5 min read
The ICOhas been king of fundraising for crypto projects for years. But its days are numbered. Thanks to regulators, particularly those in the United States, who felt the funding method skirted around the normal requirements for selling a security, they have come down hard on the ICO. But, while one funding mechanism is on the out, a slew of others have sprung up in its place. One of those is the initial exchange offering.
We explore what IEOs are, who is using them and the pros and cons of this latest funding tool.
An Initial Exchange Offering or IEO is an evolution of the Initial Coin Offering or ICO. While anyone in the world is able to start and participate in an ICO, the IEO is more restricted. In an IEO, a
centralized exchange serves as a platform for a project’s initial sale of tokens.
This small, but significant difference between ICOs and IEOs means that exchanges act as inspectors, curators, and gatekeepers for projects that want to sell their tokens to the public. Having an exchange serve as a mediator between the token buyer and token seller should, ideally, cut down on the rampant fraud and scams that plagued ICOs in the past.
There are other forms of crypto crowdfunding that Decrypt has covered in addition to the ICO such as the Security Token Offering or STO and the token generation event, but for simplicity’s sake, we will focus on comparing the IEO to the ICO in this article. What all these initial offerings have in common is that they create a set number of crypto assets in the form of a token or coin to sell to the public, usually at a fixed price. The IEO is unique because the sale of these initial tokens is managed by an existing crypto asset exchange instead of directly by the project team.
The first major exchange to offer the IEO and popularize the practice was Binance through their IEO platform called Binance Launchpad. However, even Binance’s founder, Changpeng Zhao (aka CZ), admits that they did not invent the concept or the term and were inspired by “centralized ICO” websites that were popular in 2017.
The IEO is an attempt to revive the success of the highly effective funding mechanism of ICO’s but with more constraint and higher standards.
The IEO is managed by a central authority, the exchange, which can be seen as counter to the peer-to-peer and decentralized principles on which blockchain technologies were founded on.
Any blockchain project team that wants to raise funding in exchange for tokens can apply to an exchange that has an IEO platform. Popular exchanges that are currently running IEOs are Huobi and Binance. Each platform has its own review process, requirements, and fees.
All exchanges that are offering IEOs require you to register or create an account on their platform. Exchanges also will require users to complete Know-Your-Customer (KYC) account verification before participating in an IEO. Finally, many exchanges require you to use their own native tokens in order to participate. For example, Binance requires users to use the Binance coin (BNB) and Huobi requires users to use Huobi Token (HT) in order to purchase tokens during an IEO.
Once you are registered, verified, and have the platform tokens, you are ready to purchase crypto assets through an Initial Exchange Offering. Binance allows users to purchase tokens on a “first-come, first-served” basis until the initial supply runs out. Huobi requires users to hold their Huobi Token (HT) for a certain amount of time so that the more HT you hold, then more IEO tokens you can purchase. Once the sale is over, you can freely trade your newly acquired tokens on the same exchange.
IEOs are either another hot crypto fad or a sign that the ecosystem is maturing. Let’s hope that it’s the latter, and the industry is developing desperately needed improvements in standards and user experience that will bring on a new wave of investor and consumer interest.
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