Introduction to Initial Exchange Offerings (IEO)

Jun 19, 2019   |   by Maria Victoria MacAraig   |   Basics & Beyond

If you’ve heard about Initial Exchange Offering’s (IEO), you probably want to take advantage of them. After all, it seems to be an easy way to get funding for crypto startups without too much effort. Ever since the hype around Initial Coin Offering (ICO) subsided a bit due to problems with security and fraud, IEO has become much more attractive.

How should you go about investing in IEO’s? Is it suitable for your project? Let’s take a closer look.

What are IEO's?

Simply put, IEO is the means to get funding for blockchain-based projects. This crowdfunding approach allows project developers to attract investors and list their tokens. The entire process is mediated by an exchange.

Unlike in ICO, where developers and investors work directly with each other, in an IEO, a cryptocurrency exchange plays the role of a third party.

Crypto project developers can raise funds directly on the exchange. Investors can find top-notch investment opportunities on the exchange. The exchange itself get free marketing and fees from both. It’s a win-win-win situation for all three parties.

In order to enter a token sale, both parties need to have an account on the exchange. All the users must have funds on their accounts in the currency determined by the exchange.

Security Issues Solved

Why is IEO better than ICO? Isn’t ICO quicker, easier, and cheaper? It is, but IEO offers something that ICO doesn’t. Security.

According to IEO experts from IBCGroup, the problem with ICO in the past have been fraudulent actions on behalf of the project developers, who collected funds and fail to provide any output. Creating a bogus white paper is simple. Running off with the investors’ money is even simpler. That’s why the popularity of ICO’s is down today.

Meanwhile, when it comes to the same deal within the exchange, the security issues are different. The exchange itself checks the credibility of the developer. Meanwhile, the developer has to pay a fee to participate in the IEO. All of the above helps the investors enjoy peace of mind.

But why would a developer use an exchange if all it gets is a long security check and a large bill to pay? Project owners get what they value the most. Investors. They get access to investors, who are already registered with the exchange, reducing the investor search to a minimum.

Once again, everyone wins.

Overall, the IEO gets regulation from the third party, making it more secure for the first two parties. Unlike many ICO’s, the coins of which never appeared on any exchange, IEOs guarantee that successful projects are listed on the exchange. Exchanges have the right to cancel a token if they believe the project isn’t worthy anymore.

How To Invest in IEO's

Investing in an IEO is easy. All you have to do is set up an account on the exchange and add funds. However, each user needs to pass the KYC (Know Your Customer) check. It may take several days.

Some investors may be turned off by the KYC check waiting time. If you aren’t bothered by that, wait for the authorization, add funds to the wallet, and wait for the token to go live.

However, many countries are restricted from participating in IEOs. Make sure your country isn’t on the restriction list.

How Much Does it Cost?

If you want to launch an IEO, you have to get ready for formidable expenses. It will cost around $100,000 - $200,000 for the offering + 10% from raised funds. Some exchanges may demand a large ($1M - $2M) security deposit.

You need to check the options of each exchange closely. Some top exchanges like Binance may offer special conditions for some projects.

Initial Exchange Offering is an excellent crowdfunding option for blockchain-related projects. However, it requires extensive research and considerable expenses.

Maria Victoria MacAraig