During the “great crypto winter” of 2018, the blockchain community got to be pretty pessimistic. Media headlines talked about the ‘death’ of the ICO and many community members started to describe utility tokens as a mistake of the past. STOs seemed to be the only possible ‘next step’ for blockchain fundraising.
But STOs are not ideal for regular crypto investors. The trading of securities is heavily regulated and in most jurisdictions it is necessary that the investor be ‘certified’ or ‘accredited.’ Basically, in order to invest in an STO, the investor has to either receive sophisticated training or be very wealthy. Less privileged ICO investors are left out entirely.
Then, during the first months of 2019, the rise of the IEO started to bring democracy back to blockchain fundraising.
In principle, an Initial Exchange Offering is – actually – not that different from an ICO. The starting point is the same, with a company issuing a token that represents some kind of utility. The difference, however, is in how the token is initially sold and distributed. While ICO project teams undertake the sale on their own, IEO teams enlist the help of an exchange to handle the technicalities of crowdfunding.
This fact represents a clear advantage for IEOs over ICOs. Simply put, ICOs put too much power into the hands of the issuer. During an ICO, it is far too easy for a project team to issue a token, sell it, then disappear or simply to not meet development goals or to deliver a viable product.
During an IEO, the responsibility of initial token distribution is delegated to exchanges. Since exchanges do not want to ruin their reputations, they are incentivized to only work with projects that seem honest and actually have a chance at success.
This means that when a company wants to carry out an IEO, they can’t just launch a website and ask for people’s hard earned cash. They must first get approval from a reputable exchange. Then, during the fundraiser itself, the payments are processed by the exchange. Finally, after the end of a successful IEO, liquidity is immedediate as the token will already be listed on that exchange.
Overall, the main advantage of IEOs over ICOs is that they make token fundraising easier and safer for everyone involved. Because the exchange takes care of KYC/AML, investors need not worry about some random blockchain project losing their identity data. Since the exchange processes payments, too, investors can feel more secure that their money is going where it should be going.
Companies that want to carry out an IEO are benefited by the fact that their project and token will be presented to the exchange’s pre-existing community. For the project, this greatly decreases marketing costs. Furthermore, projects are no longer burdened by the responsibilities of KYC/AML compliance or payment processing, as these tasks are delegated to the exchange.
Among the successors to ICOs, IEOs really do seem to be the most likely contender for the title of ‘next big trend in crypto.’ Already, several major exchanges, such as Binance and Bitfinex, have launched token sale platforms. Success seems to be in the cards.
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