What is IEO Initial Exchange Offering? IEO vs ICO Tokens Complete Guide
First of all, let me tell you that all these terms are used frequently in the crypto world and they are mainly related to fundraising of different blockchain projects. They differ from each other by having different methods in fundraising.
All the investors love these methods of investing in cryptocurrency platforms.
IEO stands for Initial Exchange Offering. It is a fundraising method conducted by cryptocurrency exchange platforms. A crypto exchange vets and screens the startup which is looking to raise new funds for its growth in exchange for tokens.
Startups agrees to pay a certain amount of fee to exchange platforms in exchange for their listing. So startups can sell their tokens on the exchange’s platform.
The process is same as that of an ICO with the difference being that startups use an exchange platform to conduct their token sales.
Some successful IEO examples:
- A now popular cryptocurrency named, TRON conducted a token sale on Binance and raised a whopping $7.2 million in less than 15 minutes.
- Fetch.AI, a blockchain project, raised $6 million in just 22 seconds !
Guidelines Before Investing
You must follow these guidelines before investing:
Reputation of Exchange Platform
Take the reputation of exchange very seriously otherwise you might as well just donate your money.
Reputed exchanges already conduct extensive research on the project before listing it for an IEO. So in essence, using a reputed exchange can save you a hassle to find a high-potential project.
Also, check the previously held IEOs of the exchange’s platform to make sure that you are investing in the right project.
Check which cryptocurrency is accepted in an IEO before the IEO is active and get your funds in order. IEOs usually accept funding in bitcoin (BTC) or ethereum (ETH) and sometimes even in USD.
This is a very important step.
You need to make sure that your investment is safe and secure. Check that the exchange stores your funds in cold storage and not in a hot wallet.
Initial Exchange Offering: IEO Hard Cap and Soft Cap
These caps are important factors in the evaluation of the project.
IEO Hard Cap
IEO hard cap refers to the maximum amount of capital that the project aims to gather. Most startups set up hard caps pretty high and these caps are rarely reached.
Any startup that reaches its hard cap quickly is usually a high-potential project expected to give high profits and any project which fails to gather funds up to its hard cap is seen as a red flag for its investors.
The hard cap is directly related to the supply and demand factors.
IEO Soft Cap
IEO soft cap is the minimum amount of capital a project needs to gather. Only an IEO which reaches its soft cap is considered successful. A project with good innovation behind it usually crosses its soft cap margin pretty easily. If a startup fails to reach the soft cap, then all the funds are returned to the contributors by the exchange platform.
If a startup reaches its soft cap but not the hard cap then the startup conducts a second IEO in its second phase with a little raised price. The second sale of tokens is not conducted immediately but after the startup reaches an upper stage in its development.
Pros and Cons of Initial exchange offering (IEO)
Initial Exchange Offering (IEO) Pros
- Investor don’t need to vet projects. Vetting is done by the exchange platform for the sake of their own reputation. This protects the investors from dubious projects.
- Exchange platforms conduct initial exchange offering for a project publicly. This means anyone can participate in the sale of their tokens.
- ICOs are vulnerable to hacks and thefts but with the addition of exchange as an intermediary, investor can feel a better amount of security.
- These IEOs are also highly regulated to make your sure that investors have clean backgrounds. For this, exchanges have made the KYC verification process mandatory.
- Another benefit of an IEO is the extent of liquidity it provides. IEOs have made it easier for investors to exchange these tokens for any other cryptocurrency. This is also a major advantage over the initial coin offerings (ICOs).
- There is also one great benefit for startups. They don’t have to find investors by themselves. They can just benefit form the exchange’s existing user base.
Initial Exchange Offering (IEO) Cons
- IEOs costs are very high and in some cases even higher. This is because IEOs are like a premium investment and this premium investment covers marketing, sales as well as administration. Due to high capital involved in IEO, many companies still conduct their own ICOs.
- Investors can only invest or do what is permitted by the exchange.
- IEO is also limited to the user base of an exchange. So, if an exchange is unavailable in your country, you cannot participate in the IEO.
Popular IEO Exchange Platforms List
IEO popularity is constantly on the rise among exchanges, investors as well as startups. Some popular IEO exchange platforms are mentioned below.
Binance was among one of the first cryptocurrency exchange platforms which offered IEOs for a project. Seeing the success of IEO Binance, many other exchange platforms quickly followed in its footsteps.
Bittrex started conducting IEOs in early 2019. Since then it has completed many successful IEO projects.
Bitmax is a relatively new exchange compared to others but it has become quite a popular one. Although it hasn’t hit hard cap for any IEOs, it has still tasted soft cap success.
KuCoin is a very popular destination for these projects. You can see at least 10 active IEOs on their platform at any point of time. However, they have lost some of their reputations due to the recent $150 million hack.
Read about the hack here.
OKEx is one of the leading exchanges by trading volume. Its IEOs are also pretty popular among investors. However, it is not available in all the countries but can check the list of unavailable countries in the link given above.
IEO vs ICO – Main Differences
IEO and ICO are both fundraising methods for a startup but they are the complete opposite of each other. Following are the major differences between an initial exchange offering and an initial coin offering.
IEOs fundraising is handled by the exchange platform while ICOs conduct fundraising is any suitable way.
In ICO, the startup manages the smart contracts for the sale of tokens while in IEO, contracts are managed by the cryptocurrency exchange.
Read about Smart Contracts here.
KYC and AML (Anti-Money Laundering) Verification
IEOs have strict policies about KYC and anti-money laundering and users cannot participate in IEOs without verifications. On the other hand, ICOs require KYC or AML only in some cases. Due to this, many AML cases have been reported because of ICOs.
This is a massive advantage of IEOs over ICOs. Investors after contributing in ICOs receive tokens but those token are worthless unless it gets listed on a cryptocurrency exchange. But after investing in IEO, investors can easily trade those tokens for any other cryptocurrency available on the exchange.
ICOs can be conducted by anyone in any country where it is legal. So, there is a high chance that an ICO might turn out to be a scam. On the other hand, exchanges perform proper research on the project before allowing it to for listing. Thus, reducing the chances of a scam and giving its users a vote of confidence.
In ICO, projects need a very, very high budget for marketing just to get the attention of the public while in IEO, all an exchange needs to do is list the project on the platform and let startups reap the benefits.
By ICO, it is quite difficult for a startup to raise capital all by itself but with IEO, exchanges can simply list the project on its website. Thus, providing wide and targeted exposure to the startup.
Cryptocurrency exchange platforms are highly secure while most ICO websites are equipped with common encryption measures. Investors feel a greater degree of safety when investing through an exchange rather than a normal website.
Other IEO vs ICO Differences
- IEOs provide a higher degree of transparency than ICOs to all the concerning parties.
- In IEO, the whole project is monitored and administrated by the exchange while there is no proper monitoring of the ICO projects.
- IEOs are cost extensive and not many startups are able to afford it in their development phase so many projects still conduct fundraising through simple ICOs.
IEO vs ICO – Which is Better ?
IEO is a byproduct of ICO mismanagement. It is better at almost every aspect of fundraising. Every day more and more exchanges are adapting to IEOs and launching new projects. All these differences mentioned above clearly explain the advantages of initial exchange offering (IEO) over initial coin offering (ICO).
So, IEO is better than ICO.
What you need to do to participate ?
First of all, you need to research the project and make an informed decision before investing.
To invest, you only need to create an account on such an exchange platform and transfer funds from a certain cryptocurrency (usually BTC or ETH) according to the guidelines and receive tokens for your contributions.
Also note that you will be required to go through the KYC verification process.
Note: Many startups fail even after a highly successful token sale. So, beware of the risk.
Flashback: ICOs were booming in 2017 and now nobody seems to be interested in them anymore. Its rare to see a successful ICO nowadays and even rarer to see the startup succeed.
IEOs are a new trend in the cryptocurrency industry but they are quickly becoming the trendsetters for the crypto startups.
I will not be surprised if IEOs become a standard method of fundraising in the crypto industry.
I want to end this article by saying that you should do proper extensive research before indulging in IEO or ICO. After all, it is your own hard-earned money that you’re going to invest.
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