What is an Initial Exchange Offering (IEO)?
An Initial Exchange Offering, or IEO, is a token sale conducted through a cryptocurrency exchange platform. Emerging as a response to the decreasing trust in Initial Coin Offerings (ICOs), IEOs serve the same purpose but are carried out on different, more established platforms.
Distinguishing ICOs from IEOs
IEOs differ from ICOs in that ICOs are managed on the project creator's own platform, while IEOs are administered by cryptocurrency exchanges, which raise funds on behalf of the company by selling tokens.
The Shift to IEOs
With the backdrop of numerous ICO-related frauds, entrepreneurs and startups now favor IEOs for crypto fundraising. This trend has led to a decrease in investor confidence in ICOs, prompting new businesses to look for other fundraising methods.
How does a Crypto IEO Work?
To mitigate the risk of scams that became common with Initial Coin Offerings (ICOs), a thorough verification process is established for Initial Exchange Offerings (IEOs). Before a token sale begins, exchange platforms conduct extensive checks to authenticate the new digital currency, ensuring it aligns with its claims. This step is critical as the reputation of the crypto exchange is at stake when launching an IEO.
Additionally, a detailed white paper is required for an IEO. This document functions similarly to an academic paper, aiming to inform and educate potential investors about the project. It covers the technical elements, the architecture of the product, and the specific issue it intends to address. Furthermore, it should elaborate on the economic model of the token (tokenomics), articulate the project team's vision, and explain why the project should garner interest from investors and developers.
IEO platforms meticulously review the white paper and other critical aspects before approving a blockchain project. Other considerations for the cryptocurrency exchange include:
- The professional history and credibility of the project team.
- An analysis of the underlying technology.
- The distinctive features or selling points of the currency.
- The economic model of the token and its anticipated demand within the cryptocurrency market.
Once the exchange gives the green light for the IEO project, investors must adhere to Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations. Furthermore, investors are assured full transparency regarding the project's progression.
Steps for Launching an IEO
Before You Launch
Analyze and Prepare A thorough analysis of the market and the project's viability is necessary before launching an IEO. Ensuring that the project fulfills a market need is critical for its success.
Get Your MVP Ready
Having a Minimum Viable Product is essential as established crypto exchanges only list projects that have shown significant progress.
Choosing the Right Exchange Platform
The selection of a reliable and secure exchange platform is crucial, as it will influence the IEO's future and hold the user's private keys. Some leading platforms include Binance Launchpad, OKEx Jumpstart, and Huobi Prime.
Drafting a Persuasive White Paper
A clear, well-researched white paper is essential, highlighting the project's benefits to investors and detailing the current market situation and the problems the project aims to address.
Design an Engaging Website
The project's website should reflect the white paper and provide accessible information to potential investors. It should be well-designed, with a focus on security and user experience.
The process of creating tokens involves deciding on the number of tokens to be issued and their value. Platforms like Ethereum, NEO, or EOS are commonly used for developing these tokens.
Setting a Clear Funding Goal
Determining a funding goal is important to convey to investors that the project's objectives are tangible and that the initiative is not just about raising funds.
Listing the Token
After minting the tokens, they are ready for listing on the selected exchange platform, which will have its own listing rules and criteria. Successful compliance with these requirements leads to the tokens being listed and the start of the sale.
Best Initial Exchange Offering Platforms
After developing a strong idea and making some headway in development or creating a Minimum Viable Product (MVP), the next critical step is selecting an exchange platform. The platform choice is pivotal as it will not only influence the competitive landscape but also define the trajectory of the IEO movement.
The practices concerning selection and due diligence, along with investor engagement, must align with the project's objectives. It is essential to opt for a secure and dependable platform since it will manage the users' private keys. Among the industry's leading exchange platforms are:
Operated by the Binance exchange, Binance Launchpad is renowned for its advanced technology and strategic partnerships that attract investors and ensure high liquidity. Binance's high-performance trading engine can process millions of orders per second, making it one of the fastest in the market. The platform touts strong industry connections and a team experienced in both traditional finance and the crypto industry, providing robust support to blockchain ventures. It caters to a global audience with multi-device support and multilingual options, enhancing user experience.
OKEx, another top player by trade volume, introduced its own IEO platform named OK Jumpstart. It aims to assist quality blockchain projects in going public in a high-liquidity, world-class market while also contributing to the healthy development of the blockchain ecosystem. OK Jumpstart stands out with its subscription and allotment methodology, which involves a brief subscription period that closes upon reaching the oversubscription limit.
In response to the surging popularity of IEOs and competition from Binance, Huobi launched Huobi Prime in March 2019. The platform is designed to connect promising crypto projects with reputable investors. Huobi Prime is also known as a Direct Premium Offering (DPO) platform, granting instant access to purchased coins and trading on Huobi Global with the Huobi Token (HT). It emphasizes rigorous project screening and aims to ensure equitable access to all investors, not just professional or VIP clients.
Ranking among the Top 10 exchanges, Coinbene's entry into the IEO space was anticipated. Despite a rocky start with its IEO platform and concerns over delayed transactions, it officially launched its first IEO in March 2019. Coinbene has since strived to solidify its position in the IEO market.
Advantages of IEOs
Investors tend to have increased confidence when a token sale is hosted on a credible exchange, lending more legitimacy to the project. IEOs generally promise smoother operations, as the platforms provide oversight and may offer additional support in marketing and development. They also offer a user-friendly experience, making it simpler for contributors to participate compared to ICOs.
Disadvantages of IEOs
Crypto projects need to budget for listing fees and may have to allocate a portion of their tokens to the exchange as commission. In the rapidly expanding IEO market, some exchanges may not conduct thorough due diligence, so investors should perform their own research. There is also the risk of "pump and dump" schemes where the token's value rapidly inflates and then plummets after the sale.
Other Methods of Exchange-Administered Fundraising
Initial coin offerings are a traditional crowdfunding approach used by blockchain projects to raise capital and introduce a new cryptocurrency. ICOs are unregulated, posing risks related to non-compliance with securities laws.
Security token offerings involve issuing a token or coin that has monetary value and can be traded on STO-specific exchanges, with transactions recorded on public blockchains.
Initial DEX offerings represent assets on a decentralized exchange (DEX). This model enables the launch of tokens for a variety of assets, from cryptocurrencies to physical goods, through a decentralized liquidity exchange.