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The future of the ICO is a hot topic to discuss. It has long become clear that if the status quo is maintained, then this phenomenon is doomed to go. So, back in 2018, the market began to look for ways to improve the situation. In most cases, everyone talked about STO as a means of salvation and a potential way to befriend with the strictest of the regulators. In Malta, where the spirit of crypto freedom and non-conformism soars, the ICCO was implemented, but this appeared to be a single case, and it did not develop.
However, another vector for development emerged — this is IEO, or Initial Exchange Offering. If we analyze the situation, it looks like a natural evolvement. In a retrospective, the crypto anarchic trustless world faced the overwhelming majority of unregulated scam projects which collected money and disappeared in the mist, but it wasn’t something everyone was waiting for. As a result, everything went back to basics: everybody wanted the central authority for trust, and it appeared that the cryptocurrency exchanges are to become these trusted entities today. So, the IEO process is similar to ICO, but the key difference is that both the developer and investors conduct transactions with a third party involved, which is, in fact, an exchange.
IEO definition and its attributes
IEO is an abbreviation for “initial exchange offering” — a fundraising procedure that the exchange holds on behalf of the token issuers. The issuer is a new project or investment company that offers cryptocurrency as an asset class for capital raising.
The issuer pays a listing fee and also allocates a certain percentage of tokens sold during IEO directly to the exchange. After the initial sale, the exchange lists the tokens. Since exchanges are beneficiaries too, they are actively involved in promoting a token to the potential investors. The developer and the exchange stipulate the terms of the procedure (for example, the limit of investments from one buyer). After IEO, any interested investor can buy tokens on the exchange platform.
Unlike ICO, where investors send funds directly to the developers, IEO investors are required to register and proceed with the KYC rule, and then transfer funds to their accounts.
Although IEO is a relatively new phenomenon in the crypto industry, it is clear that the securities trading is very similar to that — this can be estimated as a sign of the advancing maturity of crypto economics. The IEO mechanism has a lot of advantages. Harish D. GUPTA, CEO of Polybird Exchange, sees many benefits:
“The IEO is an issuance mechanism in which an asset is directly listed on an exchange without having to go through private placement independently or through an intermediary. IEOs can include initial offerings, financing, compliance and origination, issuing new rounds of capital in a supervised manner.”
From an investor point of view, there is much more confidence and security. The exchange provides due diligence at the professional level and guarantees the quality of the project with its own reputation at stake. The exchange employs experienced engineers, business strategists, lawyers to ensure the highest quality product. Due to that, IEO is more technically secure as the exchanges most likely will not engage in scams, phishing, etc. Tokens are placed on the exchange platform, and thus there is more confidence in the quality of the smart contract. The risks of price manipulation are reduced; however users sometimes accuse exchanges in illicit activities.
The project organizers also benefit in many respects: the big data of potential crowdsale participants from the list of the exchange users becomes available. This is the way marketing optimization and symbiosis develop: the organizers and the crypto exchange mutually promote each other. Besides, the path of the token from the moment of initial offering to listing is reduced, it happens immediately after the end of the sale. The exchanges are also interested in listing: the popularity of the coin guarantees more operations and trade commissions. The exclusivity of the new token offer will also attract more registered users.
The phenomenal success of Binance Launchpad can be considered as “Proof-of-Interest” in IEO — the sell-offs of BitTorrent and Fetch.AI tokens present the indisputable evidence. Moreover, many crypto enthusiasts noted that these two IEO projects had spurred the growth of the native BNB token. This affected the capitalization and allowed Binance Coin to enter the TOP-10 cryptocurrencies by capitalization.
Perhaps you can think “well, this is Binance, they are always successful” — but there are some other successful examples: the TMCO token from Temco; Module, BlueNote, and Shopin are also looking to work with the exchanges. ExMarkets crypto exchange launched its IEO platform in February, where three IEOs are already underway, and three more will be launched before the end of March.
“We see the demand for Initial Exchange Offerings growing very fast. It’s a way better vehicle and efficient vehicle than ICOs, at least that’s the general sentiment at the time. It seems like a natural direction where the market is evolving,”
— commented Dylan SHARKEY, head of sales at ExMarkets.
Definitely, IEO is not perfect either. The exchange plays a significant role in the process, and it can impose its own rules — unlikely everyone would agree to those. The sale of tokens should cover the cost of crypto exchange services, and issuers will incur considerable marketing costs. Centralized exchanges also impose restrictions on investors from certain countries, serving only certain jurisdictions. But these disadvantages, of course, pale in comparison with the benefits that the organizers get. The fundraising model, represented by IEO, is a natural turn of evolution in the cryptosphere and the evidence of the maturing industry. Successful projects so far confirm the growth of this phenomenon.
Image courtesy of Phys.org
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