MARKNetwork Blockchain: IEOs vs ICOs

Will Initial Exchange Offerings (IEO) replace ICOs?

Short summary of the article:

“Do not get left behind”

»With the advent of cryptocurrencies, new fundraising avenues were established. Initial Coin Offering (ICO) (see Wikipedia) was the one that helped innovative startups raise millions of dollars. But the boom did not last long as around 80% of the projects that use ICO failed to sustained. Investors lost their money. In the light of the situation, can Initial Exchange Offering prove to be a sustainable platform for fundraising?«


During the early months of 2017 when the crypto market was bullish, 228 ICO raised around 1,500 million Dollars within 2 months. But very soon, 80% of these were identified as fraud or projects that failed. As only 20% of the ICOs sustained but just a few of those succeeded, investors locked in heavy losses.

The performance of ICOs witnessed a rapid decline towards the end of 2017 and left both the fundraisers and investors with little confidence. According to an Ernest and Young Study of ICOs in December 2017 below were the major problems identified in tops ICOs.

  1. 86% of the top performing ICO’s were hovering below the price at which they were listed while around 30% had lost all the value leading to a 66% average loss to every investor.
  2. Out of the ICOs that made the part of the study only 29% transformed into working products or just prototypes.

As the situation became grim, China banned the ICOs to protect the investor’s interests. Feeling hand tied, crypto startups started looking for alternative fundraising channel but they never intended to take the traditional channel for the same. The need had arisen for a platform that offered:

  1. Un-paralleled security for the platform users
  2. Enhanced transparency when compared to ICOs
  3. A fair platform not like the one where the role of investor tokens are de-emphasized
  4. A decentralized banking system that aids fundraising

IEO (Initial Exchange Offering) has it all. But before we understand its market mechanics let us understand what an IEO is?

Explaining the IEOs

Initial Exchange Offering or in short “IEO” is a token sale that is held on cryptocurrency exchanges. It stands contrary to the ICOs where the tokens are sold by the project owners. For the IEOs the token sale is initiated and administrated by the crypto exchange. Thus, it creates a new form of fundraising opportunity for cryptocurrency projects.

While IEO listing ensures the project is worthy and genuine, it never guarantees the project’s success.

How does it start?

Let us first get a hang of the process of IEO listing and then we will check out the buying process:

Exchange listing and Token Sale

Before a cryptocurrency exchange goes live with the token sale of a project, it conducts an in-depth review of the project backing the token sale. Multiple crypto exchanges can participate in the token sales of a project. Each one of them conducts independent scrutiny of the project on the basis of authenticity parameters they consider important. The project team and exchange mutually come to certain terms of the agreement before a token sale goes live.

Exchange listing fees

The crypto projects are required to pay crypto exchanges a listing fee. Along with that the crypto exchanges also receive a percentage of the tokens sold during the token sale. The exact fees and percentage vary from exchange to exchange. In return of the incentive, the projects get to sell their tokens on credible exchanges as well as the coins are listed after the fundraising phase of IEO is over.

IEO participation process

The IEO participant is required to create an account or use their existing account on the exchange to procure the tokens. No contribution is made to the project team directly as is the case with the ICOs. The participants need to hold the coins (cryptocurrency the exchange supports) in the exchange wallets and then use those to buy the tokens of the project that is looking for fundraising opportunities.

Success of IEOs

Although the crypto community is yet to witness a boom of IEOs, the ones that exist have performed brilliantly to win the confidence of the crypto enthusiast. Quoting a few success stories:

  1. BitTorrent used Binance to sell its crypto tokens. As soon as the sale went live, it took less than 15 minutes to raise $7.2 million.
  2. For project Fetch.AI it took just 22 seconds to raise $6million once the IEO went live on Binance.

How are IEOs and ICOs different?

We plan to make you understand the fundamental difference between the IEOs and ICOs to establish why the former will prove to be a more sustainable fundraising option:

  1. The primary difference between ICOs and IEOs is that the token sale is conducted on the token issuer’s website while in case of IEO, a cryptocurrency exchange platform conducts and administers the token sale.
  2. The crowd-sale counter party for ICOs are the project developers but in case of IEOs it is the cryptocurrency exchange.
  3. The smart contract is managed by the project owner in case of an ICO, while for IEOs the smart contract is managed by the cryptocurrency exchange
  4. The AML/KYC needs to be conducted by the project owner in case of an ICO but for IEOs the responsibility is completely shouldered by the exchange who is conducting the IEO
  5. The IEO’s stand immediately tradable as they are listed on the exchange immediately after the token sale is over. In the case of ICOs, once the fund is raised, the projects owners need to look for exchanges who are ready to list their tokens for sale.
  6. Initial Exchange Offering offers the participant’s confidence as the tokens are listed for sale only after the exchange conducts project scrutiny. Although the exchanges come across as an intermediary it protects the crypto enthusiasts again the ICO scams.
  7. ICOs mint tokens only once the funding is completed leaving scope for the project to run away with the fund raised. In the case of IEO’s, the tokens are generated and listed for sale and post that the fundraising begins on the exchange platform.
  8. Projects require more marketing budget in case of ICOs as they are on their own. Taking the IEO way ensures the token sale is directly made available to the existing user base of the exchange and that is why the IEOs raise noteworthy funds within minutes.

Are there some other advantages of IEOs? Can there be any disadvantages too?

Screen projects that build trust

One of the main reasons for the fall of ICOs was the scams that made way into space. The crypto enthusiast started losing confidence in this new and unregulated space. Initial exchange offering fixes this soft spot in the first place itself. As the exchange works as a counterparty, each IEO that goes live is verified by the exchange. While exchange acts as an intermediary, it also has its own credibility to protect when it lists an IEO. The extensive screening conducted by exchanges reestablishes the token buyers trust in the crypto ecosystem.

In its recent attempt to raise funds using IEO, project RAID used the Bittrex platform. But as soon as the Bittrex team became aware of the canceled partnership between RAID and its biggest partner OPGG, the crowd sale was canceled. Bittrex recognized the partnership as the crucial aspect of the success of the project. In the light of the cancellation of the partnership, Bittrex went ahead and canceled the crowd sale that was expected to hard cap at $6 Million.

Smart Contract Security

Both token buyers and issuers need not worry about the security of the smart contracts. The exchange manages the smart contracts deterring any kind of hack or scam impact the sales and purchases. As the AML/KYC is also conducted by the exchange, the chances of any miscreant making way to token holder ship are avoided.

Makes things easy for token issuers

In the light of the negativity that encapsulates the cryptocurrency projects, IEO offers a seamless platform for the projects to raise funds. With listing fees and percentage of the token, the projects receive an existing database of users, immediate listing of tokens and marketing support of the exchange. Many ICOs struggle to get the tokens listed on reputed crypto exchanges even after the funds have been raised. Initial exchange offering places token issuers in a much better stance as the token are automatically listed on the exchange after the IEO is over.

Initial Exchange Offering (IEO) - Hype?

Prevention of Price manipulation

An Initial Exchange Offering works well to contain the price manipulation to some extent. In the case of ICOs, if the sales take off well, the price of ICOs are shot up. But for IEOs are exchanges are involved in setting the price, the token price inflation will be controlled better than the ICOs.

Drawbacks if any?

Although no potential demerits have been identified in the Initial Offering Exchange mechanism of raising funds, some startups may find paying the listing fee a challenge.

To wrap: Is the next fundraising boom just around the corner with IEOs?

The Initial Exchange Offering is still in infancy. However, the recent success stories of IEO success from the Binance platform provide a strong indication of the boom, the mechanism is yet to mature. The fairness and trust the cryptocurrency exchanges bring to the cryptocurrency ecosystem are much required after the ICO frenzy died down.

The Initial Exchange Offering is fortifying a new fundraising platform for the token issuers also where a potential project can circumvent all the frictions of raising funds. Such a secure landscape will appeal to more investors leading to more active participation from an entirely new group of investors.

IEOs are making the ecosystem strong enough to identify scammers and projects that are dubious in nature. Apart from that it opens opportunities for startups to raise funds in the regions where ICOs have been banned since 2017.

Increasing the level of trust, the IEOs are the most suitable process of fundraising that can be established into a standard. No more potential startups will succumb to the challenges of fundraising and no more token buyers will be scammed into pompous projects that are not capable of sustaining.

At MARKNetwork we are keeping a keen eye on the development of Initial Exchange Offering fundraising platform and will keep you posted.

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