The traditional medium for funding blockchain startups has always been the Initial coin offering . Where the founders trade newly minted tokens in exchange for a specified cryptocurrency, the most common till date is Ethereum . There is usually a smart contract governing the ICO process, depending on set of rules that the startup has set prior the fundraising activity. According to a study by the Satis Group, over 75% of ICO’s were labelled as “identified scams”, where the parties behind the coins never had the intention of using the funds for a real project. Naturally a lot of trust issues arose which seems to scare investors away from ICO’s, these are some of the concerns which led to the creation of the initial exchange offering . An IEO is a fundraising event administered on a cryptocurrency exchange platform. The exchange acts as a counterparty between the investor and the parties hoping to raise funds, the founders mint new tokens and sends them to the exchange for funding. They include terms of trade like capping individual contributions and having a fixed price per token.
It requires a team of lawyers and accountants, which can easily cost a project hundreds of thousands or more in professional fees. Not to mention the extraordinary amount of time and effort needed by the project’s executive team to oversee the process. Many of the projects that took advantage of this new way of raising money were completely legitimate companies. However, there were many scams and ponzi schemes that also leaped at the opportunity to raise cash without complying with SEC regulations. When BitTorrent launched its token offering on January 28th, 2019, the team was optimistic they would raise the $7.2 million they needed to improve speed on their torrent service.
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These coins or tokens were also provably rare, could be owned and exchanged without restriction, and could be tied to how that network functioned. CrowdfundingThe most popular crowdfunding platforms such as Kickstarter, GoFundMe, and Indiegogo, mainly showcase projects from the U.S. and Europe and only accept payments via credit cards and traditional fiat currency. These mainstream crowdfunding platforms are also focused on supporting products, projects, and causes, but do not offer the ability to purchase a share of an organization or network. Any customer profiles that come with some risk must be particularly assessed, especially accounts that might be associated with a shell company to hide the business’ true nature.
How much does an IEO cost?
IEO is a fairly expensive story, and its price depends heavily on the exchange on which you decide to place. The cost of IEO on major exchanges ranges from $ 150,000.00 to $ 1,000,000.
You could also view it as a fundraiser procedure where the project developers create their unique tokens. This created token is then sent over to Cryptocurrency exchanges to sell to crypto buyers and sellers and other crypto enthusiasts alike. For exchanges, the primary advantages are that they get a listing fee and can attract more users to their platform who want to participate in the IEO. These users may even become long-term users of the exchange, whether because they are impressed with the trading experience or are just there solely for the IEOs. IEOs are ostensibly agreements between project developers and exchanges for initial placement of the token on the exchange. Rather than the more surreptitious nature of ICO listing on exchanges and the questionable dynamic between projects, rankings sites, and exchanges; IEOs are supposed to be the more reliable token offering. In addition to this, many STOs and ICOs struggled to get their tokens listed after their sale ended, leading to frustration for companies and investors alike. To resolve these issues and smooth the path, the IEO was developed. No matter how secure IEO’s are, they are significantly pricier than ICOs.
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Though IEOs are more restricted than ICOs, it does not mean that they are safe from regulators completely. If anything, they may be more vulnerable, but exchanges and projects have also learned their lessons. For example, Binance is based in Malta, where it has guarantees of protection and restricts users from certain countries such as the United States, Venezuela, and North Korea from participating. Bitcoin SV ChartsThough not all projects are interested in being traded, many are and by doing an IEO, getting listed on a major exchange is an automatic process that happens after the IEO is completed. Pace of ICO FundraisingIn the summer of 2017, during the peak of the ICO craze, the amount of money raised by ICOs surpassed angel and seed VC funding for the first time. Participants in an ICO were able to own a share of a crypto network, which was basically a startup in a completely new technological arena with very high potential returns if the token appreciated in value.
- Of the highest funded crowdfunding projects in history, ICOs dominate; occupying 17 of the top 20 positions including the three highest-funded projects.
- In the discussion of token exchange platforms, many commentators highlight a distinction between ‘onshore’ and ‘offshore’ exchanges.
- While Initial Coin Offering is the easiest method to raise funds via a crowd sale, it is also one of the most insecure ways of doing it.
- Participants were only able to use BNB tokens for the FET sale, which generated $6 million dollars for 69 million tokens within 22 seconds.
- Because an IEO is backed by an exchange, it makes it easier for the investor to participate too.
The crypto exchange KuCoin launched its own IEO platform called KuCoin Spotlight. In order to participate, KuCoin users must complete KYC identity verification before the offering. Like Binance, certain jurisdictions or countries are not allowed to participate in its IEOs. Exchanges will commonly have a well-organized legal structure that protects them from regulatory consequences. For a young startup seeking initial funding, this is a protection that they normally would not have access to or resources for.
This evolution in user experience seems to be a natural maturation of the technology. As we shall see, exchanges have been closing token sales in minutes and sometimes in only a matter of seconds thanks to their streamlined and centralized systems. The exchanges benefit in that they receive new interest from those people who want to invest in the IEO, but were not already on their platform. Essentially, both the exchange platform and the IEO project are promoting each other in a way that wouldn’t have happened during a normal ICO. The goal of most tokens or coins after they launch a coin offering is to get listed on at least one major exchange. Getting listed on an exchange brings credibility to a project as well as liquidity and may potentially increase the token’s value. Outreach your audience, promote the product by running several social media marketing strategies. The major drawback here for IEO is that it is not available to open public. Only the users of that particular exchange can participate no one else can.
The Hashpalette token sale on Coincheck is set to become Japan’s maiden initial exchange offering event.
Coincheck’s goal of conducting the first-ever initial exchange offering in Japan is moving closer to… https://t.co/r7p4xIEZEV
— Ranzware IS Co. (@Ranzware) May 31, 2021
This will also help you understand where your time and money are best spent. However, IEOs are considered much safer than ICOs because unlike ICO, IEO is backed by a crypto exchange platform. The exchange will rigorously check out the project and ensure that it is not a scam. The reason is that although exchanges conduct Due Diligence, it does not mean that they can %100 detect all the fraudsters.
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The funds raised through the sales of the token are then given to the project developers. Initial Exchange Offering is an improved version of the Initial Coin Offerings. The basic concept of offering tokens for project fundraising still exists for investors to enter into the crypto ecosystem. The slight difference between an IEO and an ICO is that the IEO functions through the platform backed by a cryptocurrency exchange. Because of the unregulated nature of ICOs, it has been difficult to identify which ones are legitimate and which ones are scams.
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At the end of the trading, the funds raised will be given to the project developers. As the name suggests, initial exchange offering is performed on the platform of a cryptocurrency exchange. In this mechanism, a crypto exchange functions as a counterparty and seeks to raise funds on behalf of companies. Developers mint the tokens for startups and send them to exchange where investors can buy tokens. This is the first stage in which tokens need to listed for IEO project. The startup needs to come up with the idea, check its feasibility, conduct a survey regarding its market need and position. For all this process, proper planning and experience in the relevant project niche are needed. Moreover, consultation with field and market experts can help better in analyzing the scope. The project should be remarkable to get listed on crypto exchange platforms.
As token listings are also “in the deal,” it is a natural process that the cryptocurrency exchange where the IEO is conducted lists the coin of the startup after the crowdsale is over. It wouldn’t be wrong to say that IEOs have managed to successfully surpass the goal of being the best platform for crypto-sales and raising funds via crowd sales. They have mitigated risks and dire consequences associated with ICOs, and therefore, have acquired genuine credibility in the cryptocurrency market. While Initial Coin Offering is the easiest method to raise funds via a crowd sale, it is also one of the most insecure ways of doing it. There have been several instances of dubious ICO scams, which is why they have come under scrutiny by regulatory bodies and law securities. Some countries like China and South Korea have completely banned ICOs due to their risky and inauthentic nature of working. In addition, be careful if the promoter of the IEO or the digital trading platform hosting the IEO states that they are approved or registered with the SEC.
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ICO is the most popular fundraising method in the crypto sector today, but it’s closely followed by STO and IEO. An Initial Exchange Offering is carried out through crypto platforms and exchanges. Unlike ICOs where crypto projects get to approach investors directly, IEOs always involve a third-party crypto exchange. Token issuers do not have to worry about the crowdsale security as the exchange is managing the IEO’s smart contract. The KYC/AML process is also handled by the crypto exchange as most service providers do KYC/AML on their customers after they create their accounts. IEO participants do not send contributions to a smart contract, such as governs an ICO.
Early investors could purchase tokens at a lower rate and buy their way into the company. Our dedicated team model is designed to provide clients with our experienced software development experts on a long-term basis. With Influencer Marketing, our team helps you promote your IEO project by reaching your tokens among the qualified influencers, key players and bloggers in the market. We have a dedicated team of blockchain developers who understand how to create a multi-currency, secure and compatible wallet for storing the tokens safely. Forums are designed for online discussion where people interact with each other in the form of questions and answers or comments. The posted content may also require approval from a team of moderators depending on the user access level. It is crucial to tell people about the advantages and prospects of your project in publications. You should write submit press releases to the reputed websites and mention how the technology and your solution will help the investors and market.
How do I participate in initial coin offering?
The typical initial coin offering process begins with a startup publishing a white paper explaining the business idea it wants to fund with the proceeds from the offering. It will provide the number and price of digital tokens it plans to sell, the sales period, the sales cap, and other salient details.
That’s why so many people believe that IEOs are significantly safer than ICOs. Only the users of the exchange platform can participate in an IEO event. For some exchanges, however, IEOs mean more users for their trading platform and some of them are willing to undertake the screening process of a project even without a listing fee. An increasing number of cryptocurrency exchanges have started to embrace IEOs. One of the first in line was Binance, which launched its IEO platform Binance Launchpad. In January, BitTorrent – that was bought by TRON – initiated a token sale on Binance Launchpad and raised $7.2 million in less than 15 minutes, hitting the crowdsale hardcap. ▪ Empirical results demonstrate that firms offering utility tokens are more successful in raising money if they do so through IEOs, rather than using an ICO approach. Results indicate that whether or not firms sell tokens on a cryptocurrency exchange is more important than traditional ICO success factors.