As a blockchain or fintech investor, you have to keep up with the pace of the ever-changing market and investment opportunities. Two years ago, ICOs had dominated the fintech industry, especially the blockchain/cryptocurrency space. Any blockchain startup could easily raise funds through an ICO as long as the development team came up with a convincing whitepaper that proved that the underlying project was viable. The startups benefitted by acquiring the capital needed while investors benefitted by making profits from the sale of the tokens at a later stage or using the tokens in paying for services connected to the project.
However, since 2018, ICOs have continually become less attractive to investors, especially due to scammers taking advantage of the lack of proper regulations on the ICOs. Instead, investors are now running for IEOs since they have some degree of safety. Though STOs are safer, they are yet to pick in the industry probably due to their strict requirements and IEOs have stepped in to fill in the gap.
But how do you go about investing in IEOs to ensure that you make the most profits? How can you be sure that the IEO is profitable or not?
Below are the number of things that you should consider as an investor before commit yourself in an IEO:
- Do thorough research about the IEO
You may wonder why the research and the project have already been Okayed by the exchange platform that has better experts than you. But remember, the Exchange does not look too much at the end result of the project. The exchange is only concerned with whether the project is genuine and whether its users will be attracted to the IEO token sale. The exchange is in business and it has to find something that will be well received by its customers. Therefore, it is paramount that you do in-depth research about the project itself to find out if it is a viable investment opportunity.
As you do the research, you could try to find answers to the following questions:
- Does the project seem to attract the interest of the general public?
- Is the project a new concept or just a copy-paste?
- Who are the people behind the project offering the IEO?
- How experienced are the members of the development team?
- Is the exchange listing the IEO reputable?
- Is the exchange secure?
- Has the exchange been involved in any malpractices?
- What is the history of the exchange in line with IEOs?
Always remember that the exchange is also looking for profits from the IEO token sale. Therefore, don’t just rush to buy the tokens, do a background check on the project first.
- The work that the development team has done so far
You have to look at what the team behind the project has done so far. You can’t just invest your money into a project that is not yet started; it might end up not starting at all. The software should be completed. You should be able to look at the program to verify if it will indeed be applicable.
You should invest in a project that has already started and the team can show some commitment to the project. This shows that the team behind the project is serious about the entire project.
Things like a whitepaper, well-designed websites, and the development team must be there.
- The exchange that offers the IEO
Once you are convinced that the project behind the IEO is viable and looks to be profitable, you have to consider the platform where the IEO is launched. For security reasons, you have to look at the reputation of the exchange platform.
In addition, you have to consider the onboarding processing that the platform requires for you to participate in the IEO. Remember, different exchanges have different requirements for you to become an investor in an IEO. But most importantly, you have to be a registered member with the exchange for you to participate. You have to go through the entire registration process, including the KYC/AML process.
Since it may take some time depending on the exchange that you choose, it is important to do this some days before the actual IEO.
The common exchanges with IEO Launchpads are Binance, Huobi Global and Gate.io.
- How the payments are made
This is a very important factor. You cannot participate or invest in an IEO unless it allows you to buy tokens through a means that is accessible to you. Again, you have to consider the asset that the development team together with the exchange sets as the accepted currencies to buy the project tokens. Some of the most used currencies include Bitcoin (BTC), US Dollar (USD), Great British Pound (GBP) Euro and Ethereum (ETH).
You should also look at the processing time. How long does the processing take after making a purchase?
- The IEO tokenomics
You have to closely examine how the tokens are distributed. You have to clearly understand the number of tokens available. You also have to see what percentage is assigned to what.
One of the things that you should carefully look at is the percentage of tokens given to the development team. If the development team is given the majority share of the tokens, then that is a red flag. Most of the tokens should go to the investors so as raise sufficient funds for the project.
You should also closely look at the distribution of the funds that are raised through the IEO. How does the development team intend to distribute the funds? The development team should not be the one taking the lion’s share of the funds. Most of the funds should go to the project development.
Initial Exchange Offerings (IEOs) may be headed for a more complicated scenario than the ICOs. ICOs got banned in a number of countries, including China and South Korea for poor regulations. When IEOs were invented, they proved to be the tie-breaker, especially in these countries.
However, the fact that the exchanges offering the IEOs act like brokers by bringing the development team and investors together, these exchanges could be headed for a legal confrontation with the US Securities and Exchange Commission (SEC).
Lately, a senior official indicated that the crypto exchanges that are offering IEOs could be violating the U.S. securities laws. The official argues that if an exchange has a set fee for listing an IEO and either the issuer of the token or any of the investors is from the US, the exchange can best be classified as Security Dealer (better referred to as a broker-dealer) under the US securities laws.
And according to the Law, security dealers engaging in broker-dealer activities should be registered and licensed as broker-dealers, national securities exchanges or alternative trading systems (ATS). But unfortunately, none of the exchanges that have listed IEOs in the past have met with these requirements despite the fact that a significant amount of IEO investors come from the United States.
At the look of things, this could be signaling the wake of a SEC crypto-crackdown targeted towards IEOs. However, we are yet to see if the exchanges interested in offei8rng the IEO and targeting US citizens shall choose to comply with the SEC regulations or choose to leave the US market.
Cryptocurrency startups have found a number of ways for raising capital. ICOs was the first method to be invented. However, ICOs have ended up being shrouded by lots of scams due to lack of proper regulations.
IPOs and STOs were among the first methods to be invented alongside ICOs. However, these two (STOs and IPOs) have not become as successful as the ICOs due to the strict regulations set by the regulatory authorities like SEC.
The ease with which ICOs are operated attracts a lot of investors and inventors were forced to come up with a way to make the ICOs scam proof. They had to come up with a formula to make the ICOs crowdfunding possible, even in countries like China, where ICOs are banned due to lack of proper regulation formulas. This is basically what led to the invention of IEOs.
IEOs employ the same working principles as the ICOs and thus maintains the simplicity with which they are carried out. However, by using the crypto exchange Launchpad, they make them safer compared to the ICOs since the development team has to meet a number of requirements for their project’s token sale to be listed on the exchange. Therefore, the issue of scams in IEOs is greatly minimized since they would keep the reputation of the crypto exchanges at risk.
Nevertheless, although the IEOs make it more interesting and safer for investors, the investors still carry the bulk of the risks; the project may pick or fail. The fact that a project gets funded through a crypto exchange Launchpad does not mean that the project will automatically become a success.
However, we cannot refute the fact that projects that have done their crowdfunding through IEOs have ended up hitting their target within a very short timeframe compared to the ICOs which take months and at times even end up missing their targets. We have seen projects hit their targets even in minutes.
In IEOs, the target investors seem to be guaranteed. The exchange users, of course, trust their exchange platform and tend to take up every opportunity that comes up on the exchange. Therefore, if the exchange lists an IEO, the users will be fighting to invest in it. But the question is; how sure are the investors that the project they invest in will succeed and become profitable.
IEOs are still not very reassuring just like the ICOs. Investors can only hope and pray that the project team does its best to ensure that the project picks to give the tokens more value than the value at which they purchased it. In a way, they cannot be compared to the STOs, where the investor gets a share of ownership of the project.
At the moment IEOs seem to be carrying the day and developers can depend on them for raising funds. However, for investors, the rise and fall of ICOs should serve as a lesson. Investors should always ensure due diligence whenever they are choosing which project to invest in.
It is true that scamming is greatly reduced in IEOs, but even genuine projects flop if they were not well planned. Investors should do thorough research about the projects before investing their money.
What does the future hold for IEOs?
One thing is for sure; cryptocurrency exchanges are here to stay. In an actual sense, we should expect to see more and more exchanges entering the market.
Blockchain and cryptocurrency startups have gathered momentum and the easiest way for them to raise capital is by depending on the general public for funding. The banking sector is too costly for them. Blockchain startups cannot afford bank loans since the projects may not thrive as anticipated since they wholly depend on how the general public receives them.
From an expert view, IEOs will most definitely outstay the ICOs. Also, more countries are set to embrace IEOs compared to ICOs since they are offered through exchanges which are easily regulated by the regulatory bodies.
IEOs, therefore, have no problem with complying with the set laws and governments won’t have to come up with new rules to regulate them.