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How Does an IEO Work?
"How does Initial Exchange Offering work?" is a question that you can find the answer to by reading this article.
The evolution of the cryptocurrency industry made new innovative ways of fundraising possible.
Initial Coin Offering (ICO) and similar models like Initial Exchange Offering (IEO) and Security Token Offering (STO) are the Blockchain-based methods for raising capital.
After many fraudulent cases in ICO projects, launching and investing in them has been decreased. Now, IEOs are much more popular due to their claim to be much more secure than ICOs.
If you are here because you have been considering launching or investing in an IEO, and want to know more about it, this article will help you.
First, we explain what an Initial Exchange Offering (IEO) is. Then we talk about how IEO works and some further information about it.
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IEO, What Is It Exactly?
The first thing you need to know is the definition of an Initial Exchange Offering.
IEO stands for Initial Exchange Offering. It is quite similar to Initial Coin Offering (ICO). Both are mediums of raising funds for Blockchain-based projects.
Initial Exchange Offering (IEO) was first offered by Binance as a new alternative way of fundraising since Initial Coin Offering (ICO) was not very successful in raising capital.
Binance is a cryptocurrency exchange that provides a platform for trading different cryptocurrencies.
The main difference between IEO and ICO is that in an IEO, there is a third party, a crypto exchange, that manages all the processes.
With IEOs, the project owners offer new cryptocurrencies or new tokens to investors. They raise funds for their business, and investors can benefit from increasing the value of purchased tokens if the project is successful.
In IEOs, cryptocurrency exchanges raise funds on behalf of the project owners or token issuers. In return, they receive a listing fee and sometimes a percentage of the token sale.
Therefore, with IEO, token issuers sell their cryptos or tokens on crypto exchange platforms.
IEO could take ICO place due to its security. Now, it is considered the most prevailing trend in the cryptocurrency industry.
However, there is something that has to be considered. Unlike ICO, IEO is not available for everybody to invest in it. Only the ones who have an account on that exchange can contribute to the token sale.
This was the Initial Exchange Offering (IEO) definition. Now, we explain how IEO works.
How Does IEO Work?
The way IEO works is not that complicated. Using IEO.
To explain how the Initial Exchange Offering (IEO) works; we need to talk about how to launch an IEO.
We can divide the launching process into three different steps; Preparing the idea, Choosing the exchange platform, Marketing.
Let us go through these steps to find out how IEOs are launched and how they work.
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Preparing the Idea
This is the first stage in which tokens need to be listed for the IEO project.
Just like the ICO, the first step to launch an IEO is to prepare an idea. You have to come up with a strong business idea that is related to Blockchain and cryptocurrency; regarding the market needs. In this way, you are able to sell tokens to support your idea’s goals.
This idea can be anything like a video game based on Blockchain technology.
Do not forget that you need to set up a team to start your project. The reason is that there should be market experts so that they can help you to analyze all the details you have to go through.
To convince the exchanges to host your project, it should be innovative and offer different remarkable benefits to the market. This is how it can get listed on cryptocurrency exchange platforms. So having great talented professionals by your side is essential to win this game.
After analyzing the idea and thinking through all the details such as the budget that is needed, the technology you want to use, etc., you have to conduct a whitepaper.
The whitepaper has to outline everything you came up with and all the information about your project.
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Choosing the Exchange Platform
Now it is time to find a crypto exchange platform to partner with it.
You have to research and choose the right crypto exchange to launch an Initial Exchange Offering for your project. Via that crypto exchange platform, you can sell your tokens.
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.
Choosing the right exchange platform is one of the most fundamental steps when launching an IEO. So research carefully about exchanges and check out their terms and conditions to see which one is the best for you.
Research and make sure to be aware of all their requirements so that you can make everything ready for presenting to them. Your whitepaper has to convince the investors that with this amount of money, all the project goals are achievable. Do not forget that if you do not present your project well, the chances of getting failed to be selected are high.
Here you can find a list of some crypto exchanges that host IEOs:
- Binance Launchpad
- KuCoin Spotlight
- Huobi Prime
- Bitmax Launchpad
- ProBit
- Bittrex IEO
- OK Jumpstart
After choosing the right exchange platform, you have to request them to host your project. If everything goes well and they agree to list your project on the exchange platform, you can then develop your tokens and list them on the crypto exchange platform that you selected.
You pass the KYC and AML stage, and your tokens will list on the exchange platform. After finalizing the contract with that exchange, you can sell your tokens to investors at a set price.
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Marketing
This stage is important as your tokens are listed by the exchange. The next step is to publicize the product and outreach your audience.
Now that your tokens are listed on the exchange platform, you can promote your product.
Although you benefit from using the exchange users, it is better to increase the number of your investors by running several social media marketing strategies.
This is how you could raise capital for your project and start it in the first place. In case your project becomes successful, the price of your tokens will increase.
In this way, not only you and your team as token issuers can benefit, but also the people who have invested in your project are satisfied.
Participating in an IEO
As you know, IEOs are much safer than ICOs, and this is because there is a third party, an exchange platform, that is handling the process.
When crypto exchanges accept an IEO project, they are putting their reputations in line. So they always choose the ones whose goals are achievable and reasonable. They make sure that they are not scams.
Besides, you can choose the IEOs that are hosted by the well-known exchanges.
Although IEOs are safe to invest in, researching carefully before choosing one is a good idea.
First, check out the crypto exchanges that host the IEO project you want to participate in. See if they have a good reputation and are well-known.
If you decided to join the project, you need to register in that crypto exchange platform and create an account. There are KYC and AML verification processes that you have to complete.
Next, you have to find out the accepted cryptocurrencies for the IEO project to fund your exchange account with that cryptocurrency.
Now that you have funded your account, you can purchase IEO tokens, and that's it. You are now an IEO investor.
What Benefits Do IEOs Offer to Exchanges?
Of course, exchanges are not hosting the IEO projects just to help the token issuers. There are benefits for them too.
The crypto exchanges profit from IEO projects by receiving listing fees along with a cut of the token sales.
Although IEOs are profitable for exchange sites, they are actually putting their reputations at risk. Hence, they are so strict while choosing and accepting the IEOs.
Plus, some exchanges such as Binance decrease the listing fees for those who use their own tokens.
This is not losing money for them; instead, they take advantage by selling their tokens to investors.
So, all in all, IEOs have something for exchanges too. This is why they put their reputations at risk to host them.
How Do Token Issuers Profit from IEO?
First of all, using an IEO, means you are using a crypto exchange reputation. When you convince a great cryptocurrency exchange to host your project, you can rest assured that people can trust it.
Secon, with an IEO, you put the responsibility on the exchange platform. You do not have to worry about the process.
The third thing is the marketing process. To raise funds for your project, you are supposed to spend a lot of money to promote your project so that people get to know it.
When you use an IEO, your project is backed by a crypto exchange platform. They can handle a part of the advertising for you. Because they announce your IEO project on their site, and all their users will know.
In this way, the number of people investing in your project will increase.
How About Investors? How Is IEO Beneficial for Them?
Investors also can benefit from IEOs. Imagine you have an account on a crypto exchange site. You find out that there is an IEO backed by them. To participate in the project, you only have to log in and purchase the tokens.
But if you want to join an IEO that is hosted by an exchange that you do not have an account in, then there is one more step.
You have to create an account and fund it with the cryptocurrencies that are accepted. After that, you are ready to buy tokens and participate in the IEO.
If you are sure to buy the tokens, do not hesitate because they might sell out after a short time.
Now that you invested, all you have to do is to wait and see what happens to your investment.
When the IEO is successful, the value of your purchased tokens will increase, and this is how an investor like you can benefit from an IEO. As easy as pie.
Future Ahead
This was all about how IEO works. Now you know everything about IEO and the way it works.
It was on the 28th of January 2019, when the Binance Launchpad launched the first IEO for BitTorrent and raised $7 million in 20 minutes. After that, Binance started hosting IEO for other companies like Huobi, Kraken, BITMAX, Bittrex, Okex, and some others.
Although the Initial Exchange Offering (IEO) is quite new, it is getting the place of Initial Coin Offering (ICO) very fast.
In the long run, it will definitely be the best fundraising technique that transforms crypto banking.
FAQs
Is Initial Exchange Offering (IEO) the Best Crowdfunding Platform?
It is safe to say yes.
Initial Exchange offering (IEO) has done great so far. It came to eliminate the risks and downsides of Initial Coin Offerings (ICOs), and it has acquired that goal by now.
There are, of course, some drawbacks. But we do not have to ignore that it is new to the industry and has a long way to go.
What Are Initial Exchange Offering (IEO) Drawbacks?
Although IEOs have advantages over ICOs, there are some things that may make people think while choosing it as a fundraising method.
As you may know, token issuers have to pay listing fees to the crypto exchanges. The price of these listing fees can be so high. Plus, they have to pay a percentage of their token sales to the exchanges. This percentage varies from exchange to exchange and can sometimes be so high.
Furthermore, IEO has a much higher minimum native token holding compare to ICOs. This can increase the price of the native tokens. Also, the more minimum holdings, the fewer potential investor groups you have.
Another thing is that exchanges have strict rules for accepting to list the IEO projects on their platforms because they put their reputations at risk by hosting the IEOs.