The Initial Coin Offering (ICO) has long been the main form of fundraising for blockchain projects. Since the first Mastercoin ICO in 2013, there have been hundreds of such projects. At its core, the ICO is a form of contribution that developers receive from interested people for their project. They take place in ether or another cryptocurrency. In addition, a new token is created. Whether or not there is a smart contract, the adversary facing the investor in an ICO is the developer himself and his team.
Initial Exchange Offerings
An Initial Exchange Offering (IEO) requires a single or set of Exchanges. This serves as an opponent, a role that otherwise takes the developer. The developers maintain the tokens of the project and forward them to the Exchange. The latter then sells the individual tokens for ethers or another cryptocurrency to the contributors. When developers and Exchange agree, it’s also possible to set terms and conditions similar to those in an ICO. Such terms include a cap for individual investments, a token fix price, or other terms.
|Contribution||Exchange Account||Smart Contract|
|Project Assessment||Through The Exchange||Nobody|
|Requirment For Launch||Yes||No|
|Vetting Buyers||KYC/AML||No/third party|
|Marketing||Exchange and Projets||Only through the project|
From the point of view of an investor, he must open an account with an IEO at an exchange to which he sends his ether or other cryptocurrencies. This is the opposite of an ICO where the investments are sent directly to the development team.
IEO Vs ICO! What are the Differences?
If you are thinking of starting an IEO instead of an ICO, then you have probably already asked yourself the differences between the two.
Here are the key differences between IEO and an ICO:
- The biggest difference is that IEOs are immediately tradable. ICOs, however, not. If you ask an ICO trader, then this will tell you that this is the biggest shortcoming of an initial coin offering.
- Another difference is that ICOs can motivate investment. At IEO, on the other hand, equity markets actively participate in fundraising. This is very promising in many cases.
- Initial Exchange Offering brings a middleman into play, unlike the decentralized ICOs. This can increase confidence in a project significantly. Unfortunately, ICOs have often turned out to be a scam.
- Also, with an ICO, the tokens are created and issued after the funding target has been reached. At an IEO, the projects generate tokens and send them to Exchange platforms.
|Fundraising Through||The Project/Token Website||The Exchange|
|Crowdsale Opponent||The Project Developers||The Exchange|
|Smart Contract Managment||By thestartup itself||Through the Exchange|
|AML/KYC Procedures||Through the project/startup||Through the Exchange|
|Required Marketing Budget||High.The Project must bear the entire cost||Low Exchange help with marketing|
|Screening required before project start||No,Unless required by low||Yes Stric screening through the Exchange Platform|
|Automatic Token listing after crowdsale||No,The startup has to negoshiate with Exchanges||Yes,The listing takes place on the IEO Exchange|
Is Not an IEO Just Old Wine in a new Bottle?
No. The biggest problem with an ICO is that the offering is not controlled or monitored by independents. This means that anyone can start an ICO, provided they can produce a compelling white paper and attract investors.
An IEO, on the other hand, uses a very different if not completely different concept. Although both forms have the public offering in common, in an IEO the network of partner exchanges is the administrator. To perform an IEO, the project must meet the requirements and policies of the Exchange Partner. Investors are protected by the exchange.
Although some people now argue that the Exchange Partner is simply involved in a scam and gets involved in the revenue, this is considered very unlikely. An Exchange often has a large number of customers and faces enormous competition. He would not jeopardize his reputation and confidence in the industry to achieve a one-off, short-term, and relatively low, return relative to his other earnings. All those exchanges who are looking for an honest and steady business will reject such unethical behaviour.
Instead, the Exchange is risking its reputation and credibility with all its customers when performing an IEO. Finally, even with an IEO, the Exchange team has no control over the project team or the project itself or the delivery of the product, as promised. In order not to damage its customers’ trust, the Exchange needs to analyse the project thoroughly and in detail before deciding to support an IEO. This provides additional protection for investors.
An IEO has two advantages for the customer: On the one hand, an Exchange helps to monitor and select projects. So, scams are sorted out and there is more security. On the other hand, an IEO is promising. Unlike an ICO, there is already a large user base. In addition, the Exchange already provides all the necessary tools and information for managing and trading the coins as well as access to a wallet, etc.
But there are also advantages for an IEO for the project team. For example, the team does not have to worry about legal regulations like KYC, as all investors and users have already been verified by the Exchange platform. In addition, an exchange provides a large user base right from the start, helps with promotions and marketing, etc. With all the scams, scams, and bogus projects in circulation, an IEO is certainly the better model, even if it comes to extra expense for both sides, the added protection is usually well worth the extra cost and support of an Exchange.
Why should I prefer an IEO to the ICO?
The mere fact that so many successful ICOs have already been conducted often raises the question of why you should do it differently with your own project. However, an IEO offers several advantages. Including for example:
- You can use the existing userbase of the Exchanges for your IEO
- They prevent a so-called gas war between the road users if it is not a decentralized Exchange.
- It becomes much harder to scam investors, as the tokens can only be acquired through the exchange.
- The IEO is a kind of vote of confidence in the Exchanges as a sponsor for the project for which the fundraising is being conducted.
- The listing on the Exchange where the IEO was performed is the next step.
IEOs on Exchange Platforms
IEOs have not yet been able to attract the attention of the ICOs. Nevertheless, you are already supported by many exchanges. Binance, the largest crypto-exchange in daily trading volumes, initiated the trend in 2017 with its own IEO platform. The first IEO was conducted by Ethereum-based dApp Gifto. With the help of Binance, the team was able to raise $ 3.4 million through fundraising. Prior to this initiative, all you needed was a great website and an Ethereum token.
Binance recently also supported the BitTorrent IEO. All available tokens were sold within minutes. The proceeds amounted to 7.2 million US dollars. This has led to some controversy and speculation as Binance and Tron have been cooperating with each other recently. Some examples of other projects that IEOs have supported are:
- The South Korean Exchange helped the REMITT remittance platform receive at least $ 2.3 million in its IEO.
- The Malta-based company recently announced its launch of the OKJumpstart platform. A tool especially for the implementation of IEOs. CEO Andy Cheung says that an IEO is a win-win situation for everyone involved.
- Bittrex has also joined the IEO community. This was done by announcing that it supports a project around the RAID Token. Unfortunately, the project was eventually cancelled without stating reasons. However, Bitrex issued a statement shortly thereafter stating that the Exchange was unlikely to match an IEO’s interests.
- Huobi, is a large exchange company based in Singapore. Even Huobi did not want to fall behind the competitors and has launched its own IEO platform on the market. Huobi also uses a different approach. It sells IEOs as Direct Premium Offerings (DPO), which allows customers to receive tokens below the regular market price.
- KuCoin has launched the KuCoin Spotlight platform. The goal: to publish the peculiarities of Blockchain.
Advantages and Disadvantages of IEOs
In the following, we will introduce you to the different advantages and disadvantages of IEO projects.
For the Team
The obvious advantage of an IEO is the direct and immediate access to verified investors who are willing to invest in crypto. The search for potential customers is unnecessary. Added to this is the advantage of an existing and functioning platform – the Exchange. According to an independent research report, ICO operators spend between one and three million dollars to get their tokens listed on an exchange. In addition, there are additional costs for marketing, advisors, etc. Although sometimes exchanges also high fees for an IEO publish, so you do not have to worry about marketing, advisor, listing, etc. but can go directly to the development.
Projects are Easier
Token issuers – especially startups – have an easier time launching a project. You receive the complete infrastructure and know-how of the Exchange Partner. Where other ICO projects have to pay fees to be listed on an Exchange, this is not an issue for an IEO. The team even helps with the marketing and distribution of the tokens, as the Exchange of course also wants to earn the project. In addition, there is an established and stable clientele.
Another big advantage of IEOs over traditional initial coin offerings is trust. The sale takes place on an established and well-known Exchange with a fixed clientele. The platform uses its good reputation and its name. Investors are far less sceptical and more willing to invest. The reason: Scams and abuse of ICO projects or revenue fraud are much less likely.
A good example is the RAID IEO. Recently, Bittrex announced that the Exchange has cancelled the IEO with RAID. The reason for the stop just hours before the start of the crowd sale was a split partnership between RAID and the e-gaming analytics company OP.GG.
According to Bittrex, the partnership between the two companies was a vital part of the project. When the Exchange learned that the partnership between OP.GG and RAID had ended, it stopped the project. The managers of Bittrex felt that the project was no longer in the interest of its customers.
Token issuers do not have to worry about the safety of your project and the sale because the Exchange completely takes over these tasks. In addition, the legally required KYC / AML process for identifying and verifying customers is also assumed by the Exchange Partner.
Also, the listing of the tokens is part of the IEO deal. The Exchange guarantees and takes care of the listing and the sale. Again, you have to worry about anything else as a project team. Especially for startups, the listing costs can be very high and too expensive. Exchanges at an IEO, on the other hand, usually charge a 10% share of the campaign, similar to other fundraising sites and projects.
What Advantages Does the Exchange Have?
Of course, not only the project benefits from an IEO but also the Exchange. It is no secret that, due to the fees alone, the exchange business is already very lucrative. But here, too, companies must expect increasing competition. There are additional benefits from an IEO located. Some of these advantages are:
- IEO or listing fees. There are big differences depending on the platform.
- The influx of new users and their revenues. Some of these new users signing up for the IEO could become loyal customers of the Exchange platform. Some exchanges may even specifically exploit the IEO niche for themselves.
- Joint Marketing together with the IEO team.
The Disadvantages of an IEO
Now that we’ve talked about the key benefits of an IEO, it’s only fair that we look at the disadvantages. These, too, exist for an initial exchange offering.
- The limited number of trading platforms. Since IEOs are almost always conducted with a single Exchange Partner, potential investors can be deterred by having to create a new account and go through the entire verification process.
- Another risk of failure. Although an exchange provides security and trust and provides important resources, it is a double-edged sword. Exchange is always an additional risk, which can be responsible for a failure.
- A handful of big investors can control most of the tokens. This can easily lead to price manipulation.
- Users do not own the tokens. Speaking of centralization, it should be noted that a crypto-exchange is in full possession of the public key of its users. This means that you do not own the acquired tokens! If an Exchange is hacked, all tokens can be lost.
- High risk of pump-and-dump schemes. If a fraudulent project succeeds in being listed, despite all odds, it will be much easier for the operators in such a case to dump the prices immediately after the sale.
How to Participate in an IEO?
- Make sure that an IEO will take place. Although the popularity of ICOs has decreased since 2018, they remain an important medium for fundraising in the cryptographic scene. Check the project website to see if there will be an ICO or an IEO.
- Find out which exchanges will participate in the IEO. The token issuer could only partner with a single platform. In that case, you do not have to sign up for this Exchange if you want to join the IEO.
- Complete your KYC / AML. After logging in to an Exchange platform, you will not get around the verification process. This is for safety and takes some time (often several days) to complete. Therefore, do not start the procedure until shortly before the planned IEO start.
- Find out about the possible crypto options. Bitcoin (BTC) and Ethereum (ETH) are the two options you find most often. Some Exchanges, such as Binance but also use their own coins.
- Finally, you have to wait for the day of the IEO launch. Be careful.
- Do not be late. Some sales are over after a few minutes.
Will IEOs be the Next Fundraising Boom?
ICOs have created a veritable fundraising boom when they were publicly launched in 2017. This boom continued in 2018 but was slightly down in the end. The reason was many scammers and fraud with the projects and the revenue. There are also ICO bans. Therefore, it is clear that ICOs are not ideal for fundraising, especially for startups. An IEO, on the other hand, offers more security and greater confidence. The reason for this is that behind the IEO is an established Exchange. At the same time, this is more efficient and has advantages for all concerned. For these reasons, IEOs certainly has the potential to lead to a new fundraising boom.