IEOs Grow Globally WHILE BUILDING TRUST IN 2019
Trustless payment methods were the first disruption blockchain brought to the financial industry. The second wave of disruption came about when the ICO boomed in 2017 as a way to reach a larger market of investors through crowdfunding smart contracts on Ethereum. in 2017 alone, ICOs raised around $7 billion.
More recently, we’re seeing the IEO (Initial Exchange Offering) — a very similar construct but with the token offering done by the exchange instead of the project itself. We’re finally starting to see the rise of the STO (Security Token Offering), as a way to conduct a compliant blockchain-based capital raise.
However, the industry is clearly fragmented and nascent. The crypto industry prefers ICOs and IEOs, which still dominate in terms of the amounts raised. Crypto investors are putting their money where their mouth is — utility tokens.
CoinGecko has published its crypto market report for Q2 2019. The report notes that Initial Exchange Offerings (IEOs) are on the rise, with 72 projects raising a total of $262 million in the first half of 2019.
Binance’s Initial Exchange Offering platform, Launchpad, started the “IEO frenzy” in January 2019, raising $7.2 million in 14 minutes for BitTorrent.
While the average amount that IEOs raised in H1 2019 was $3.7 million, the report found that the sums varied significantly from project to project.
There has been continued publicity and IEOs as a model of fundraising recently. So far, this has been a very strong year for IEOs according to the report, and all IEOs have raised more than USD 1 bn raised since the start of 2019.
According to the report, IEO or Initial Exchange Offering, which the report terms as an innovation in the ICO fundraising sector, emphasizes a higher degree of institutionalization of large crypto exchanges around the world "as cornerstones of global crypto finance infrastructure." Further, IEOs and their popularity may be seen as a response to established crypto exchanges moving into crypto.
Particularly, IEOs have encouraged more and more exchanges to participate in fund raising with all of the top ten crypto exchanges now having own launchpads and launching IEOs now and then.
According to the report, reputable large global exchanges serve to put a "trust stamp" on the IEO project, which may act to attract already on-boarded investors at the exchange. Which is one reason they are gaining popularity.
IEOs offer increased and immediate liquidity since the tokens are listed on the exchange immediately.
The smart contract platform WaykiChain collected the largest sum, $18.5 million, followed by Lambda ($16.4 million), Poata Token ($15.4 million), Blockcloud ($15 million), and Top Network ($15 million).
Only these projects managed to get funding of more than $10 million through IEOs, representing 31% of the amount raised in the first half of 2019.
“IEO projects seem to have a ceiling of $20 million in amount raised,” the report states.
According to the study, approximately 50% of IEO funds have flowed into the top five crypto exchanges. Gate.io, Binance, Okex, Huobi, and Bittrex led the way, raising $47.6 million, $27.2 million, $24.3 million, $22.7 million, and $16.9 million respectively.
The researchers studied how different crypto exchanges have performed with respect to the ROI of their IEOs.
Surprisingly, the cryptocurrency exchanges ZBG and ZB are in the lead with ROIs of 820% and 553%, with Binance (513%), Gate.io (505%), and Hotbit (320%) following.
Despite their high-performance IEOs, both ZBG and ZB only launched one IEO project, the researchers note. Therefore, CoinGecko considers Binance and Gate.io to be the top crypto exchanges when it comes to IEOs.
An interesting fact about IEOs relates to the Bitforex crypto exchange which has launched eight IEOs on its platform – the same number as Gate.io. Despite having the most Initial Exchange Offerings among all exchanges, Bitforex’s average return on investment is in the negative, with the average ROI being -37%.
Despite the fact that only half of the IEO projects were profitable, if one managed to invest in all of them, he or she would still have enjoyed a 44% ROI.
The top gainers include Lambda (1,874%), Mixmarvel (1,249%), Lichang (1,138%), Bittorent (1,068%), and Global Trading System (820%), while the tokens associated with IEO projects like Facepower and Aivia have shed over 90% of their value since their token sales.
IEO has its advantages and disadvantages, and, like any other positive behavioral phenomenon resulting in a speculative “bubble”, IEO will also have a recession sooner or later. Nevertheless, at this time, IEO has all chances of becoming one of the standards for fundraising for the crypto industry and all exchanges are following the trend, some as leaders and some as late-comers.
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In 2018, ICOs raised nearly $8 billion. But as many know too well, the ICO wave has since come crashing down. ICOs now raise about 58 times less than they did just a little more than one year ago.