Initial Exchange Offerings- The Perfect Replacement to ICOs?
Withering away all the speculations about the downfall, cryptocurrencies have managed to establish themselves as strong financial offerings giving stiff competition to the traditional payment solutions. Working on the blockchain technology, the crypto industry has evolved in heaps and bounds in recent years while pooling funds and support from the big entities, entrepreneurs, and investors from around the world. Each day marks the entry of several new projects in the digital currency market in the form of ICOs and IEOs.
IEO is the popular acronym for Initial Exchange Offering, a comparatively new trend that gained popularity after the stringent attitude forwarded by the government bodies towards cryptocurrencies. As the name suggests, an IEO is managed and operated by a cryptocurrency trading exchange platform on behalf of the startup firm that aspires to pool in funds from investors through its newly issued tokens. The token sale is conducted by the exchange, which frees the startups from dealing with the cumbersome regulatory requirements related to the issuance of tokens. The exchange sells the tokens of the startups and lists their coins after the closure of the IEO round. For these facilities, the exchange gets a listing fee as well a certain percentage of the tokens sold during the IEO.
The investors who aspire to take part in the IEO need to create an account on the concerned cryptocurrency exchange where the IEO is being channelized. They then fill in their exchange wallets and use the funds to purchase tokens of the new startup. The exchange helps the startup in gathering more and more customers by popularizing the token amongst its community members. IEOs add an extra layer of trust to the project launched by the new startup and supported by the cryptocurrency exchange. These offerings help in encouraging active participation from the experienced players of the crypto arena as well as the beginners who are willing to explore the world.
Presently, there are an array of global exchanges that help startups in conducting a successful IEO on their network. The world’s leading cryptocurrency exchange, Binance, was the first platform to launch Binance Launchpad, a platform dedicated to IEO for potential startups. Other well-known IEO platforms are Bittrex IEO, Bitmax Launchpad, OK Jumpstart, KuCoin Spotlight, and Huobi Prime.
Initial Exchange Offerings- The Pros
- IEO ensures the investors about the reliability of the project being supported by the exchange. In order to live up to the expectations of the customers, the cryptocurrency exchanges prefer to support only authentic projects.
- The crypto exchange allows the customers to enjoy hassle-free trading on the network by setting the listing period beforehand.
- As the exchange scrutinizes the background of the token issuers closely, the risk of scams, frauds, and fake offerings gets eliminated.
- The startups get the advantage to proliferate their offerings to the strong customer base of the exchange.
- The exchanges work as custodians for the IEO tokens and set higher industry standards for participation. Thus, encouraging more customer involvement.
- All the investors have to deal only with the exchange, which provides them with secured wallet services and trading as well.
Initial Exchange Offerings- The Cons
- The fees charged by the exchange platforms are quite high. Also, they demand a cut from the sale proceeds which might not be a welcoming step for startups.
- The process follows a centralized pedagogy that vests the power in the hands of a small group of investors who own the majority of tokens.
- There might be a threat for the new investors to get trapped in the pump-and-dump schemes.
- The investors do not own the tokens purchased as they are secured by private keys, thereby increasing hacking threats.
- The availability of trading platforms is limited.
Initial Exchange Offerings were introduced in the crypto domain as the perfect substitutes for Initial Coin Offerings. The exchange offerings have gained significant popularity in recent times as investors now prefer to put in their funds in projects which are backed by reliable sources and entities. By earning the support of renowned crypto exchanges, a particular project earns an undue advantage over others in the market. IEOs are likely to revolutionize the crypto industry in a big way by opening doors for an array of potential projects and offerings.