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What is IEO (Initial Exchange Supply)

What is IEO (Initial Exchange Offering)?

IEO are usually carried out when a new cryptocurrency project wants to launch its own cryptocurrency or blockchain product but requires significant investment funds.

IEOs are different from ICOs (initial coin supply) that made cryptocurrency exchanges. The project will be able to raise funds from users with the help of exchange and start trading tokens in no time.

Entering

There are thousands of cryptocurrency and blockchain projects in development today. Most projects require some form of financial incentive to encourage developers and contributors to participate. Not all projects can rely on donations or donations from generous wealthy people. Usually you will need external funding sooner or later.

Developers raise funds in a variety of ways. Getting funding from venture capital (VC) can take a long time, and it can have little or no performance. It is also possible to mine coins and store them prior to project launch through what is referred to as “pre-mining”, but it usually faces criticism from the community.

Assuming the developers have an action plan and are committed to making the project vision a reality, an IEO might be an interesting option.

What is IEO?

As the name suggests, Initial Exchange Offering (IEO) is the raising of funds for a new project through a cryptocurrency exchange. It is common to trade assets on these platforms, but this usually happens after developers have raised funds to start a project.

An IEO allows potential investors to purchase the asset before it goes on the market. Registered users who have provided KYC information can purchase tokens through exchanges that support token sales before token trading begins on the open market.

Since IEOs are hosted by exchanges, startups taking this approach should seriously consider it. In most cases, IEO proposals are rigorously reviewed by participating exchanges. In a way, exchanges bet their reputation on every IEO they decide to offer.

How does the IEO work?

Although blockchain technology is relatively new, there are thousands of cryptocurrency startups and companies. Many of these are competing for investors through ICOs or IEOs.

If cryptocurrency developers decide to proceed with an IEO, they will have to go through a complicated process before raising their first funds.

The project team must meet several requirements. A strong business model, experienced team members, and technology use cases, as well as white papers, are essential. Running an IEO is like claiming that they are committed to the long-term success of your project.

Not only that, you need to decide whether your IEO will go on a hard cap or soft cap. A hard cap is that you cannot invest more than a certain amount. Soft caps set an initial target amount but can attract more investment later.

After making these decisions, you need to choose an exchange platform for your IEO. Binance Launchpad has helped dozens of projects secure investment funds. These include BitTorrent (BTT), Band Protocol (BAND), Axi Infinity (AXS), Alpha Finance Labs (ALPHA), WazirX (WRX), and more. Other exchanges are also building their own IEO platforms, each with its own advantages, requirements, and disadvantages.

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Why Blockchain Projects Do IEOs

Raising funds for a new cryptocurrency or blockchain project can be quite challenging. As in any other industry, competition to attract investors is fierce. Not everyone can successfully raise investment capital through traditional methods.

IEOs can be useful because they target existing cryptocurrency holders. Given that the participating exchanges provide some degree of credit for financing the project, there is some degree of trust in it. In the end, exchanges put their reputation on the line for IEO progress. Nevertheless, everyone should do their own research when making an investment.

For projects looking to raise funds with the help of an exchange, IEO is a reliable option. Depending on the project’s vision and use case, most initial IEOs sell very quickly. In addition, the project tokens will be listed on the exchange after the sale ends.

Comparison between IEO and ICO

In theory, an IEO might seem like a concept similar to an ICO . During the ICO craze on Ethereum from 2017 to 2018, ICOs were held every day. While many projects have successfully raised millions of dollars, there have been many misleading prizes as well as outright scams. Since no one was able to “review” the ICO publicly, this concept eventually evolved into a more credible IEO. Many ICOs have been found to violate U.S. securities laws, which have resulted in various lawsuits and refunds from investors.

Participating in ICOs involves significant risks. Investors could send bitcoin or ether to a smart contract or website, hoping they could receive tokens. With basic knowledge of smart contracts and web development skills, anyone could create and finance a website with a plausible white paper. This was clearly not an ideal situation, and everyone who invests in ICOs is taking huge risks.

IEOs mitigate many of these risks. Rather than sending funds directly to the project, investors transfer funds through an exchange wallet. Dishonest projects or teams with poor business acumen will not be able to successfully IEO due to very stringent requirements.

In addition, IEOs are less risky and flexible compared to ICOs. Tokens are guaranteed to be listed on the exchange where they were sold. This makes it easier for investors to sell tokens when they want.

Risks and Possibilities of IEO

Even if all IEOs are reviewed by participating exchanges, this does not mean that there is no risk involved in investing. A project may not be able to realize its vision through financing. This will usually affect the token price regardless of the price during the IEO period.

Nevertheless, IEOs can also offer promising investment opportunities. If you know in advance that your upcoming token will be listed on a liquid market, and buy it, you may have a good chance. However, not all IEO token prices rise after the start of trading.

Conclusion

As the frequency of IEOs has decreased, it has become possible to exclude projects that are relatively poor in the cryptocurrency and blockchain space. There is no perfect way anywhere, but IEO can at least be considered the right way to go.

Just because an IEO is going on doesn’t mean everyone has to participate. Regardless of your company or project’s funding goals, it’s always a good idea to do your own research. While there are benefits to investing your money in an IEO, the associated risks should not be overlooked.