What Is An Initial Exchange Offering (IEO)?
An Initial Exchange Offering (IEO) is a token sale overseen by a cryptocurrency exchange. IEOs are exclusively available to exchange users, although some IEOs may take place on multiple exchanges. Like ICOs, IEOs allow investors to obtain new cryptocurrencies (or tokens) while raising funds for promising crypto projects.
What Is An Initial Exchange Offering (IEO)?
Many people in the crypto space call Initial Exchange Offerings the next step in the evolution of ICOs. Since ICOs are not regulated, and most of them turned out to be scams, STOs were supposed to be a solution. However, most STOs remain constrained by slow and costly processes and stifling regulations. IEOs are the middle ground that addresses the issues on both sides.
Although exchange-assisted ICOs have been around for a while, IEOs started gaining traction after the launch of Finance Launchpad in late 2019. There have already been more than 50 IEOs in 2019, raising more than $159 million, according to Iconic.
An Initial Exchange Offering Try To Promote Only Legitimate Projects
Because they put the credibility of the exchange at stake. Therefore, the investigation process is deeper. Also, not all ideas manage to gain support from an exchange. Additionally, exchange offerings are more accessible than STOs, which allow almost anyone to be free to participate and invest (except in countries with regulatory restrictions, see below), and the token sale team is less likely to suffer. repercussions by regulators due to mandatory investor. KYC/AML checks performed by the exchange.
Essentially, IEOs are another way to crowdfund various cryptocurrency startups through a cryptocurrency exchange acting as a mediator. With the help of the crypto exchange, projects manage to gain significantly more exposure, interest, and credibility. After a successful IEO, token issuers pay a listing fee along with an agreed amount of tokens for the use of the IEO platform services. Soon, the tokens are listed on the exchange where investors can access instant liquidity.
Characteristics Of Initial Exchange Offerings (Ieo)
Like ICOs, Initial Exchange Offerings have a limited number of coins offered at a fixed price, limits on the minimum and maximum tokens available for purchase per single user, soft limit and hard limit, and dedicated accepted cryptocurrencies.
However, unlike ICO tokens, IEO coins are already minted before the crowd sale. Also, they hit the exchanges several days or weeks after their IEO, which makes it more convenient for investors (instant liquidity). Furthermore, the IEO process naturally involves an intermediary (the IEO platform) who is trust to handle the funds. However, that also serves to increase investor confidence in the project, which most ICOs lack.
Pros And Cons Of An IEO
Essentially, IEOs are advantageous due to:
- Increased investor confidence. Investors do not deal directly with the IEO project team, but with the exchange, which makes it more credible and secure in case things go wrong.
- Security for both token issuers and investors. Token issuers also benefit, as IEO platforms handle everything related to regulations, such as mandatory KYC/AML verifications for each participant.
- Frictionless process. IEO platforms ensure that almost anyone, regardless of their experience in the crypto space, can easily contribute.
- Elimination of scams. IEO project teams are not anonymous or fake, so they won’t disappear after collecting your funds.
- Benefits for the projects, such as a greater marketing effort by the exchange, more credibility, exposure and interest in the project.
- And for exchanges, including new users who sign up with them just for the sake of buying and trading IEO tokens.
- Benefits for exchange token holders. Most exchanges use IEO to add another use case for their native token (if they have one) that is likely to increase its value.
However, IEOs are also Subject to the Following Risks and Concerns :
- Unclear regulations and restrictions. Many countries have issued restrictions or banned ICOs altogether, which can also reflect negatively on IEOs. Although it is a slightly different beast, the basic principles of an IEO remain the same.
- All investors must comply with AML/KYC. The cryptocurrency community is known to be full of privacy-obsess individuals, so going through the AML/KYC procedure can be a big no-no for some.
- Market manipulation and currency concentration. Most IEO tokens mint in advance, so you should always check the dynamics of token allocation and distribution before investing. Both the project team and an IEO exchange can keep an unreasonably large portion of the tokens for themselves, which can result in price meddling later on. Also, it is no secret that the vast majority of exchanges engage in “wash trading”.
- A limited number of investors. There have been many complaints from investors that not everyone manages to buy tokens during IEOs.
- bots. There is concern about bots that can be program to participate in IEOs and beat out human investors.
- FOMO. Remember to do your own research and examine the projects and their ideas yourself. Both IEO project managers and IEO platforms have an incentive to create as much hype as possible to sell all the coins. Be sure to check out the whitepaper for the project, the idea, and if you even need a token in the first place.
How To Participate In An IEO?
In a way, IEOs make it even easier for an average user to get involve. Unlike ICOs, you don’t need to send funds to a smart contract, verify transaction addresses, or make sure your transaction has enough gas or fees to process on time.
A typical IEO process looks like this:
- Find an IEO you want to invest in.
- You need to register with the exchange and verify your account by passing the KYC/AML procedure.
- Check the cryptocurrencies you can use to participate in the IEO and deposit them into your account.
- Wait for IEO to start and buy the tokens.
Of course, the process may not be as straightforward as described here, as each IEO platform has its methods to ensure a fair process for all users. For example, Finance Launchpad has introduced a lottery-based token distribution method for the Matic Network IEO.