Are IEO’s the new ICO’s?
Anyone in the crypto space has by now heard of ICO’s, but what about IEO’s? Until now, ICO’s (Initial Coin Offering) have been the primary means of raising capital for blockchain related projects. ICO’s usually involve people sending money in the form of Bitcoin, Ether or Fiat currency and in turn they receive a token or series of tokens which equate to a nominal value. Holding a token for an ICO does not actually grant you an ownership stake in the company (unlike an IPO – Initial Public Offering).
WHAT IS AN IEO?
An IEO, or Initial Exchange Offering needs an exchange, or series of exchanges, for the contract to be enabled. Instead of tokens being sold direct by the coin developers, they instead send them to the exchange who then sell the tokens to individuals in exchange for Ether.
The exchange that holds the tokens takes on the responsibility of selling the newly issued tokens, as well as listing them on the exchange and receives a fee for doing so.
WHY IEO’s over ICO’s?
There are a number of advantages to the consumer of choosing IEO’s over ICO’s. Firstly, the issuer of the token needs to be heavily vetted to ensure they are of high quality and don’t pose any reputation risk. With significant due diligence being carried out by the exchanges, this takes the pressure off the consumer somewhat to have to do so much digging into the legitimacy and viability of a coin offering. This also heavily reduces the likelihood of an initial offering proving to be nothing more than a scam.
For the token issuers, the advantage to raising capital via an IEO over an ICO is the access to an existing network and user base of people who are already utilizing the exchange. And like consumers, the chance of encountering scam contributors during fundraising is negligible since most exchanges conduct KYC and AML checks on new clients being onboarded. Furthermore, having an exchange vet and then issue your token on your behalf represents a vote of confidence in the public arena, which could potentially lead to better exposure and higher sale volume.
HOW DO EXCHANGES BENEFIT?
There are a number of benefits for an exchange to offer an IEO. The first is listing fees. These can vary from exchange to exchange and deal to deal, and could represent a significant chunk of the overall capital raised. In addition to this, there are many opportunities for cross promotion of business via joint marketing with the IEO team which helps with public exposure. Exchanges may also experience an influx of users and along with that, their deposits, as they come onboard to take advantage of an IEO. Some of these news users may then stay as loyal customers of the exchange.
WILL IEO’s SURVIVE OR GO THE WAY OF ICO’s?
To warrant success of an IEO, the exchange that is running the offering will need to ensure that it is properly staffed to follow the investigative processes required for initial assessment of the viability of an IEO. A multi-disciplinary team will be required, consisting of computer and information scientists, engineers, techs and business strategists, as well as a solid marketing team.
This could potentially prove a barrier for many fledgling exchanges who may not have the capacity or resources to undertake the heavy due diligence required to be performed on an IEO. Rumour has it that a number of exchanges have run into financial difficulties as a result of lacking the manpower required to select and adequately assess an IEO for its success potential.
There is also murmurs among the tech community that an IEO is simply a momentary fad that is holding place until legislation can be enacted to support authentic security token offerings (STO’s). Whether or not this is the case may prove irrelevant as IEO’s have an inherently different core offering to STO’s and are capable of standing on their own merits.