ICO Is Dead? Say Hello to IEO or Initial Exchange Offering
ICOs are all but dead but IEOs rose from the ashes and have performed fairly well since the start of 2019.
Initial Coin Offerings brought a brand new concept of fundraising in the digital world. And, moreover, it’s safe to say they did it with a bang. Having raised billions of dollars throughout 2017 and 2018, however, their time seems to be definitively gone.
A broad range of projects which raised money in an ICO turned out to be blatant scams, completely shattering any community trust vested in them. On the other hand, regulators such as the US Securities and Exchange Commission (SEC) clamped down, subjecting a lot of them under traditional securities regulations and hence, putting the entire craze to bed.
However, now that the first quarter of 2019 is behind us, it’s safe to say that there is a new trend on the rise. Initial Exchange Offerings (IEOs) are here, and they seem to be here to stay.
What is an Initial Exchange Offering?
The concept of initial exchange offerings was first brought about by Binance - the world’s largest cryptocurrency exchange through the Binance Launchpad. However, it was quickly followed by almost all cryptocurrency exchanges.
The idea is that an exchange is ‘backing’ a project by allowing it to raise money by selling its tokens directly to the exchange’s users. The listing period is also massively reduced as most exchanges list the tokens for trading against other pairs almost immediately.
The newly found investor’s confidence comes from the fact that these projects are supposedly thoroughly researched by the exchange which is featuring them.
What is more, experience shows that these events tend to end up in seconds because there is an unprecedented buying demand. This is because tokens are sold at severely discounted prices during the IEO and their price tends to surge immediately after they get listed for regular trading. Hence, those who manage to buy in the IEO get to enjoy substantial returns.
Examples of Successful IEOs
Perhaps the first IEO which caught the attention of the community was that of BitTorrent. It was held on Binance Launchpad and it managed to raise $7.2 million in less than 15 minutes. Not long after the IEO ended, BitTorrent Token (BTT) was listed for trading on Binance and its price catapulted, increasing by more than 700 percent in a few days.
Binance Launchpad is not the only successful platform to have its IEOs. Huobi, OKEx, Kucoin, and other major exchanges have also begun to offer IEOs and their projects have also turned out to be fairly successful.
Which Exchanges are Doing IEOs?
As we mentioned above, there are quite a few exchanges which are conducting their own initial exchange offerings. These include, but are not limited to:
Disadvantages of IEO
Despite the multiple advantages that IEOs have, they also have their drawbacks. It’s important to realize that before starting to invest in projects of the kind.
First, the exchange plays a massive role in the price of the token which is subjected to the sale. While this can be positive, it can also be fairly negative. If something impacts the exchange, it is also going to impact the price of the token, hence making the project a lot less autonomous.
Second, there’s a single point of attack. This means that if a hacker decides to target the exchange, this will negatively impact the token which is being launched on that exchange. The same is true for regulations. Lawmakers can now focus on the exchange and, respectively, take down projects which are launched on the exchange with it.
Third, there are also concerns regarding the project selection process. As this is generally not a public happening, it’s entirely possible that there are some sort of backend deals taking place. Transparency should be considered.
Of course, there are plenty of positives, as we’ve pointed out above. One thing is certain, however. IEOs are so far turning out to be incredibly successful for both investors and the projects who seek fundraising.