Sunday, 20 September 2020

Initial Exchange Offering — The Next Popular Fundraising Scheme In Crypto?

The advent of cryptocurrencies brought an innovative and decentralized way of fundraising through Initial Coin Offerings (ICOs).
Several crypto projects flourished by raising funds their native digital currencies to investors through ICOs in return for fiat/Bitcoin investments.

However, with little to no regulatory scrutiny on these decentralized crypto projects, things went haywire. Over the last year, the ICO industry has witnessed a massive downturn due to several fraudulent schemes coming to the surface.

The crypto fundraising industry is currently undergoing a transitional shift with other models like Security Token Offerings (STOs) and Initial Exchange Offering (IEO) taking center stage.

The Growing Popularity of Initial Exchange Offering (IEO)

IEO is currently the most popular fundraising trend in the crypto industry. As the name suggests, Initial Exchange Offering is conducted over the crypto trading platform and exchanges. So unlike ICOs wherein crypto projects directly approach investors, IEOs involve a third-party in the form of crypto exchanges.

The crypto exchanges raise funds on behalf of startups while undertaking the necessary commitments and performing the due diligence. Thus, crypto projects conduct a token sale on the exchange platform wherein the token issuers need to pay the exchange a listing fee.

In return, the crypto projects get to sell their token along with their listing on the exchange platform post the listing. However, the major drawback of IEO is that unlike the ICO the crypto tokens of startups aren’t available to open public. Only the users of the respective exchange can participate in the IEO event. For others willing to participate in the token sale need to create an account with the exchange hosting the IEO.

IEO Platforms for Different Crypto Exchanges

To bring in higher legitimacy in the cryptocurrency fundraising schemes, a number of exchanges are joining the IEO bandwagon. The first in line was the Binance exchange launching its “Launchpad” platform.

In early 2019, the Binance platform conducted the crowdsale for BitTorrent (BTT) tokens raising a whopping $7.2 million in just the first fifteen minutes of sale opening. Another successful project on Binance’s Launchpad platform was Fetch.AI raising its hard cap of $6 million in just 22 seconds.

Now, the IEO market is catching enough with the participation of other global exchanges. BitMax Exchanges launches BitMax Launchpad, Bittrex launches the Bittrex International IEO, KuCoin launches the KuCoin Spotlight, etc.

A majority of the IEO platforms are currently held by Asian exchanges, however, European platforms like Paytomat are also gearing up for this journey. Eastern Europe’s first Paytomat IEO will be held on the EXMO platform starting on April 1, 2019, over a three day period.

Paytomat is a ready-to-use solution getting businesses and crypto users together while starring the man adoption of cryptocurrencies. The platform supports overs 18 most-popular crypto tokens with over 300 registered merchants across various industries.

Advantages of IEOs Over ICOs

The presence of intermediary platforms like crypto exchanges between the token issuer and investors considerably reduces the risks of fraud and scams. The exchange thoroughly checks the credibility of the token issuer before conducting a token sale. Thus, the exchange serves as an additional screening layer that helps investors to make informed choices before making investments.

Bittrex states:

One of the hardest challenges we face in advancing blockchain adoption is to avoid the rampant fear, uncertainty, and doubt that is everywhere in this industry.

Unlike ICOs, the IEO mechanism helps to develop higher trust between the token issuer and investors, while weeding out bad actors in the earlier stage. Recently, the Bittrex platform cancelled the RAID project IEO due to a terminated partnership between RAID and OP.GG, an e-gaming data analytics company.

Unlike ICOs, where the token issuers need to manage the smart contracts, the exchanges do this task in case of the IEOs. This ensures a better crowdsale security while leaving the token issuer worry-free. Furthermore, the exchange conducts mandatory KYC/AML checks for investors joining their platform thereby reducing anonymity.

Further, collaborating with popular exchanges also helps token issuers to considerably reduce their marketing efforts and get better visibility in a short period of time. Thus in comparison to ICOs, IEOs provide greater savings to crypto startups. Also, the exchange’s stable customer base helps startups secure better contributions to their projects.

Furthermore, unlike ICOs, token issuers don’t need to go with the hassles of listing as it comes naturally as a part of the deal with the exchange conducting the IEO.

Thus, in terms of security and efficiency of execution of the token sale, IEOs take an edge over the ICOs. However, the listing costs in IEOs could be a bit higher considering the early stage collaboration with popular exchange platforms. Nevertheless, the merits of IEOs certainly seem to outweigh the costs.

Currently, in the alpha stage of its growth, IEOs are rare to spit in the crypto community. However, one needs to do enough research for upcoming IEOs and decide on their part if they would be comfortable investing in them. Once done, you need to be on the platform where the crypto startup will launch its IEO.

One can register on the platform by completing all the necessary KYC and AML verification processes. Once your account is activated, the next step is to fund your wallet with fiat or cryptocurrencies that support the IEO crowdsale.

By Andrey Sergeenkov
Legal disclaimer: The insight, recommendations and analysis presented here are based on corporate filings, current events, interviews, corporate press releases, and what we've learned as financial journalists. They are presented for the purposes of general information only, and all the information belongs to the original publishers. These may contain errors and we make no promises as to the accuracy or usefulness of the information we present. You should not make any investment decision based solely on what you read here.

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