What Is an Initial Exchange Offering (IEO) and How It Differs From ICO?

The cryptocurrency industry has managed to provide a number of functional alternatives to traditional fundraising. Back in 2017, initial coin offerings were all the rage. However, China’s late 2017 ICO ban left crypto startups in the country trying to find alternative solutions to raise funds for their projects.

Projects started to discover the new trend of Initial Exchange Offerings (IEOs). This innovation allowed them to perform their fundraising with no fear of the law or the authorities.

The following takes a closer look at what is an IEO and some of the top platforms where you can participate.

What is an IEO?

An Initial Exchange Offering, as its name suggests, is conducted on the platform of a cryptocurrency exchange. Contrary to Initial Coin Offerings (ICOs), an IEO is administered by a crypto exchange on behalf of the startup that seeks to raise funds with its newly issued tokens.

This brings about certain differences. Unlike ICOs, in some cases, IEO organizers have to pay a listing fee, along with a percentage of the tokens sold during the IEO.

The tokens of the crypto startups are sold on the exchange’s platforms, and their coins are listed after the IEO is over.

IEO participants do not send contributions to a smart contract, as during an ICO. Instead, they have to create an account on the exchange’s platform where the IEO is conducted. The contributors then fund their exchange wallets and use those funds to buy the fundraising company’s tokens.

Upcoming and Recent IEOs

IEOs on exchange platforms

An increasing number of cryptocurrency exchanges have started to embrace IEOs. One of the first in line was Binance, which launched its IEO platform Binance Launchpad. In January 2019, BitTorrent – which was bought by TRON – initiated a token sale on Binance Launchpad and raised $7.2 million in less than 15 minutes, hitting the crowd sale hard cap.

While 15 minutes to sell all tokens in a crowd sale is better than anything a crypto startup can dream of, a token issuer on the Binance Launchpad established an even better record. The second IEO on the cryptocurrency exchange’s platform, Fetch.AI, hit the hard cap of $6 million in just 22 seconds.

After observing the success of Binance Launchpad, other notable exchanges announced launches of their own IEO platforms. Among the IEO platforms are Bitmax Launchpad, Bittrex IEO, OK Jumpstart (OKEx), KuCoin Spotlight, and Huobi Prime.

Recent IEOs ROI

• 
  1,251%

  Band Protocol

• 
  -77%

  Whole Network

• 
  -72%

  Perlin

• 
  55%

  Harmony

IEO vs. ICO – what are the differences?

We’ve created a table to show you the main differences between IEOs and ICOs.

Advantages and disadvantages of IEOs

Trust

One of the main advantages of IEOs is trust. As the crowd sale is conducted on a cryptocurrency exchange platform, the latter screens every project that seeks to launch an IEO on its website. Exchanges do this to maintain their good reputation by carefully vetting token issuers.

Therefore, participants in IEOs can rely on the fact that the platform they’re using has vetted the project. This decreases the possibility of a scam, but this doesn’t mean that the project can’t fail. Thorough research is still needed – as with any investment.

The RAID IEO case is an excellent example. Bittrex announced that it had canceled its IEO for the RAID project a few hours before the start of the crowd sale. The reason for canceling RAID’s plan to raise $6 million from contributors was a terminated partnership between RAID and the e-gaming data analytics company OP.GG.

According to Bittrex, the partnership between the two companies was a vital part of the project, and when the cryptocurrency exchange became aware of the event, it decided to cancel the token sale as it believed it was not in the interest of Bittrex’s customers.

Security

Token issuers do not have to worry about the crowd sale’s security as the exchange is managing the IEO’s smart contract. The KYC/AML process is also handled by the crypto exchange, as most service providers require KYC/AML on their customers after they create their accounts.

Easier for the Projects

Token issuer startups benefit from the more flawless process of launching IEOs on exchange platforms – compared to doing their ICOs “on their own.”

While the fundraising organizations may have to pay fees for listing and a percentage of their tokens, the exchange will help them with marketing. Moreover, token issuers can take advantage of the exchange’s stable customer base to receive more contributions to their projects.

Listing

It is a natural process that the cryptocurrency exchange where the IEO is conducted to list the coin after the crowd sale is over.

While IEOs seem like a more secure and efficient alternative to ICOs, the costs associated with token sales can be high for startups.

How to Participate in an IEO?

After you’ve found your IEO of choice, you need to find which exchanges are hosting the crowd sale.

The next step is to register an account on the cryptocurrency exchange and complete the KYC and AML verification process.

After you are done with that, check out the cryptocurrencies you can use to contribute to the IEO and fund your account with a coin that is accepted in the crowd sale. The last step is to wait until the IEO starts to buy your tokens.

Conclusion

It’s true that Initial Coin Offerings and Initial Exchange Offerings created a considerable buzz and attracted massive capital into the cryptocurrency industry.

As time goes by, developers are inventing new and innovative ways in an attempt to fully decentralize the fundraising model. While Initial Exchange Offerings may have a serious centralization component, they also provide a range of benefits.

This is a sign of the industry maturing in a way where it caters to all users, regardless of the solutions they are looking for.