What is IEO? Why do many blockchain projects prefer IEO over ICO?
IEO is an initial exchange offering of coins for the purpose of selling them to investors to attract investments.
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What is an IEO in crypto?
What are the uniqueness and advantages of this process, what are the prerequisites for its emergence, and how does it differ from the commonly used ICO? Find out the answers in our article. Initial Coin Offering (ICO) in the crypto market is becoming less attractive every year compared to the effective alternative – Initial Exchange Offering (IEO).
Initial Exchange Offering is the attraction of investment in the form of the sale of tokens under the management of a cryptocurrency exchange. In this case, cryptocurrency purchases are available only to verified users. Initial Exchange Offering requires companies to pay a listing fee and provide the exchange with an agreed amount of coins for services. The assets are then available for purchase on the platform. The cryptocurrency exchange also earns a percentage of sales during the IEO, so it can be involved in marketing.
Some consider this method of raising funds a new level in the development of ICOs. Obviously, some reasons contribute to the popularization of this view. For example, IEO is safer and simpler, does not require a lot of advertising costs, and provides instant liquidity to investors. Therefore, blockchain startups often choose IEO as a way to crowdsale because buyers’ attention, interest, and trust are increased due to these advantages.
Is it possible for an exchange to conduct an IEO of its token? Absolutely! WhiteBit recently had its initial exchange offering. You can read more about it here.
Prerequisites for the emergence of IEO
It all started with the ban on ICOs in China in 2017. At that time, Chinese blockchain projects were forced to look for ways out of this situation and raise funds by other means. The solution was found – it was the coin offering supervised by cryptocurrency exchanges. This alternative helped many projects to sell their tokens without worrying about problems with the law and authorities.
Why did IEO become popular?
First and foremost, it is due to the lack of a regulatory tool for ICOs. In contrast, an IEO assumes that a cryptocurrency exchange monitors the sale of coins and thoroughly verifies the project and its official documents before launching the token for investors. Buyers have more trust in companies that choose an exchange offering, as the intermediary analyzes the startup for fraud and other possible unpleasant facts so that they do not damage their reputation. Consequently, depositors have more guarantees when choosing an IEO.
There are also advantages for the issuers who want to launch primary sales through the exchange. This involves less risk since the management of IEO smart contracts is handled by the cryptocurrency exchange. The KYC process, which is present at the most secure providers when registering an account, is also beneficial for companies because it keeps out accidental buyers.
While IEOs definitely show themselves as an effective alternative to self-listing, in some cases, it requires higher costs. As noted earlier, the exchange charges a listing fee and a percentage of token sales. However, it also helps with marketing because it becomes interested in excellent investment attraction rates. That is, listing costs increase, and advertising costs decrease. The company can also utilize the exchange’s customer base to attract more investors. In general, launching an IEO is more stable than conducting an ICO.
The similarities and differences between IEO and ICO
Both methods of initial coin sales offer a limited number of tokens at a fixed value and have their own minimum and maximum of cryptocurrencies available for purchase.
Distinctive features of an IEO:
- coins are minted before crowdsale;
- tokens are listed on the exchange after 2-7 days;
- as a result, instant liquidity is ensured;
Given the additional security inherent in an exchange offering, IEO coins tend to be more expensive. However, due to the Securities and Exchange Commission’s strict policies regarding ICOs, private investors have many limitations in this area. Therefore, IEOs are considered a popular alternative to initial coin offerings in the cryptocurrency market.
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