In the world of crypto, terminology and convoluted definitions can be tricky business. Blockchain fundraising mechanism is maturing and credible crypto projects will soon choose Initial Exchange Offerings (IEO) over Initial Coin Offerings (ICO)
To better understand this crucial development, allow me to break down these processes and clarify the main difference between the two.
Initial Coin Offering (ICO) Process
ICO fundraising process is quite straightforward. A developer with a vision (and in need of funds) goes to investors and pleads his case. If he‘s successful, an investor sends Ethereum (or some other well-established cryptocurrency) to the developer through a Smart contract. In return for his generous contribution, the investor is rewarded newly-minted project tokens.
Ever since Mastercoin conducted the first ICO in 2013, this procedure has become the standard go-to mechanism for Blockchain crowdfunding projects.
According to one estimate, provided by CoinSchedule, over a thousand ICO projects have been financed in this way in 2018 alone – raising over $21bn in total.
Initial Exchange Offering (IEO) Process
IEO process follows a similar pattern to the ICO. Yet the key difference is that both the developer and the investors facilitate their transaction through a third party – a reputable exchange.
The developer and the exchange agree on the terms and conditions (such as the limits to individual contribution and fixed token price) before the sale. After the offering, any investor who is interested in the project can buy the project tokens on the exchange.
In this sense, you can think of an IEO as the improved ICO process. Although IEO is still relatively new in the crypto world, it draws its inspiration from financial security trading – a much-welcomed sign of maturing attitudes in the crypto economy.
Initial Exchange Offering (IEO) Benefits
This new-and-improved fundraising mechanism comes with many pros.
Firstly, IEO signals confidence in your project. Because the exchange has already conducted its due diligence and has expressed its approval – the exchange is putting its reputation on the line by vouching for the quality of the offering.
Because exchanges are quite selective, you can be sure that the projects that pass the bar also pass the threshold of excellence.
Secondly, IEO ensures security. Given the reputational risk, the exchange will never engage in petty scamming, phishing or fraud attempts. Because you can only buy tokens from the exchange, security is of the highest quality and you can be sure the smart contract has not been compromised.
Third on the list, IEO prevents price manipulation. If you ever had the pleasure to participate in any ICO, you know this story already. The early-access funding rounds conclude, the token is listed on some exchange and then suddenly sees a massive sell-off as early contributors cash-out for a quick profit. Few projects recover from the ensuing downward trend.
By fundraising through IEO, projects avoid this unfortunate faith.
ExMarkets has launched their IEO launchpad just about a month ago and so far it has been raising a fair level of attention in the cryptocurrency space. Currently, there are 3 IEOs running with 3 more projects to appear before the end of March.
“We see the demand for Initial Exchange Offerings growing very fast. It’s a significantly better and more efficient vehicle than ICOs, at least that’s the general sentiment at this time among both our clients and investors. It seems like a natural evolution as the market matures .” – commented Dylan Sharkey, Head of Enterprise Sales at ExMarkets cryptocurrency exchange platform.
Moreover, IEO offers a sound business model. Exchanges are staffed by savvy engineers, computer scientists, business strategists, and security specialists.
Most offer advice and consulting services. Cooler-heads recognize that by outsourcing the logistics of fundraising, developers of Blockchain projects can devote themselves fully to their vision and save on the costs of hiring their own in-house specialists.
The fee charged by exchanges in many cases is a deal worth taking since marketing, organizational or security expenses (not to mention the headaches) can be greatly reduced.
Lastly, IEO brings more publicity and accelerates the listing process. By conducting the offering on the exchange, the project not only attracts the attention of the existing exchange members but also benefits from exchange-sponsored marketing campaigns.
In addition, after a successful offering, the natural next step is listing. This is usually a burdensome procedure. But because the project has already passed the requirements of the initial offering, it can easily list on the same exchange in a matter of weeks.
Crowdfunding your project as an entrepreneur is one of the hardest logistical problems you have to face. Avoiding scams and phishing attempts as a crypto investor is one of the biggest barriers you have to overcome.
Because it eliminates such concerns, IEO fundraising model is the natural next development in the crypto world, and a testament of a deceitful industry finally maturing and getting back its integrity. Certainly, this development is one worth exploring by investors and entrepreneurs alike.
ExMarkets, a leader of the new frontier, offers the best deal for your Initial Exchange Offering. As an integral part of the Coinstruction liquidity framework, ExMarkets ensures a secure, professional and smooth fundraising process.