21 Mar 2019
IEO, which stands for Initial Exchange Offering, is a relatively new phenomenon that emerged in 2018. The primary difference between ICO, which for some time has been the customary mean of fundraising for blockchain projects, and IEO lies in the fact that the former provides for the key role of a crypto exchange in the entire process. Basically, the exchange acts as a counter-party that conducts the screening of the most promising projects, both in terms of profitability and product or service utility, before starting to promote a coin and listing it among its trading pairs.
In the case of ICO, there always been a certain time lag, which may have lasted for months, between the end of a token sale and the actual listing on a crypto exchange, which provided initial liquidity to a new cryptocurrency. The IEO stipulates that the exchange exercises the function of the principal partner of the token sale organizers.
The scheme is quite simple: the project issues the token and transfers them to the crypto exchange which, in its turn, distributes newly arrived digital assets among the verified users who demonstrated a genuine interest in the given blockchain project.
From the investor’s perspective, the procedure is as follows:
Prior to IEO, the exchange and the token issuer conclude the agreement that may contain various terms, such as the limit concerning tokens that can be purchased by a single investor, the predetermined softcap and hardcap, the allocation of marketing costs, the fee for the intermediary services provided by the crypto exchange, etc.
The industry of ICO, which was thriving during the last few years, is currently undergoing a major crisis. The past year has been especially cost prohibitive largely due to the utter meltdown of the crypto market. The official stats have it that in the period from May 2018 till November of the same year, the amount of funds raised through ICOs had decreased by as much as 32%, from $2 billion to a mere $65 million. Such a rapid decrease in popularity could be also explained by the fact that ICOs has traditionally been associated with many legal and financial risks, scams, and regulatory tightening.
When it comes to IEO, many of these risks are significantly decreased because the crypto exchange undertakes the responsibility for conducting due diligence, and also assumes reputational risks thus increasing investors’ trust in a project.
Earlier this year, Binance, one of the largest cryptocurrency exchanges, announced that they would re-launch the token sale platform called Launchpad, which is a great instrument for carrying out IEOs. For instance, it hosted the BREAD and GIFTO token sales, which lasted only a few seconds each and raised $6 and $3.4 million, respectively. Now, the platform is preparing for the launch of IEOs for BitTorrent and Fetch.AI.
Moreover, the government of Paraguay in collaboration with the Commons Foundation, the South Korean organization engaged in the development of the P2P commons ecosystem, will organize IEO to fund the project for building the largest data center in the world.
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