them to the listing after the end of fundraising. More importantly, the exchange encourages active token trading, as it receives a percentage from this. Thus, good marketing of tokens is important for both the exchange and the issuer at the same time.
How IEO differs from ICO
The first difference is that IEO is not open to the entire public, but only to those who use the services of a particular exchange. While with an ICO, a contributor can receive tokens by simply sending money to a specific address.
It would seem that from this point of view, the open model should be better, since it expands the circle of potential investors. But there is a problem of fraud, which is why interest in ICOs has noticeably cooled down last year. Fraudsters under the guise of launching a blockchain project collected money and disappeared, giving nothing in return.
It turns out that the biggest problem with ICO is that it is not controlled by third parties. In principle, having a White Paper, anyone can launch it if they convince people to invest in the project. IEO offers a completely different model. Although the fundamentals are the same, the administration of the project by the exchange gives peculiar results.
First of all, the project must meet the requirements of the exchange to launch the sale of tokens. Thus, the risk of getting into a scam or fraud is practically eliminated.
Some argue that the exchange may be in collusion with the developers, but this is unlikely – large exchanges do not want to jeopardize their reputation, and truly reliable blockchain projects will not take such a deceptive step.
By allowing IEO to be carried out, the exchange runs the risk – after all, it does not control the work of the team on the project and the extent to which the functionality of the finished site will meet the expectations of users. Therefore, due diligence is carried out especially carefully before the implementation of IEO, which provides an additional layer of protection.
IEO advantages and disadvantages
✅ Given the reputational risk, cryptocurrency exchanges are interested in checking the token issuer and the quality of the offer as carefully as possible.
✅ The pros in terms of exchange are access to new, potentially profitable markets.
✅ The issuer does not have to worry about the security of fundraising, since the process is controlled by the exchange’s smart contracts.
✅ The process of organizing fundraising is much simpler. This is a mutually beneficial cooperation: the exchange helps the project in marketing, and in return receives a percentage of the income from the sale of tokens. Thus, a startup launched through an IEO requires less marketing spend than an ICO.
✅ Upon completion of the crowdsale, the coin is immediately listed. Listing is a necessary step to create a healthy project economy. In other conditions, listing can be very difficult, it takes months, and besides, many exchanges require considerable sums for this procedure.
✅ Ready base of potential users. Each person registered on the stock exchanges can theoretically become a client of the project. It also reduces marketing costs.
Disadvantages of IEO:❌
❌ Quite high listing fees – the cost of including a token in the list of traded currencies can reach 20 BTC, and the exchange also takes up to 10% of the funds invested by users.
❌ The exchange always risks its reputation because it cannot guarantee that the project will fulfill everything described in the “white paper”.
❌ Reducing the level of anonymity when buying. After all, almost every exchange works according to the KYC scheme and requires account verification for full operation.
And what does the exchange get from this, besides income? First, a lot of experience and marketing victories. Ultimately, this leads to the promotion of the services of the very same site. Secondly, new users. The new token will surely attract new customers to the crypto exchange, who can become permanent.
How to participate in IEO
Those wishing to participate in IEO should act according to the following algorithm:
- Make sure that the project will be run by IEO. There is usually a trend towards ICOs, so this point needs to be clarified.
- Explore the exchanges. Not all exchange sites are open to IEOs.
- Create an account with one or more of the selected exchanges. This must be done a few days before the expected start of the IEO.
- Make sure you have cryptocurrency. In most cases, tokens are sold for Ethereum or Bitcoin.
After that, it remains to wait for the start of the sale of coins.
Specialized platforms for IEO
As this type of crowdsale is gaining popularity, special platforms began to appear, where the initial exchange offer is organized in the most convenient and safe way.
The platform was launched on the basis of the Binance exchange and has already held several large token sales, including:
- BitTorrent. The token sale took place at night on January 28, 2019. All 23+ billion tokens were sold out in 13.5 minutes. Coins could be purchased for TRX or BNB.
- Fetch.ai. The token sale lasted 22 seconds and raised $ 6 million during this time. Many members complained about this that they did not have time to complete the purchase due to problems with captchas or a stuck request.
- Celer Network. The token sale took place on March 19, lasted 17.5 minutes and raised $ 3.7 billion. At the same time, users also complained about errors and freezes.
The platform was launched as recently as March 26, 2019.
The first IEO on it was TOP Network, which lasted only 7 seconds, during which users bought 300 million coins. This caused a wave of outrage – many believe that the vast majority of tokens were bought by bots or insiders, and the exchange is behaving in bad faith.
The next two rounds also ended in a few seconds, so they did not play a special role in changing the situation.
To the credit of the Huobi exchange, the developers took into account the negative reviews and revised the rules for conducting future IEOs.
On March 30, the Estonian crypto exchange Bibox also announced that it plans to launch its IEO platform. And although neither the exact date nor any other details were named, the cost of the exchange’s internal token increased by 35% per day.
OKEx OK Jumpstart
The launch of this site was also announced just a few days ago. It is known that the first project-participant will be Blockcloud – a blockchain architecture for increasing the resilience of dynamic networks.
It will be possible to purchase tokens within the framework of the campaign only for local OKB coins.
Examples of IEOs on exchanges
So far, not all exchanges have acquired special platforms, but IEO is still practiced by means of the usual functionality of the service. A couple of examples:
EXMO and PTI (Paytomat token)
On April 1, 2019, the Paytomat token IEO took place on the Exmo exchange, which lasted 99 seconds starting at 20:00 Moscow time. All 85 million tokens were sold, which were supposed to be sold within 3 days.
Since April 4, the listed coin has been trading in pairs PTI / BTC, PTI / USDT and PTI / EOS.
Kucoin and MultiVAC
On the Kucoin exchange on April 3, 600 million MultiVAC tokens were sold in just 7 seconds. More than 16 thousand participants were in the live queue.
In the future, the format is planned to be slightly improved. For example, the ability to purchase tokens within the IEO will depend on the number of local KCS tokens in the account over the past two weeks. However, a live queue will also take place in one of the rounds.
In order to ensure the success of the token sale, the exchange must have a multidisciplinary team of experienced business strategists, technologists, computer scientists, engineers. The human resource plays a huge role in assessing the technical and business aspects of new ventures. This certainly creates some kind of barrier for crypto exchanges to take advantage of the new trend. Some sites faced difficulties precisely because they did not have a sufficient number of qualified employees able to select potentially successful blockchain projects.
Some of the institutional investors are of the opinion that IEOs are just a temporary “fad” that is designed to inflate token prices until legislation comes in to support authentic security token offerings (STOs). Nevertheless, many entrepreneurs do not mind promoting their project through IEO, since in a number of regions there is an acute shortage of options for raising funds for startups (South Korea is usually cited as an example).
Even if IEO is really a temporary trend, many developers are ready to play this roulette. An example for them is that many token sales have been able to raise millions of dollars from retail investors.