What is an IEO (Initial Exchange Offering) in Crypto?
Have you heard that Binance Launchpad esrned $7.2 million on IEO within 15 minutes only? This fact encourages people who are interested in blockchain to learn what IEO in crypto is and how they can benefit from it too.
You will agree that crypto industry is developing very quickly and the boom created by ICO in 2017 and 2018 now can be repeated by IEO. That is why it is important to understand what IEO is and what its contribution to the blockchain industry.
What is an IEO
IEO is an abbreviation which stands for Initial Exchange Offering and is technically one of ICO (Initial Coin Offering) forms. Experts define IEO as a sale of tokens performed on the crypto coin exchange.
Any startup can turn to the exchange website with the request to sell the newly released tokens. Before the agreement is supported by both parties, the exchange service needs to make a review of the project and company which turned to it to know for sure it is not a fraud and it will not impact its reputation badly.
When this evaluation is completed, the exchange service announces the date of the sale and its price. Some exchange platforms accept only their own tokens so participants need to obtain token units to be able to become a participant in IEO.
Tokens can be purchased only by registered users of the platform if they are sold via IEO. So when a customer wants to obtain a certain token, it is enough to sign-up for an account on the website.
Since token issuers use exchange services to sell their products, they are obliged to pay a listing fee and the exchange also takes a percentage of the sold tokens. It is very comfortable for startups since even marketing operations are performed by the exchange and they prevent themselves from paying them separately.
What is the Difference Between ICOs and IEOs
People who have little experience in buying cryptocurrency would say that ICO and IEO are the same thing but, in fact, they differ greatly. The main difference can be perceived from the name of these processes, but it is not the only one. The primary features which differ ICOs from IEOs look as follows:
- ICO sale is organized by startup and is performed directly to the customers, while the sale of tokens via IEO takes place on the exchange service.
- Every person can participate in the purchase of tokens via ICO, and only registered users with accounts can buy tokens via IEO.
- The participation in IEO provides buyers with more confidence due to the decentralized fundraising model, while ICO is often associated with scams.
- ICO start minting their tokens only after the completion of funding, while in IEO, all the generated coins offered for sale are sent to the exchange service.
- IEO’s projects are assessed and administered by the exchange staff, while nobody do that in ICO.
- The exchange service conducts both AML and KYC before the token is accepted for selling. It is performed periodically in ICO.
- ICO requires more investments to attract attention to the token and promote it, while all these responsibilities are taken by IEO when the token is sold on the service.
- ICO participants are not verified or checked by anyone, while all the token issuers have to pass a check of the platform before they manage to sell their products on it.
- Automatic token listing after crowdsale is performed by IEO on the basis of the agreement, while startups selling via ICO should reach exchanges themselves.
- It takes only a couple of seconds to purchase tokens via IEO, and you may wait for hours to get tokens in ICO.
IEOs on Exchange Platforms
IEO has recommended itself as a secure and fast way to purchase tokens. They success of two first IEO platforms such as Binance Launchpad and Fetch.AI has encouraged many other exchanges to launch their own platforms. BitTorrent started a sale of tokens on Binance Launchpad and received $7.2 million profit within 15 minutes, while Fetch.AI has earned $6 million in 15 seconds only.
As a result, today more new platforms appear on the web. The oldest and the most renowned IEO platforms today are Bitmax Launchpad, Bittrex IEO, OK Jumpstart (OKEx), KuCoin Spotlight, and Huobi Prime. The first IEO platform was open in December 2017 by Binance, the biggest cryptocurrency exchange, while all other platforms appeared in 2018 and 2019.
How to Participate in an IEO?
In spite of the fact that many exchanges try to launch IEO platforms, they are still quite rare. However, if you need to obtain tokens, it is not difficult to find one suitable for that. It is necessary to choose an IEO and then find an exchange respectively. If you want to buy tokens of the certain development team, you can visit its website where they usually post announcements about the planned sale. There, you will also learn which exchange to sign up for participating in it. After that, you need to make several simple steps:
- Pass the registration procedure on the exchange;
- Complete KYC and AML verification;
- Check which cryptocurrencies to be used for IEO contribution;
- Transfer coins to your account in the respective cryptocurrency, most often this is BitCoin or Ethereum;
- Wait for IEO to start and buy tokens.
IEO token sale may be quite short if it was advertised actively within some time, so it is important not to miss the time of its start.
Advantages of IEO for Trading Platforms
Everyone including token issuers, exchanges, and buyers will appreciate benefits provided by IEO. When it comes to the benefits received by startups, they look as follows:
- Marketing strategies are included in the fees paid;
- Minimum of time spent on trading;
- Possibility to make the use of the customer base of the certain exchange;
- Token listings are provided by the exchange.
Exchanges which launch IEO platforms also get several advantages:
- Joint marketing;
- Increased profits;
- Attraction of new customers.
Benefits of IEO for Investors
IEO brings about profits not only to startups and exchanges but also investors. They can get the following advantages:
- Feeling confident on the exchange service since all the token issuers are checked before being approved;
- Scam elimination;
- Management of IEO smart contracts;
- Simplicity of the buying process;
- Less risky trading.
Disadvantages of IEO
IEO is not a perfect platform for selling tokens since there are some drawbacks too. Not only investors but also token issuers can experience some negative sides:
- Startups have to pay quite high fees to exchanges which can reach up to 20 BTC and they can also take a 10% cut additionally.
- Investors need to complete registration to be able to get tokens.
- Minimum of trading platforms available nowadays.
- Possible failures are not excluded.
- Centralized approach which can impact price manipulations since a great number of tokens is owned by a small group of investors.
- Users do not actually own the tokens purchased since they are secured by private keys and can be hacked.
- High chances to suffer from pump-and-dump schemes.
Since ICO created a fundraising breakthrough in 2017-2018, the main question is the following: will IEO achieve the same goal? Unfortunately, ICO sales are characterized by multiple scams and fraudulent activities which make it a non-efficient model of raising funds for beginner token issuers. Hence the introduction of IEO has become a breakthrough in the crypto industry thanks to the higher level of trust and security provided. Moreover, startups dealing with tokens have received a new more effective way to perform crowdsales and save on advertising and listing.
Some experts suppose that IEO will be a perfect fundraising alternative to ICO and lead to the next burst in the crypto industry.
It is also possible to predict that more exchange websites will focus on the foundation of IEO platforms. The last ones have many benefits that can not be ignored so the world’s leading companies will invest in such platforms and open new ones. Nowadays the niche of IEO platforms is quite small, but there are high chances for it to grow and make IEO the most popular model for selling tokens.
Cryptocurrency industry is built on trading so it is important to have reliable platforms to purchase and sell tokens. Since ICO model is often associated with scams, the introduction of IEO can once be a reason to refuse from this old model. Initial Exchange Offering is a more secure and comfortable way of selling and purchasing tokens both for startups and investors, so there are high chances that soon this model will dominate the market and be successful. The example of Binance Launchpad and other platforms are proof of this fact.