Initial Exchange Offering – a new trend of fundraising in a cryptocurrency market
Less than 2 years ago the hype around ICO allowed blockchain projects to gather huge amounts of money. Only few of these projects came up to the expectations of investors and really became strong projects. But actually it wasn’t so important: project founders got much funds having only idea and speculators invested in projects and got good profits already at first listing. Everyone was happy.
But many things have changed since that time. Cryptocurrency market lost almost 80% of its total capitalization in comparison to the peak amount in January 2018. Most speculators and hunters for fast profit left cryptocurrency and began to search another sources of income. But the cryptocurrency market is still developing and becomes more mature. One of such features of the cryptomarket evolution is that the ICO format gradually goes into the past. New blockchain projects found a new way of fundraising – Initial Exchange Offering (IEO) – which seems more attractive for both investors and project creators than a usual ICO.
What is IEO?
Initial Exchange Offering (IEO) is a new type of raising funds for cryptoprojects similar to ICO. The main difference is that a project raises funds not using its own website but going through an intermediary – a major exchange with good reputation. Such model gives some important advantages to developers and investors.
Advantages for investors:
1) reliability of listed projects.
All projects should pass due diligence and exchange will not risk its own reputation accepting weak and dubious projects. That’s why scam hardly can be approved for IEO launch. Popular exchanges like Binance even publish their detailed research report about each project placed on their Launchpad and everyone can look through it.
2) improved security.
Phishing, fraud or smart contract compromise – typical problems for ICO. But it’s unlikely to face all of them during IEO. Big exchanges have very strong security systems and it will be very hard for hackers to steal money during the crowdsale.
3) exchange prevents quick price fall.
Almost all projects which have already conducted their IEO brought good profits to their customers. The situation with ICO is usually quite different: the price quickly falls after listing and often doesn’t recover. If you don’t sell your tokens immediately, they can depreciate already on the first listing day. It is negative both for developers and investors.
4) no “gas wars”
Previously most projects used Ethereum blockchain for their ICO and investors needed to wait until their transaction is confirmed in the Ethereum blockchain and they get tokens for invested amount of ETH. So they had to put too high amounts of gas price in order to confirm the transaction more quickly. That created significant additional load for the whole Ethereum network. Instead of that, investors don’t need to pay gas for the transaction and compete with other users placing bigger gas amounts during IEO on an exchange.
Advantages for project founders:
1) no need to search for investors.
When project launches an IEO on a major exchange, it gets the whole audience of exchange users. Furthermore, the exchange announces the upcoming tokensale in all social networks and major media outlets. Such an active campaign can stimulate for participation not only exchange users. For example, almost the whole cryptocommunity knows about new Initial Exchange Offerings on Binance Launchpad and not only Binance users try to participate in these tokensales.
2) Immediate listing on exchange after IEO
The negotiations about token listing on major exchanges can last for several months when you launch a usual ICO. That’s why investors are afraid if they can sell their tokens and project developers worry about liquidity for their digital unit. Immediate listing is also not guaranteed but for now all IEO which had already been held were added for trading in a few days. Some exchanges even add markets for a new token on the next day after IEO end.
3) no need to conduct additional KYC check
When project collaborates with a major exchange, it becomes much easier to check whether all potential investors satisfy all requirements for tokensale. A major exchange usually allows participation in IEO only for those users who passed identification, provided their ID and represent non-forbidden jurisdictions.
Platforms for IEO launch
Binance – the biggest cryptocurrency exchange in the world began the trend of IEO, opened a special Launchpad platform and conducted a very successful tokensale for BitTorrent project. After that two more IEO were held on Binance Launchpad and met very high demand – Fetch AI raised $6m in 22 seconds and Celer Network raised $4m for 17 minutes. Some other exchanges joined this trend. Huobi exchange opened the platform Huobi Prime and used format of trading for their first project – TOP Network. All tokens of this project were also sold in a few seconds. South-Korean exchange ProBit also appeared in major media outlets, conducting very fast IEO for Linix project: all tokens in the first round were bought just in 5 seconds. KuCoin Spotlight and Bittrex platforms have already conducted their first IEO this week and met the high demand. BitMax, Coineal, ExMarkets, EXMO already have similar platforms for IEO launch, although they are not so popular yet. OKEx and Bibox exchanges announced opening of such platforms for exchange offerings in the nearest future. And the success of recent exchange offerings attracts more exchanges to join this very perspective direction.
The interest is so high that exchanges even can’t satisfy it fast enough. Binance and KuCoin already announced modifications for their future IEO placements because of many complaints from disappointed participants. Previously used “first come – first serve” basis gives big advantages for those who use bots and special algorithms and can buy tokens faster. Now Binance and KuCoin will use the format of lottery for IEO, trying to make tokensale more honest.
Some exchanges take fee for IEO organization but it’s worth such expenses. In the case of IEO projects need much less money for investors attraction, organization, marketing and security of tokensale, comparing to usual ICO format. That’s why more and more projects choose this model for attraction money. Who knows, maybe IEO will give a new push for cryptocurrency market and help to clean it from variety of fraud projects?