In the world of cryptocurrencies, Initial Coin Offerings (ICOs) served as the best method of crowdfunding for start-ups.
But that might no longer be the case.
In January 2019, BitTorrent launched a token sale on Binance’s IEO platform – Binance Launchpad. They managed to raise $7.2 million dollars, hitting the hard cap in less than 15 minutes.
And that’s not even the record.
Fetch.AI is another project that successfully hit its hard cap through an IEO on Binance Launchpad. And it did that in 22 seconds.
With the success of Binance’s platform, other exchanges followed, and released their own IEO platforms. Some of the most notable are:
- Bitmax Launchpad
- Bittrex IEO
- Huobi Prime
- KuCoin Spotlight
- OK Jumpstart (OKEx)
But what exactly are IEOs? And how are they different from ICOs?
Table of Contents
1. Initial Exchange Offerings Explained
An Initial Exchange Offering (IEO) is a token sale organized with the help of an exchange platform. The crypto exchange manages all the operations on behalf of the startup. In return, the startup pays a listing fee and gives a percentage of the tokens sold to the exchange.
This strategy is beneficial to both exchanges and start-ups, for several reasons.
ICOs are notorious for their fraudulent nature, with 78% of the ICOs conducted in 2017 having been identified as scams.
But with IEOs, the crowdsale is connected to a renowned crypto exchange platform which needs to protect its reputation. The IEOs are screened and inspected before publication, which makes it significantly harder to scam users.
Perhaps the best example of such a scenario is the RAID IEO.
In March 2019, RAID was preparing to launch its IEO through Bittrex. But OP.GG terminated their strategic partnership with RAID a few hours before the crowdsale should have started.
Since Bittrex considered that this would affect the success of the IEO, they decided to cancel it, thus eliminated the potential issues that might arise during the campaign.
Earning your users’ trust is one of the main problems businesses face, especially in the crypto industry. IEOs eliminate this issue from the get-go, providing credibility for projects and peace of mind for users.
Since the crypto exchange is the one who manages the crowdsale, the KYC (Know Your Customer) and AML (Anti-Money Laundering) processes are also handled by them.
Instead of sending smart contracts to the project’s developers, the project contributors have to sign up on the exchange’s website. This increases the exchange’s user base and creates loyal customers, while offering increased security for users.
With the crypto exchange owning a percentage of the tokens, them managing most aspects of the marketing campaign makes sense. The investment in marketing required by the IEO is reduced significantly, since the exchange funds the advertising campaign.
This can also increases the project’s chances of success, with the exchange being more experience in advertising IEOs. This ultimately serves as a vote of confidence for the IEO, making users more likely to trust and support the project.
Once the IEO is over, the listing of the crypto coin on the exchange platform is a natural process. This spares a lot of additional work for the project managers, making the whole process more efficient.
However, all these benefits come at a cost.
While the project’s developers won’t have to worry about investing in marketing or working extra to launch and promote their token sale, working with a crypto exchange isn’t cheap.
The price of listing can go as high as 20 BTC, and the exchanges could even take 10% of the project’s tokens as commission.
2. Main differences between IEO and ICO
As you can see, there are several differences between IEOs and ICOs.
While both have the ultimate goal of raising funds for a crypto projects, the way they approach that goal is very different.
The platform where tokens are sold, the marketing campaign of the project, and the listing procedures are just some of the differences between the two.
3. How to participate in an IEO
Participating in an IEO is relatively simple. The process only takes a few minutes – if you know what project you want to support. But even if you don’t, deciding on it isn’t that difficult.
Here’s how to get started.
- Check crypto exchange websites for lists of ongoing IEOs;
- Sign up for an account and complete the KYC procedure;
- Do your research about the IEO;
- Fund your account with the cryptocurrencies accepted by the project;
- Buy the tokens.
4. Will IEOs be as successful as ICOs?
Initial Coin Offerings had an explosion of popularity in 2017 and 2018. But putting a finger on how much funds they raised isn’t exactly easy. And it really depends on who you will ask.
According to Cointelegraph, ICOs raised a little over $10 billion in 2017 and $11.4 billion in 2018.
ICOdata, on the other hand, shows that in 2017, ICOs raised $6.2 billion, while in 2018 they raised $7.8 billion.
CoinDesk provides different numbers as well. According to their research, ICOs raised only $5 billion in 2017, and $17 billion in 2018.
As you can see, coming up with an exact amount is almost impossible due to the high number of fraudulent projects. 78% of the ICOs conducted in 2017 were identified as scams. But nonetheless, I think it’s fair to say that ICOs raised a lot of money.
So how are IEOs fairing up?
By May 2019, IEOs managed to raise $1.4 billion. On the other hand, ICOs raised $337 million.
A report by InWara shows that the average sale time for ICOs (in number of days) is of 97.2, while for IEOs is of just 5.5.
So far, it looks like IEOs are the new trend. Up to 70% of the IEO projects have previously conducted an ICO. But IEOs, just like ICOs, may see regulations in the near future.