Another giant is coming up in the cryptocurrency arena; by the name of Initial Exchange Offering (IEO). Following the unprecedented rise of fame of ICOs in 2017 and the subsequent turmoil surrounding their regulations and scamming incidences, developers seem to have found another better way of raising funds for their blockchain and cryptocurrency projects through Initial Exchange Offering (IEO).
What is IEO?
Initial Exchange Offering is an ICO that is run through a Cryptocurrency Exchange Launchpad. Therefore, the Launchpad act as the intermediary that conducts the token sale.
Compared to ICOs, IEOs have succeeded in raising staggering amounts of funds in very short time spans. For instance, BitTorrent was able to raise $7.2 million in just 18 minutes through an IEO conducted via Binance Launchpad. Fetch.AI also raised $6 million in just 22 seconds via Binance Launchpad.
From statistics like in the examples highlighted above, investors seem to be more confident buying tokens via exchange platforms like Binance because they are certain that the exchanges are regulated and any activity that the exchanges are involved in must be legal and well analyzed by experts.
But how does the Launchpads work?
Launchpads are basically platforms that cryptocurrency exchanges have fostered to enable blockchain projects to offer their tokens for sale directly to the exchanges’’ customers. In the process, the buyers (Investors) of the tokens end up buying tokens from projects they are sure they are not scams.
To be allowed to use the exchanges’ launchpads, the blockchain developers have to enter an agreement with the exchanges so that their tokens can be initially placed on the exchanges.
Then, before any token sale is done on an exchange, the exchange performs a thorough audit on the project to find out its viability and potential of the token. The exchanges also directly manage the token sale.
The main participants of IEOs are the project developers, Exchanges and investors.
Through the IEOs, the exchange platforms get revenue from a listing fee for the token placement and also attract more customers since people will join the exchanges to participate in the IEOs and eventually stick in the exchange for other trading activities.
For investors, they get a reliable investment opportunity. It is hard to get a scam token sale being conducted via an exchange platform. Therefore, the investors can rest assured that they are investing in a genuine project that is well vetted.
Benefits of investing in an IEO
For the project developers, they are assured of a more legitimized token sale since they get the backing of the crypto exchanges who investors are sure to have done their due diligence on the integrity of the project. On the same hand, projects have their tokens exposed to a larger customer base since exchanges already have a wide customer base. The large customer base makes it possible for the projects to raise very large sums of money within a short timeframe.
Investors, on the other hand, get an opportunity of investing in a token that has immediate liquidity. They can also pay for the token through a variety of methods that are already established in the exchange platform.
Despite the fact that IEOs are not scams, it is good to remember that the investors are the ones left with the short end of the stick. They are the once that face the most risk in IEO. They can only trust the exchanges to be good at what they do.
The IEO policies also differ from one exchange to the other and the problems faced in one exchange may not be similar to those faced on another exchange platform.