An Initial Exchange Offering, often known as an IEO, is a type of fundraising event organized by a cryptocurrency exchange. In an initial coin offering (ICO), the project team raises cash directly. In an initial exchange offering (IEO), a third party does the fundraising using the exchange’s fundraising platform.
What is an IEO (Initial Exchange Offering)?
Firms may use an initial exchange offering (IEO) to raise funding by selling tokens to investors. As a result, they resemble initial coin offerings (ICOs). However, there are a few key differences between the two. This unique method of bitcoin banking has piqued the curiosity of investors in ICOs all around the world.
When compared to ICOs, IEOs offer a few benefits. They improve client security and transparency. IEOs contribute to a more egalitarian system that benefits newcomers. Additionally, it gives customers the sense that they are working with a trustworthy financial system.
IEOs vs ICOs: What’s the difference?
ICOs and IEOs are similar. Businesses can use any of these approaches to offer tokens to investors who will finance initiatives. While the developer acts as the counterparty, in this case, ICOs allow start-ups to conduct the fundraising process independently. They accomplish this by relying on single or several trades to complete their efforts.
With ICOs, the developer ensures that all smart contracts are valid. Moreover, it makes sure that everything goes according to plan, and that security is tight. With IEOs, however, the exchange may handle these obligations, leaving the developer to concentrate on other areas of their company. Both crowdfunding options have flaws—each has its own set of issues. Many others, on the other hand, think that IEOs are the better option.
Initial Exchange Offerings: Characteristics
Initial Exchange Offerings, like ICOs, feature a predetermined number of coins available for purchase, a minimum and a maximum number of tokens available for purchase per user, a soft cap and a hard cap, and specialized accepted currency.
Unlike ICO tokens, however, IEO coins already exist before the crowd sale. Furthermore, they are listed on exchanges several days or weeks following their initial public offering, making it more convenient for investors. In addition, the IEO procedure entails the use of an intermediary, which is entrusted with the money. However, this helps to boost investor trust in the idea, which is lacking in most ICOs.
Advantages of IEOs
In general, IEOs have several advantages, including:
The rise in investor confidence:
Investors do not engage directly with the IEO project team, but with the exchange, which makes it more trustworthy and safe if things go wrong.
Both token issuers and investors may feel safe:
Token issuers benefit as well because IEO platforms handle all regulatory issues, including the necessary KYC/AML checks for all participants.
The procedure is frictionless:
IEO platforms make it simple for practically anybody to contribute, regardless of their prior knowledge of the crypto field.
Guarantee Exchange Listing:
Soon after the IEO, IEO tokens will be listed on the IEO exchange.
Elimination of Scams:
Because the IEO project teams are neither anonymous nor fictitious, they will not vanish after receiving your payments. Initiative benefits include increased marketing efforts by the exchange, increased credibility, exposure, and interest in the project. New users signing up with exchanges solely to gain and sell IEO tokens are among the exchanges’ benefits.
Benefits for holders of exchange tokens:
Most exchanges employ IEOs to provide their native token with a new use case that will probably increase its value.
Disadvantages of IEOs
IEOs are also at risk of the following dangers and concerns:
- Many governments have imposed restrictions or outright bans on ICOs, which may impact IEOs as well.The essential concepts of an IEO remain the same, although it is a little different beast.
- AML/KYC is a requirement for all investors: Because we know the cryptocurrency community for its privacy-conscious members, going through the AML/KYC process may be a no-no for some.
- Market manipulation and coin concentration: Because most IEO tokens are pre-minted, you should always double-check the token allocation and distribution patterns before investing. Both the project team and an IEO exchange may hold a disproportionately high number of tokens for themselves, potentially causing price manipulation later on. Furthermore, it is common knowledge that the great majority of exchanges engage in “wash trading.”
- There are just a few investors: Investors have expressed their dissatisfaction with the fact that not everyone can gain tokens during IEOs.
- Bots: Bots that can engage in IEOs and beat out human investors are a source of concern.
- FOMO: Remember to conduct your research and evaluate the projects and their concepts.Both IEO project managers and IEO platforms have an incentive to generate as much buzz as possible to sell as many coins as workable. Check out the project’s whitepaper, concept, and whether it even requires a token.
How do I get involved in an IEO?
In some ways, IEOs make it even easier for the typical user to engage. You don’t need to transmit money to a smart contract, double-check transaction addresses, or make sure your transaction has enough gas or fees to be executed on time, unlike ICOs.
The following is an example of a typical IEO procedure:
- Choose an IEO in which you want to invest.
- You must register with the exchange and validate your account without going through the KYC/AML process.
- Check out the many cryptocurrencies you may use to take part in the IEO and add them to your account.
- Wait for the IEO to begin before purchasing tokens.
Since each IEO platform has its techniques for assuring a fair process for all users, the procedure may not be as simple as explained here. For the Matic Network IEO, for example, Binance Launchpad has implemented a lottery-based token distribution technique.
Keep in mind that every IEO sells out rapidly, so you have to be prepared when the time comes!