IEO for Beginners
What is an IEO?
An Initial Exchange Offering, as its name suggests, is conducted on the platform of a cryptocurrency exchange. Contrary to Initial Coin Offerings (ICOs), an IEO is administered by a crypto exchange on behalf of the startup that seeks to raise funds with its newly issued tokens.
As the token sale is conducted on the exchange’s platform, token issuers have to pay a listing fee along with a percentage of the tokens sold during the IEO. In return, the tokens of the crypto startups are sold on the exchange’s platforms, and their coins are listed after the IEO is over. As the cryptocurrency exchange takes a percentage of the tokens sold by the startup, the exchange is incentivized to help with the token issuer’s marketing operations.
IEO participants do not send contributions to a smart contract, such as governs an ICO. Instead, they have to create an account on the exchange’s platform where the IEO is conducted. The contributors then fund their exchange wallets with coins and use those funds to buy the fundraising company’s tokens.
How Do IEOs Work?
To participate in an IEO, you have to be part of an exchange like Binance (the first exchange to embrace IEOs), Huobi, Kucoin or Bittrex. In some cases, they may require you to buy their native tokens first, and use those to trade for the IEO token. But other than that, it’s much easier than participating in ICOs, because the process is uniform for whatever exchange you’re using.
It’s also easier for startups, because the exchange handles the logistics of the offering, freeing the company up to focus on development. This turns around and benefits the investor more, because the company you’re investing in has a stronger position. Instead of putting all their time (and marketing resources) into an ICO, they’re passing it off to the exchange and getting back to work on their great idea.
That said, the exchanges don’t offer this service for free. Startups will have to be prepared to pay for an exchange to host their IEO, either in advance or as a percentage of funds raised.
How to differentiate IEOs and securities?
There are a lot of factors to be considered here, but one of the most obvious ones is any token’s intrinsic value, which comes from its utility.
Every IEO has a white paper and you should read it carefully. The token you are intending to buy must have a use-case. It should not be merely an instrument used for funding, it should have an actual place in the proposed project.
IEOs are the same idea as ICOs, but approached with more sophistication and security. They haven’t become as popularized yet as ICOs, and we don’t know if they will. But to the investor, that could give you a jump on early adoption. When looking for IEOs to invest in, just remember not to assume the exchange is doing all the work. Approach with confidence, but do your own research to determine which upcoming offerings are the truly worthy investments.
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