1 What is the initial exchange offer?
In 2018, an alternative to ICO appeared - Initial Exchange Offerings (IEO). The main difference between these methods of attracting investment lies in the key role of the exchange, which selects promising and viable projects, in her opinion.
With ICO, listing of tokens on the stock exchange may not be carried out immediately, but several months after the completion of the tokenail. In the case of IEO, the exchange is initially the key partner of the organizer of the alternative tokensale. So, the latter issues tokens and sends them to the exchange. That, in turn, distributes digital assets among interested investors who are verified users of the trading platform.
Instead of the usual ICO investor sending funds to a smart contract, the IEO participant needs to register (and, as a rule, verify) on the exchange, transfer funds to the account and after starting the tokensale, buy coins from the exchange directly.
The agreement between the exchange and the organizer of IEO may contain various conditions: maximum sales of tokens per investor, predetermined asset price, hardcap and softcap, percentage of sales and a fixed amount of funds for the trading floor, distribution of marketing costs, etc.
2 Why do you need IEO if you have an ICO?
The scope of the primary offers of coins (ICO) has developed rapidly over the past few years, but by the end of 2018 it had almost exhausted itself. The reasons for this are legal uncertainty, the emergence of many empty projects, the fraud of organizers of tokensails, the lack of mechanisms to protect the rights of investors and the tightening of measures by financial regulators.
It is not excluded that an improved method of raising funds will become a natural result of the evolution of the primary offers of coins, will repeat their success, restoring confidence in the tokensale.
3 What makes IEO attractive to investors?
The exchange assumes due diligence of projects, assessing their investment attractiveness, viability of the products being developed, risks, financial condition, market position, etc. The fact that the trading platform assumes reputational risks increases investor confidence.
Increasingly, ICO began to replace private offers of coins, which are generally accessible only to large investors. IEO democratizes the process of investing in digital assets, making it accessible to a wide range of participants.
If the exchange on which IEO is held is centralized, then the likelihood of the so-called 'gas wars' is excluded. We are talking about a situation where the participants in Ethereum tokensale compete with each other, setting high gas limits. This is done to increase the speed of transactions and the first to acquire the cherished tokens.
4 What are the advantages of IEO for exchanges and organizers?
The main advantage of this approach for the organizers is a ready base of potential IEO participants from a huge number of exchange users. This reduces marketing costs.
In addition, not only the exchange is engaged in marketing, but also the organizers of IEO. Such an approach not only saves money, but also creates a synergy effect, which increases the efficiency of tokens promotion to the market.
The main source of income exchanges - trade commissions. More users and coins in the listing - more transactions and, accordingly, higher income from commissions. Holding IEO on its own platform gives the exchange the opportunity to attract new users and offer, at times, exclusive coins that are not available at other sites. All this increases trade momentum and, consequently, income.
In the case of ICO, listing on the stock exchange is the next logical step after the completion of the tokensale. The listing procedure is often costly and time consuming. At the same time there are no guarantees that the coin will quickly be on the popular exchange and will become liquid.
IEO, in fact, optimizes the process of entering the token to the marketplace. The asset almost immediately after the end of the campaign becomes more or less liquid, because it turns out in the listing, as a rule, a large stock exchange.
This method of raising funds is mutually beneficial for both stock exchanges and issuers of tokens. Despite the seemingly significant costs for the organizers, IEO increases the chances of success of projects in the long term.
5 What are the flaws in IEO?
There is nothing free in the world - tokens issuers will in any case have to pay large sums for listing, which may differ on different exchanges. Also, the marketplace may require a certain percentage of the total amount of funds raised.
The main marketing costs are borne by startups distributing tokens through IEO. These expenses are considerable, their total amount can easily reach $ 100 thousand or more.
Exchange personnel should consist of qualified and technically savvy analysts who are able to competently and systematically evaluate the long-term potential of projects and the viability of their business models. This may imply high labor costs. In the event of a campaign failure, the exchange carries significant reputational risks.
Only the holder of a verified account on the exchange can participate in IEO, and not anyone who wishes. In addition, most exchanges are centralized sites. Users have to trust their blockchain assets to a third party, which is associated with the risks of failures and hacker attacks.
In general, some experts believe that amid the widespread legal uncertainty, the IEO model is only a temporary alternative to ICO.
6 How to become a member of IEO?
First you need to make sure that this or that project actually holds IEO, and not ICO. After that, you should find out on which exchanges IEO is held on.
After selecting a suitable exchange, you should create an account on it and go through the KYC (“Know Your Customer”) procedures.
You also need to find out which cryptocurrency the IEO project accepts and deposit them into your exchange account. Then it remains only to wait for the start of tokensale and, finally, to acquire new assets directly on the exchange.
7 What marketplaces are IEO doing?
Recently it became known that the largest cryptocurrency exchange Binance restarts Launchpad platform for tokensails. This platform was originally launched in August 2017. On its basis, IEO tokensaley BREAD ($ 6 million) and GIFTO ($ 3.4 million) were held in seconds.
Recently it became known that the largest cryptocurrency exchange Binance restarts Launchpad platform for tokensails. This platform was originally launched in August 2017. On its basis, IEO tokensaley BREAD ($ 6 million) and GIFTO ($ 3.4 million) were held in seconds.
In addition, the Paraguayan authorities are planning to hold IEO together with the South Korean company Commons Foundation. The funds are attracted for the construction of the world's largest data center for mining cryptocurrency. Commons Foundation promises investors to pay 30% of mining profits and 70% of their daily crypto-profit earnings in MicroBitcoin tokens.
