If you’re even remotely passionate about cryptocurrencies, then we are sure you heard about ICOs and, to be frank, you’re already fed up by all the surrounding hype, scams, and possibilities.
In the case of ICOs, investors typically send cryptocurrency to a company in exchange for a certain number of digital tokens. The startup that gets the money can (and should) use it to build its business while the investor gets tokens that can be expected to increase in value as the platform grows.
After 2018 in which more than 50% of all ICOs turned out to be total scams or failures, the ICO market is somewhat slow. This has led many to ask themselves where is this trend of ICOs heading. Is the latest fundraising mechanism dead, others have asked themselves.
It seems that the ICO market is evolving as we are currently seeing the birth of a new trend, that of initial exchange offerings, or IEOs.
What are Initial Exchange Offerings (IEOs) and how do they work?
In a lot of ways, an IEO is similar to an ICO. Both IEOs and ICOs allow companies or start-ups to sell tokens to investors willing to finance the project. In the case of ICOs, the counterparty is the developer, while in the case of IEOs, start-ups can conduct the fundraising process by relying on an exchange or multiple exchanges to complete the campaign.
During an IEO, investors are required to send money directly to the exchange’s wallet or smart contract which, in turn, will send the tokens to the users. Hence, the exchange is responsible for managing the smart contract (responsible for the automation process) that accepts money in exchange for tokens.
Advantages and disadvantages of IEOs
This brings us to the why IEOs are most useful. One of the main advantages of IEO is that it provides a more streamlined process for developers or start-up representatives wanting to launch their first ICO. Conducting a successful ICO can be a very difficult and complex task.
Hence, by relying on the expertise of exchanges to ensure the token sale proceeds in a timely and secure fashion, developers and start-ups are shielded from a lot of headaches. The other big advantage is the fact that most exchanges require AML/KYC verifications from its users. Therefore, developers are no longer required to conduct their own AML/KYC verifications.
In short, IEOs are very much beneficial for both the developers of the project and the exchange. For most investors, buying tokens from a reputable crypto exchange can mean very much, especially given the prevalence of fraud within the ICO world. For the exchanges, this usually means more exposure and a better relationship with the token buyers as they perform the due diligence.
Other advantages for the exchanges include the successful completion of an IEOs. This usually results in substantial winnings, as well as new, and potentially, exclusive markets which result in increased liquidity, one of the most important aspects of any exchange.
As good as IEOs might be, there are not perfect. One of the main disadvantages of IEOs is represented by the fact that token issues must support the cost of the benefits appreciated by the crypto exchange and token purchases (usually big fees). Token issuers also have to bear all the marketing costs for the token.
Why would a user participate in an IEO?
From a user’s perspective, the main benefits include not needing to sign up twice, participating in an ICO with a very reduced risk of fraud, and easy market access.
Since IEOs involve a user already being a member (having an account), the participation is seamless without any unnecessary KYC and AML procedures. When it comes to IEO, the new tokens are listed with all the existing tokens in the exchange wallet. This makes it very easy for anyone to transfer balances between accounts.
As mentioned before, ICOs are usually a high-risk/high-reward processes. However, if a user is a member of a prominent and respected exchange, it’s almost totally sure that the ICO is hosting scams.
How to participate in an Initial Exchange Offering?
The first step for participating in an IEO is managing to find one (IEOs are very rare, especially when compared to their ICO counterparts). You will most probably be announced via newsletter by the exchanges where you have accounts.
Since IEOs are not limited to a single exchange, you might want to research which exchanges will participate in order to find the best possible deal. Once you decided on which exchange is best for you, sign up on that exchange, verify the account, and undergo all the required KYC/AML verifications.
The next step involves you having to check which cryptocurrencies will be accepted. Unsurprisingly, BTC and ETH are two of the most commonly-accepted cryptos used for both ICOs and IEOs. When the IEO officially starts, just send the required or desired amount of crypto to the exchange. You should receive the tokens in your exchange’s wallet in a timely fashion.
Up until now, we’ve seen platforms like Kickstarter taking off. With the rise of cryptocurrencies, the world entered a frenzy with ICOs, and now it seems that IEOs are the next big thing.
While that may be true, as IEOs really have the potential to help restore the “tainted” image of ICOs, there is still no perfect crowdfunding mechanism. However, there’s no denying that IEOs come with several unique advantages over ICOs which might even be enough to kickstart the industry back to life.
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