Here’s everything you need to know about an Initial Exchange Offering (IEO)

Fundraising methods were already there of various types, then what was the need for the new method, and what’s unique about it?

Every new project, cryptocurrency, or platform for crypto operations like an exchange or a whole new blockchain network needs funds. After the presentation of the prototype showcasing working of the project, there is a need for capital for further development and operations. The capital can be generated by different sources and by various methods. 

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The methods include funding by venture capitalists, initial coin offerings, or listening to the company. Out of them, ICO or initial coin offerings has been a prominent fundraising practice in use. Many well-known cryptocurrencies and projects we see today use the same method for raising capital. 

But now, it seems like Initial Coin offerings are losing their appeal lately, and so many crypto projects are choosing the initial exchange offering method of fundraising. This acceptance of the latter over the former resides in flaws and drawbacks in ICO, which seems fulfilled in IEO.

What’s an Initial Exchange Offering (ICO)

An ICO, for start companies or projects seeking capital, is a way by selling utility tokens of projects that grants status with the company by a significant cryptocurrency exchange platform. 

Since the exchange is between, that handles the funding and makes sure of assessing processes where projects’ white paper gets inspected, and they provide genuine and mass publicity to the project. Those are the reasons which add value in the IEO process, and investors find those platforms more appealing, which provide the facility, that is, exchanges allowing offerings. 

Why IEO is more advanced than ICO

Some similarities in their working, in an IEO, a firm also put its token on sale to generate funds. But this method provides more security and ease in the fundraising process to both investor and project getting funds. The main difference of IEO is that a cryptocurrency exchange oversees token sales.  

Such an example of a platform that avails the facility of exchange offering is Binance. The largest crypto exchange has a Binance Launchpad trading platform to deliver innovations and bring CEOs into the market. Since its launch, the platform has helped many blockchain projects raise capital. 

How IEO works

Exchanges providing a platform to projects for fundraising have some eligibility criteria and checkpoints which need to be fulfilled before initiating an offering. Verification helps to reduce the risks of any scam or cheating in raising funds. 

The exchange has this responsibility to make sure that a project is genuine and fulfills all the aspects from a technical point of view to its working and management, everything. For launching an IEO, a project seeks to generate capital and new fame in the market, but the platform puts its brand value at risk while listing an offering. 

After ticking all the boxes for eligibility of a project for fundraising, the exchange also has the responsibility to make sure genuine investors participate in fundraising. Investors have to go through some measure of KYC (know your customer) and AML (anti-money laundering) certifications. Investors share every detail to ensure transparency about the project before they put their money. 

IEO can be enormously successful if a project can create enough buzz around. For instance, BitTorrent, an internet protocol project, when it went for an IEO, managed to raise $7 million in just 14 minutes. It used the Binance Launchpad platform for the sake of offering. 

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Positives about the IEO process

Going through the details of working of IEO it already made it clear that it’s relatively better than other fundraising methods. But let’s talk about the actual advantages of initial exchange offerings. 

IEO provides a more interactive and user-friendly experience to participants, whether project or investors. It is because IEO platforms work and they are better designed than others. Investors feel more confident in this kind of method as all the formalities for checking the program are genuine and trusted. And exchanges provide much further support from organizing the fundraising program to projects publicly and marketing.

Flaws in the method

However, when you deep dive and notice the details, you will get some disadvantages in the method too. First, projects have to pay a percentage of their raised capital as listing fees or exchange commission. Sometimes exchanges also miss out and cut some corners when investigating or checking the eligibility of a project, which may result in fraud or loss to investors. And lastly, the chances are that it may get a huge amount of money at the time of offering a project, but it can turn out to be a pump and dump scheme. So it’s important to do your research before participating in an Initial Exchange Offering.