An Initial Exchange Offering (IEO) is a new crypto startup funding format that uses an existing exchange for publicity. IEOs are grabbing the attention of crypto investors, traders, and enthusiasts alike. Is an IEO different to an ICO? Or an STO?
Here’s what you need to know about IEOs.
What Is an Initial Exchange Offering?
An Initial Exchange Offering is a cryptocurrency project funding method that offers an alternative to an ICO. There are several differences between an IEO and ICO, the biggest of which is the funding platform.
An Initial Exchange Offering uses an existing cryptocurrency exchange as the launch platform for the project, rather than going it alone and relying on marketing and social media to raise awareness. Using an existing cryptocurrency exchange as a launch platform brings substantial benefits for the cryptocurrency project IEO.
For instance, Binance Launchpad—that’s Binance’s IEO platform—can motivate its hundreds of thousands of daily users to consider pumping a little bit of cryptocurrency into the new project. You can read more about Binance Launchpad in a moment.
IEOs are offering both startup and investor an alternative to the ICO. In 2019 alone, 12 exchanges have announced new IEO platforms, while 39 projects have participated in an IEO. The BitTorrent IEO raised $7.2 million in 18 minutes, Fetch.AI raised $6 million in 22 seconds, and VeriBlock raised around $7 million in 10 seconds. Yup; it took seconds to raise millions of dollars such is the expectation and hype surrounding an IEO.
IEO: Pros and Cons
Crypto projects are flocking to use IEOs instead of ICOs. But what are the benefits? In short:
- IEOs held in conjunction with a large exchange can tap into the existing user base to almost guarantee investment
- Theoretically, the IEO project will spend less on marketing and outreach which is better for the crypto startup
- In most cases, the IEO lists immediately on the IEO platform following successful funding, better for investors and the crypto startup
- The exchange will handle any KYC and AML requirements
- IEOs can piggyback on the trustworthiness of the exchange
- IEOs increased legitimacy versus an ICO as the exchange must (rather, should) vet the project, the team, the finances, and more
That is just six reasons why cryptocurrency startups and investors might consider an IEO over an ICO. I’m sure you can think of more!
Another IEO positive for crypto users and investors is the control that the exchange maintains over the listing during the investment process. When Bittrex initially listed the RAID IEO, there was a significant amount of interest. However, just six hours before the IEO was set to launch, Bittrex canceled the IEO as a core component of the RAID platform was terminated (a partnership between RAID and e-gaming data analytics company, OP.GG).
Without the partnership in place, Bittrex decided to stop the IEO as it was no longer in the interest of their customers.
The Bittrex VeriBlock IEO wasn’t clean sailing, either. Despite the impressive “10-second sell-out” figure touted to investors, the consensus is that automated crypto purchasing bots bought most of the available tokens. And for some would-be investors, they simply purchased the wrong coin (which is not the fault of Bittrex). On the day of the VeriBlock IEO, an existing Bittrex listing, VeriCoin (note the difference) skyrocketed around the time of the IEO launch:
Hopefully, they managed to sell before their unintended pump came tumbling down.
How Is an IEO Different to an ICO?
The biggest difference between an IEO and an ICO is the hosting method. Where an ICO is open to the public, an IEO is only open to the subscribers of the host exchange. By and large, that is still public access as most exchanges have open sign-up policies. Artificially limiting the amount of exchange members wouldn’t offer any benefit to the IEO, in turn affecting the exchanges reputation for hosting successful IEO funding projects.
ICOs are notoriously lawless. Though some projects practice KYC/AML, there are plenty more that don’t, depending on their jurisdiction. IEOs have the advantage of using the exchange as an administrator of sorts, using them to check each customer before allowing their investment. If the investor attempts to scam or perform otherwise fraudulent activity, the issue rests with the host exchange.
For investors, the host exchange acting as administrator theoretically increases security, too. Whereas almost anyone can throw up an ICO, an exchange must vet the IEO before allowing it to launch, using their name as reputation security.
It is important to note that IEOs aren’t without fault. For instance, EXMO, who launched their IEO in February 2019, noted in their due diligence notes that:
“The process is actually the same as the traditional due diligence process on coins after an ICO. As already noted, raising money in an ICO does not guarantee the future success of the project in any way.”
Which in truth, isn’t very reassuring. But it is at least honest, and potential investors can take note.
Overall, IEOs appear to have a lower risk than ICOs. However, scammers will find a way to scam, and IEOs aren’t invulnerable.
Which Exchanges Are Hosting IEOs?
BitTorrent and Fetch.AI both used Binance Launchpad to bring their IEOs to the crypto sphere, while VeriBlock used Bittrex. Both are major exchanges with vast numbers of potential investors, using their existing influence and reputation to launch IEOs and creating a launch platform. But they are far from the only exchanges launching IEOs.
Binance Launchpad is positioning itself as a major IEO platform. Given Binance’s existing userbase, reputation as a major exchange, and desire to expand across the crypto ecosystem (think Binance Research, Binance Labs, Binance Ecosystem Fund, and so on), budding startups will view Binance Launchpad as an enticing proposition.
Since January 2019, Binance Launchpad has conducted three IEOs, all of which were successful. Along with the aforementioned IEOs for Fetch.AI and BitTorrent is Celer Network, which raised about $4 million in Binance Coins (BNB).
“I believe fundraising is a killer app for blockchain. This is something that most people didn’t realize until 2017. There are drawbacks with ICOs, namely too many scams and “empty” projects. But blockchain fundraising has many advantages over traditional VC fundraising. It will not go away.
“I think it will get pretty big, definitely many times bigger than the VC industry in the future.”Binance CEO Changpeng Zhao – https://www.bloomberg.com/news/articles/2019-04-10/six-questions-for-binance-s-zhao-on-initial-exchange-offerings
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The Probit exchange, ranked 114th by Coinmarketcap, has launched 17 IEOs at the time of writing, to varying degrees of success. Of those 17 original IEOs, several startups have launched second, and even third IEOs using the Probit platform.
The IEOs have raised a total of around $2 million combined, which sounds paltry in comparison to the millions per IEO found on Binance. But the scale is relative, and Probit’s IEOs are selling out rapidly ($53,000 for LINIX in 6 seconds, $127,000 for SPIN Protocol in 3 minutes or so).
There are more to come, too.
Other IEO Exchanges
Binance and Probit aren’t the only exchanges listing IEOs.
Bittrex: VeriBlock sold out in 10 seconds, and the exchange plans to list more IEOs in the future. One of the largest exchanges currently offering IEOs.
ExMarkets: Has launched nine IEOs at the time of writing, with plans for more IEO listings in the future.
Coineal: Has launched eight IEOs at the time of writing, with plans for more IEO listings in the future.
IEOs Are Here to Stay
As far as funding cryptocurrency projects go, IEOs are here to stay; the next big thing in crypto funding. Alongside ICOs and STOs, IEOs will offer crypto startups and investors another opportunity to meet. Cryptocurrency exchanges will pursue IEOs as the benefits for the exchange are obvious; the sudden influx of new members, a glut of transaction fees, and (in some cases) partial ownership of an exciting new crypto project.
While we are talking crypto investment platforms, what is an STO? Will it replace the ICO?