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What Is An Initial Exchange Offering (IEO)

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04.02.2021
What Is An Initial Exchange Offering (IEO)

IEO, Explained

What is IEO? If you are familiar with the cryptocurrency world, you may have heard this word from those around you and come up with this question.  

Before the emergence of the Initial Exchange Offering (IEO), companies and start-ups used to raise capital using Initial Coin Offering (ICO). 

But after so many fraudulent cases in ICO projects, people stopped investing in them. 

This is why IEO came into existence. It attracted the attention of traders, investors, and companies that wanted to raise funds for their Blockchain-based projects.

If you are interested to know more about this crypto fundraising method, keep reading this article. 

Let us first explain IEO meaning.

 

IEO Definition

IEO stands for Initial Exchange Offering. It is a fundraising technique like Initial Coin Offering (ICO).

However, unlike ICO, IEO is conducted and administered by a cryptocurrency exchange platform, not the start-up team itself. 

In this way, contributors can buy tokens directly by creating an account on the exchange platform and use their wallets.

As the company that wants to launch an IEO is using the exchange platform, it has to pay a percentage of the tokens sold during the IEO. There may be some fees included too. 

Since every step in the Initial Exchange Offering is handled by the exchange platform, it is much safer than ICO. Due to its trustworthiness, it is more popular than ICO among start-ups. 

 

How to Launch an IEO?

Now that you know the IEO definition, you may want to know how to launch one. 

If you intend to sell your crypto tokens, IEO can be a great choice. Using IEO, you only have to think about your project and make it as innovative as possible. The exchange will handle the rest. 

First of all, if you want to launch your own crypto tokens and sell them, you need to release a whitepaper. This step is just like ICO. 

You have to outline every detail about your project in the whitepaper.    

It can include your business model, the technology you are using, the team members, investors, main goals of the project, the amount of money that is needed for this project, things that happen after the project completion, how long the project will run and so many other helpful information. 

After that, you need to choose a crypto exchange platform to sell your tokens via that platform. 

Various crypto exchange platforms support IEOs, and you can choose out of them. They make token sales much easier for start-ups. 

To find the best exchange platform for your project, it is better to research and then check out their terms and conditions to see which one is the best for you. 

You have to know that choosing the right exchange platform is one of the most fundamental steps to launch an IEO. Therefore, choose wisely by considering every essential point. 

 

Here you can find a list of them:

  • Binance Launchpad 
  • KuCoin Spotlight 
  • Bittrex IEO
  • OK Jumpstart
  • Huobi Prime
  • Bitmax Launchpad
  • ProBit 

After choosing the right exchange platform for your project, you can register on that and let them do the rest. 

 

IEO Advantages

People can trust it

The most significant aspect of an Initial Exchange Offering is using a crypto exchange platform as a third party to sell tokens.

These crypto exchanges are so careful to choose the right IEO projects because they do not want to end up ruining their reputations.

In this way, investors can trust the project and purchase tokens. Therefore, investing in IEOs are much safer and more trustworthy. 

IEO is easy to use

Initial Exchange Offering is so much easier and straightforward for companies and start-ups. Unlike ICO, they do not have to launch IEO on their own.

All the processes are done by the crypto exchange platform. They can even use the stable customer base of these exchanges.

In this way, they can have more contributors or investors for their projects. Therefore, the money that they have to spend on marketing and advertisement can be saved. The exchange platforms help start-ups to advance their project without worrying about the detailed aspects of each step.

In return, token issuers or start-ups have to pay fees for listing and a particular percentage of their tokens. 

IEO is secure

An initial Exchange Offering is much more secure than Initial Coin Offering because the token issuers pass the responsibility of managing the IEOs smart contract to the crypto exchange platforms.

The crypto exchange platforms also handle the KYC/AML process. Therefore, the token issuers do not have to think about those issues.

These crypto exchanges are much more well-known than the start-up that wants to sell its tokens for the first time. They have the experience to handle any risks of getting scammed. 

IEO Disadvantages

IEO is costly

As we mentioned before, the Initial Exchange Offering is more secure than the Initial Coin Offering, and it can be a proper alternative for that.

However, start-ups that intend to use IEO for their token sale have to consider the costs ahead. The price of listing fees can be so high, sometimes over 20 BTC. Also, token issuers have to pay a percentage of their tokens.

This percentage can be 10% or more. It is better to check out the costs before choosing any exchange platform. 

IEO has Minimum holdings

Compare to ICOs, IEO has a much higher minimum native token holding. This is something that has to be considered. 

But how are these minimum native token holdings a problem?

These minimum holdings create two problems. Firstly, exchanges may create a sense of scarcity and increase the price of the native tokens. 

Further, having more minimum holdings means fewer potential investor groups. 

Exchanges have rigorous rules

Exchanges that support IEOs are so strict. The reason is understandable because they are actually putting their reputations in the line and do not want to ruin them. Imagine that the project fails for any reason or the start-up cannot fulfill its promises.

Whose reputation will get ruined because of this? Of course, the crypto exchange. 

So this is why they are so careful and have rigorous rules for accepting to work and collaborate with companies that want to sell their newly launched crypto tokens. 

The better whitepaper you have, the higher chance you get to be accepted. The exchanges will check the whitepaper to realize the project goals, how much they are attainable, the team members, etc. 

 

What Is the Difference Between an IEO and ICO?

Initial Coin Offering (ICO) and Initial Exchange Offering (IEO) are similar in many aspects. They are both a kind of Initial Public Offering (IPO) or stock market launch. An IPO is when a company releases its stock on the stock exchange, and people who are interested can purchase shares in the company for a specific price.

In this way, they will be a partial owner of the company, and in case the company does well, the value of their shares increases, and they can yield a profit over it.  

Both ICO and IEO are techniques for raising capital for companies or start-ups. 

Before IEOs, ICOs were the popular way of fundraising for companies working on Blockchain-based projects.

It was a kind of crowdfunding method. In this way, they could introduce their new cryptocurrency and sell it. However, due to ICO safety problems, they are not highly used nowadays. Some alternatives came into existence, such as IEO, to solve the safety problem. 

But how are these two concepts different? 

The difference is that Initial Exchange Offering benefits from using the crypto exchange platforms, but Initial Coin Offering puts all the responsibility to the token issuer itself. 

Unlike ICO, in Initial Exchange Offering only the users of the exchange platform can purchase the tokens and contribute to the project. 

Crypto exchanges may either lose their reputations due to the failure of the token sale project or gain a better reputation along with profit with the success of that project. 

Therefore, many believe that IEOs are much safer than ICOs because the crypto exchanges will be careful to choose reliable projects whose goals are more attainable and realistic. 

The exchange platform is like a trusted third party that ensures the investors that there cannot be a risk of scam. 

 

Final Note

I guess now you know what is an IEO, and how it works. 

If you are willing to launch an IEO for your project, IEO can be one of the best choices. 

As we can see, crypto-related technologies are changing over time. One day it is Initial Coin Offering (ICO), and another day it is Initial Exchange Offering (IEO). The important thing that matters is that something that is never going to be disappeared is cryptocurrency and Blockchain. 

 

FAQs

What Does an IEO Mean? 

Initial Exchange Offering (IEO) is a fundraising technique like Initial Coin Offering, but it is performed directly by cryptocurrency exchanges. 

In other words, an Initial Exchange Offering (IEO) is selling newly launched digital assets that are administrated by a cryptocurrency exchange.

IEO is as same as an Initial Coin Offering (ICO). In an ICO, the start-up itself does the managing of the launching process. But an IEO is backed by a crypto exchange.

The crypto exchange is like the digital token sale administrator.

They act as a bank in an Initial Public Offering (IPO) and receive a percentage of the token sales along with some listing fees for doing that. This is in return for managing the token sale project as well as putting their reputation in the line. 

Are IEOs Safer than ICOs?

The answer is YES. 

Initial Exchange Offering is much like Initial Coin Offering. Both of them are used for raising capital for start-ups that want to introduce and sell their new cryptocurrency tokens. 

However, IEOs are much safer than ICOs. The reason is that Unlike ICO, IEO uses a crypto exchange platform, so only the users of that exchange are able to join in the project.

Anybody can launch an ICO, and you do not know if it is a scam or not. Besides, you cannot be sure that they are experienced enough to fulfill their promises. If they fail, there is no guarantee to take back your money. 

Therefore, IEO is considered a safer investment opportunity.

How to Participate in an IEO?

Although IEOs are safe to invest in, it is better to research carefully to make the right choice.

First of all, you need to find out which exchanges host the IEO you want to participate in. Then you need to register in that crypto exchange platform and create an account for yourself. There are KYC and AML verification processes that you have to complete. 

After that, you have to find out the accepted cryptocurrencies for the IEO project so that you fund your exchange account with that cryptocurrency. 

After funding your account, you are able to buy IEO tokens. 

How Does IEO Work?

The way IEO works is actually not that complicated. 

Imagine that you have a strong business idea in your mind that is related to Blockchain and cryptocurrency. You want to sell tokens to support the project goals. This idea can be a game based on Blockchain. 

So you need to set up a team to start the project and create a token for your project. 

Then it is time to find the right crypto exchange platform to partner with it.  

Obviously, you have to research and choose a crypto exchange to launch an Initial Exchange Offering. 

After finalizing the contract with that exchange, you can sell your token to investors at a set price. 

This is how you could raise capital for your project and start it in the first place. If your project becomes highly successful, then the price of the token will increase.

In this way, you and your team can make a profit over it. Besides, the people who have invested in your project are also satisfied, because now the tokens they have purchased have a much higher value. 

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