A Simple Guide for IEO Beginners
Here is simple guide for IEO beginners, if you are thinking about launching or investing in an IEO or are just interested in it.
Initial Coin Offering (ICO) was first introduced by Mastercoin in 2013 that attracted other projects to use ICO for their capital raising. This resulted in ICO becoming the primary way of raising capital for Blockchain-based projects.
In 2018, projects successfully raised more than $6.2 billion through ICO (Initial Coins Offering). However, the majority of the projects who raised funds through ICO turned out to be scams, and the tokens lost their value after a while.
This made ICO less prevalent, and people started to doubt it to be a reliable investment.
This made Binance come up with an alternative fundraising model. Binance is a cryptocurrency exchange that provides a platform for trading various cryptocurrencies.
This new model was called “IEO” which stands for Initial Exchange Offering. IEO lets crypto projects raise funds on crypto exchange platforms.
Now, to know more about this newly-introduced phenomenon, check out the rest.
First of all, to get what IEO is and how it works, you need to know its two basic concepts: Cryptocurrency and Blockchain.
Let us explain each of them as simply as possible.
What Is Cryptocurrency?
Cryptocurrency is a digital form of money and can be used for purchasing goods and services online. It does not exist in a physical form like a coin or paper money.
The money that we use today, is backed by the government. This money is called Fiat money, and as you may know, it is centralized. It means that there is a single authority or middleman like a central bank that controls and regulates all the transactions and balances.
Cryptocurrency, on the other hand, is decentralized, and you can manage your money yourself outside the control of central banks or governments.
Bitcoin, the first cryptocurrency, was introduced by an unknown person or a group of people called Satoshi Nakamoto. Now there are so many different cryptocurrencies available on the market.
Companies issue their own cryptos, or as they are called tokens through Initial Coin Offerings or Initial Exchange Offerings. The technology behind cryptocurrency is called Blockchain. You can find out more about Blockchain in the next section.
According to CoinMarketCap.com, there are more than 6,700 different cryptocurrencies on the market, and of course, more are about to come soon.
Here a question arises that why cryptocurrencies are getting more and more attention these days?
There are different reasons that make cryptocurrencies popular and worth noticing. For instance, Cryptocurrencies came to eliminate the need for central authorities like central banks to control the flow of money.
Cryptocurrency aims to create a decentralized financial system so that banks could not reduce the value of money using inflation. Also, some believe that some cryptocurrencies are the future of the payment system, and they will be more valuable over time.
Therefore, they are now investing in them to make a profit in the future. This competition of purchasing cryptocurrencies makes them more popular. Also, cryptocurrencies use Blockchain technology that makes the transactions much more secure than traditional payment systems.
All in all, cryptocurrencies are believed to be the future of payments, and no one can deny it.
What Is Blockchain?
Now that you know what cryptocurrencies are, you have to get to know the technology behind them.
Blockchain is a type of database that can store a record of transactions. All the data recorded in Blockchain is open to everyone who participate in the Blockchain network.
Therefore, any updates in the records are visible to network members, and the records also have to be verified by them. This means that Blockchain makes decentralization possible and eliminates the need for a central authority, like a bank.
It consists of blocks that are chained together.
All new transactions with their corresponding information are stored in these blocks. These blocks will then get added to the chain by network users, who are called miners. Once a block is added to the network, there is no way to change or delete it.
Blockchain was first utilized in Bitcoin implementation in 2008, but the main idea is much older and goes back to the 1990s.
Prior to Bitcoin, there were some attempts to create a digital currency, but they all had the double-spending problem. Double-spending is when users can spend money more than once.
Bitcoin is the first successful cryptocurrency as it solved the double-spending problem using Blockchain technology.
By using Blockchain, Bitcoin made trading transactions without intermediaries possible for users. After Bitcoin, many other cryptocurrencies came into existence that used their own Blockchain implementations, and this led to the immense popularity of Blockchain all over the world.
What Is IEO?
Now that you know the basic concepts of Initial Exchange Offering (IEO), it is time to get to know IEO.
Initial Exchange Offering (IEO) is the procedure of introducing new cryptocurrencies to the market using crypto exchange platforms.
These cryptocurrencies are sold to investors to raise capital for start-ups.
Initial Exchange Offering (IEO) is similar to Initial Coin Offering (ICO) and is considered a new ICO version.
The key distinction is that unlike ICO, IEO is conducted through a crypto exchange platform. The exchange acts as an intermediary between the token issuer and investors.
Since token issuers have to go through KYC and AML processes, which can help crypto exchanges to determine the scammers, some believe that IEOs are safer than ICOs. Also, using IEO, token issuers can benefit from listing their tokens on the crypto exchange platform. Since the exchange host their tokensale, it can do a part of the marketing for them.
Besides, exchanges can have higher income hosting IEOs as they receive commissions from each transaction.
Using IEO for raising capital makes the procedure much simpler for investors and token issuers.
IEO has so many other benefits over ICO. That is why it is considered a better version of ICO and is getting more popular.
How Does IEO Work?
To explain how IEO works, we split it into two parts: Launching an IEO and Investing in an IEO.
Launching an IEO
Launching an IEO is quite similar to ICO, and everyone can do it following these three steps:
Providing Your Idea
The first step to launch an IEO is to prepare an idea. It should be a strong business idea related to Blockchain and cryptocurrency; regarding the market needs.
To do that, you need great market experts in your team who help you analyze all the details you have to go through because convincing crypto exchanges to host your project is quite difficult.
The idea that you come up with has to be innovative and offer remarkable benefits to the market.
Do not forget that you are supposed to release a whitepaper that outlines everything you came up with and all the information about your project.
Picking an Exchange Platform
When the first step is done accurately, you can go on to the next step and find a crypto exchange platform to list your token.
Researching is the most important thing you need to do at this stage.
Various crypto exchange platforms support IEOs, and you can choose one out of them. They can make token sales much easier for you and your team.
It is necessary to check out all their requirements to make everything ready for presenting to them.
They will check your whitepaper to see if the project goals are achievable and it is worth being listed on their platform.
Therefore, try to present your project as well as possible.
When you decide on which exchange you want to list your tokens, you have to request them. If everything goes well and they agree to list your project, you will pass the KYC and AML stage, and your tokens will list on the exchange platform.
Marketing
Now that you have listed your tokens on the exchange platform, it is time to publicize the product and outreach your audience.
A part of the marketing process is done by using the exchange members. However, it is not enough, and you need to run several social media marketing strategies to increase your project contributors.
By following these three steps, you can raise capital for your project and sell your tokens. In case your project becomes successful, the price of your tokens will increase.
This is how you, your team, and your investors can all be satisfied and benefit from the IEO.
Investing in an IEO
Investing in IEO is so simple, and if you are a member of an exchange that hosts an IEO, the only thing you have to do is purchasing the tokens. But if you are not, there are some things that you may want to consider before starting your investment.
Research Thoroughly
As we said before, exchanges have rigorous rules to list IEO projects on their platforms, but it does not mean that you can be %100 sure that there are no risks ahead.
Hence, you need to research enough about the IEO and the crypto exchange to reduce the risks ahead. Research about the crypto exchange to see if it has a good reputation and is well-known. Plus, check out the start-up team members to see if they have had successful projects before.
As both the exchange and the token issuers will benefit from attracting investors, they can be a bit dishonest while introducing the project to investors.
See What They Have Done So Far
Check out the token issuers' website, if they have one, and look for their whitepaper. They have to explain every detail about the project there.
Some information they may include is the project goals, the technology they use, the team members, the amount of money needed to start the project, and some other useful information.
If they have not provided enough information on their website, it may not be a good choice.
Check Out the Exchanges Hosting the IEO
To invest in an IEO, you need to find the crypto exchanges that host it. There can be multiple exchanges hosting the IEO you want to invest in.
Next, you need to register on the selected exchange because as we mentioned before, IEOs are only open to registered members.
Exchange platforms may have different registering processes. However, in all of them, you need to complete the KYC/AML process. It is better to register a few days before the IEO launch because the process can be time-consuming.
Now that you signed up, you have to fund your account with cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH) or fiat currencies such as US Dollar (USD), Great British Pound (GBP), and Euro to be able to buy IEO tokens later.
After purchasing tokens, you are officially an IEO investor. You can wait until the value of tokens increases and sell them.
The Bottom Line
So this was a simple guide for IEO beginners.
To wrap it up, we have to mention that IEO is still a newly offered fundraising technique. Hence there is not enough knowledge spread on this to people.
However, it has so many benefits over ICO and should not be ignored. It has a long way to go, and we need to wait and see if it can be the future of the crypto industry.
FAQs
What Does IEO Mean?
IEO, short for Initial Exchange Offering, is as same as Initial Coin Offering except for the fact that it is hosted by a cryptocurrency exchange.
In IEOs, investors do not purchase tokens directly from the token issuers. Instead, they buy them on the exchange platform.
This third-party involvement is the reason many believe that IEO is safer than ICO.
Does Initial Exchange Offering (IEO) Have Any Drawbacks?
IEOs have so many benefits over ICOs and are a better version. However, they still have some negative sides.
The listing fees that token issuers are supposed to pay to the exchanges can be so high. Also, exchanges are so strict while listing the IEO projects because they need to be cautious not to choose the scammers’ projects. If so, they ruin their reputation, and people will hardly trust them after that.
Furthermore, compared to ICO, IEO has a much higher minimum native token holding. This can lead to unrealistic high prices of the native tokens.