Initial Coin Offering(ICOs) has been the talk of the town in the past couple of years. However, it is slowly losing its charm, thanks to how the startups or companies carry their fundraising process.
ICOs are not new. The first ICO took place in 2013 by Mastercoin. It gained popularity during the cryptocurrency boom in 2017 when startups or organizations trying to raise funds carried out their own ICO. Some of the ICOs are instant hits whereas others struggle to raise sufficient funding amount. One of the biggest ICOs includes the EOS ICO which raised $4 billion in 1 year.
But, it became old pretty fast. Meet Initial Exchange Offerings(IEO). So, what is an IEO? Let’s explore below.
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What is an Initial Exchange Offering?
Initial Exchange Offerings(IEO) is a step up from ICO. The main difference is the method of distribution. IEO uses exchange(s) as part of their token distribution model. The first process including minting the tokens and then distributing them to exchanges. Then, an agreement is generated between the developers and the IEO which is almost similar to the agreement that is developed in an ICO.
The agreement ensures that the distribution is done in a controlled manner. For examples, developers can set a limit on how much tokens an individual can get or the initial price of the token.
IEO offers more flexibility as it lets the contributor to be in more control over his spending. In ICO, the contributor needs to send Ether to a smart contract whereas, in IEO, a contributor needs to create an account in an exchange and do the purchasing there. This gives better control for the contributor and ensures more confidence in the whole process.
The use of IEO means that countries like China are also enabling contributors to take part in fundraising. China’s exchange, CoinBene is doing its first IEO Temco. Temco is a logistics and supply chain project.
Another project that is holding their IEO is NuMoney Exchange which is raising funds to improve liquidity on their exchange.
What are the advantages of IEO?
There are many advantages of IEO. Firstly, only the good tokens are distributed through an exchange as it directly or indirectly relates to the reputation of the exchange. This leads to a better token listing.
Exchanges also benefit from the whole setup as it builds a trustable relationship between the exchange and the developers. Also, IEO is easy to implement considering that the big difference is the method of distribution. IEO is also more stable and secure compared to ICO which are open to fraud and scams.
To do a successful IEO, the exchange needs to do the right things. They also gain an advantage in the form of access to the exclusive market, negotiation power and so on. Exchanges also offer better liquidity compared to traditional ICOs where the tokens are listed in exchanges after a certain period of time. Exchanges also offer better user interaction thanks to the user-friendly interface. This enables new users to interact with the IEO and contribute to the project of their liking.
Should a startup do IEO over an ICO?
With all the advantages listed, we are in the right position to answer this question. So, if you are an owner of a startup or organization who is looking to raise money, should you do IEO or ICO? Let’s find out below and list the advantages of IEO over ICO.
- Fundraisers get access to already existing exchange audience.
- With exchanges handling all the operations, there would be no “Gas War.” Everyone gets an equal chance to participate.
- Exchange listing will get more access to the audience.
- Scams can be averted completely as tokens can only be purchased from an exchange.
What are the disadvantages of IEO?
Initial Exchange Offering is not free from flaws. It does come with disadvantages. For example, the buyers need to bear the expenses related to the exchange, i.e., exchange fees and other associated fees. Also, the organization doing the IEO need to deposit the right amount of listing fees to the exchange to bear all the expenses done by the exchange itself.
Another disadvantage is the fact that the marketing cost also needs to be born by the token issuers which increases the overall cost drastically. The estimated number suggest that the token listing fees to be at least 20 BTC whereas marketing cost can range anywhere from $80K to $150K irrespective of the popularity or the quality of the exchange.
How to participate in an Initial Exchange Offering?
As a contributor, you need to follow a specific set of steps to participate in an Initial Exchange Offering. They are as follows.
- Check whether your favorite project is holding an IEO or not. Many projects do both IEO and ICO, and as a contributor, it is always a safe bet to participate through IEO.
- Learn which exchanges the IEO is going to happen. Also, make sure that you understand the KYC requirements of the exchange that you are going to use to participate in IEO.
- Properly set up your exchange account and complete the KYC procedure before the IEO starts.
- Learn which cryptocurrency or fiat is accepted to invest in the IEO. For example, any project utilizing the ethereum blockchain will only accept Ether as a payment currency.
- Always be proactive and be ready with all the necessary tools, funds or information to successfully participate in the Initial Exchange Offering.
Change is the path to a better market. This holds for the cryptocurrency market where IEO is on the path to replace ICO. IEO’s benefits are too good to be ignored, and with both exchanges and developers interested in the IEO idea, we are going to see more Initial Exchange Offering in the future. So, what do you think about Initial Exchange Offering and their impact on the market? Comment below and let us know. We are listening.