What is Initial Exchange Offering (IEO)?
To simplify it, Initial Exchange Offering is abbreviated as “IEO”. It is an updated version of the initial coin offerings. The idea behind the initial exchange offerings started after Binance, a major crypto exchange, launched its own blockchain known as “Binance-chain”. IEO is basically a fundraising event that is operated by an exchange. In this event, the project team itself conducts the fundraising to attract more investors towards them. IEO represents that the fundraising is going to be on a very well-known exchange’s fundraising platform, one of the great examples and the one exchange that started it is Binance. It was an updated and more secure version of previously existing ICO (Initial Coin Offerings) which was proven to be at risk after many traders sent their funds to the wrong wallet and caused many troubles for them. The platform of IEO is more preferred because it is administered directly by one of the very well known exchanges. Unlike older platform ICO, IEO is a platform where traders don’t have to send their capital to the project developer directly, but instead, there is an exchange acting as a third party to ensure safe transactions between both parties. The investors who are interested in participating in the initial exchange offering will have to research for the exchanges which are supporting that offering. This method provides a much safer alternative to ICO; in this method, all of the charges are in the hands of the exchange instead of the developer.
Characteristics of IEO
In order to get a better understanding of what IEO is, here are some of the main characteristics of IEO:
- Token sales
In IEO, the tokens which are generated are sold by exchange rather than the developers. Once the token is listed on the exchange, the administrator of the crypto exchange is in charge of the whole process. After all, the raising has been done, then the funds which are collected are given to the developer.
- Advertisement and marketing
As all the control is given to the exchange rather than the developer, so it means that the part of marketing and advertising is also going to be administered by the exchange itself. Many traders and investors affiliated with an exchange that is involved in any type of trading can be reached out for the funds raising, which is one of the most efficient and secure ways to do so.
- Transactions
Every transaction during the process is done between the trader and the exchange itself. The developer is not involved in any of these matters until all the funds have been raised by the exchange, then it is securely transferred to the developer at the very end.
- Trust
It was a major problem with previous methods like ICO and others that there was a thing called trust lacking between the trader and the developer, but in this method, all of the mandatory verifications from both sides are done by the exchange, which is, of course, legitimate and experienced in this particular field. These verifications are done by the exchange, usually before listing on the platform by exchanges.
- Security
It is a major factor that a trader is looking for while trading crypto or any other type of online trading. As these exchanges are regulated by many law and financial regulatory authorities, hence it is more likely for the traders to be satisfied by the security of this method. Funds that are being raised by exchanges are kept within the most secure wallet till it reaches the developer to avoid any type of mishap.
- Charges
IEO has attracted many traders because of many reasons like security, convenience and peace of mind while buying any of these tokens, but on top of that, in order to facilitate the traders, exchanges don’t charge any type of fees from the traders; instead, they charge it from the developers to list their tokens on their platforms.
Why should you consider IEO?
Initial Exchange Offering (IEO) is one of the most beneficial methods of fundraising for both developer and the trader. That is why it has gained enough popularity after its introduction, and with every passing day, more and more developers and traders are coming towards this method. So, according to my findings, here are some of the advantages that you may consider before choosing any method, and it will tell you why IEO is one of the best methods.
- For the exchanges, it is beneficial to adopt this method because of the affiliation of many traders with their preferred exchange. As we know, there are many traders who are always dealing with renowned exchanges and hence it will allow developers to raise funds much faster than the previous methods. That is why IEO is becoming the first preference of many developers.
- IEO restricts any type of illegal or fraudulent activity because of the extremely secured platform provided by exchanges to trade. It is the duty of the exchange, which is in charge of the whole process, to ensure the security of both developers and trader’s data and money. That is why many traders and crypto enthusiasts prefer IEO as their means of fundraising.
- As we know that crypto exchange is acting as a third party between both parties, so it is easier and more convenient for both of the parties as it reduces their work. The trader’s work is just to reach out to the exchange and get that token, and for the developers, it is as easy as to just get the funds and provide a token.
- The authenticity is at risk if traders directly deal with the developers as there is no credibility of the token that a trader is buying. But when a trader is getting a token through an exchange, the exchange makes sure to check if all the eligibility and credibility criteria are fulfilled by the developers or not. Hence it is a more secure and trusted way to deal through exchanges.
How is IEO going to benefit exchanges?
IEO is popular for a reason. As we have discussed before how IEO is beneficial for the traders and the developers; here is a list of benefits that are given to the exchanges as well if they adopt this method.
- Commission to host
As we have discussed before that IEO is a method in which a trader doesn’t have to pay any fees to the exchange in order to get the token. But the question arises why would an exchange provide such a facility if it is not getting anything from the trader’s side. Well, to answer that question, I would say that it is not as it looks. The exchanges do offer their services at a pre-agreed price from the developers to list their token on their platform. These fees are charged in return for the services that an exchange is providing.
- New registrations
There are plenty of traders already working with any exchanges, but still, there are some traders out there in the field who are looking for an offering program, and hence they are waiting for an opportunity. The interest of such traders in the offerings is not only going to get the exchange some commission but also it will help to gain new users to sign up to exchange’s services if they want to take advantage of the offerings.
- Marketing benefits
When a token developer and crypto exchange is going to work together, so that means that the marketing campaign is also going to be run by both ends in order to attract more users. These campaigns are going to benefit exchanges as well as it will create trust between the traders and the regulated exchanges as they will work together.
Pros and Cons of IEO
IEO has gained a lot of hype after its introduction, and it is because of the major profits that one company or developers, as well as traders, have earned through this method. If we take an example of BitTorrent, which got to raise $7 million in just 14 minutes after they went live on Binance launchpad, which is one of the founders of the IEO program. With that being said, there is confusion between many users whether to adopt this method or not, and that is why I have done the research and come up with some of the Pros as well as the Cons that IEO offers.
Pros
- The traders who are interested in IEO feel more confident. If a trader can see a legitimate asset token listed on one of the most reputed exchanges, so it automatically proves the legitimacy of that token or service, and hence the trader feels more secure and confident while dealing with it.
- The projects which are run through the IEO method are more likely to run smoother than many other options that a trader has. It is due to different marketing campaigns and support services provided by exchanges that enhance the experience of traders.
- As all of the dealings are being done through the exchange platform, so it is an overall better and more user-friendly experience for the traders. Because the tweaks were done to enhance the interface of the exchange’s platform, it adds to the reliability and convenience of token trading platforms, as well as it is mostly done through the same interface.
Cons
- The biggest con that has to be faced by the developers who list their tokens on these exchange platforms is that they have to pay the fees. As we have discussed before, that exchange charges fees from only the developer, not the trader, so this con is only for the developers using the IEO method to do fundraising.
- As there is a demand for IEO in the market, there are many exchanges that are working with different developers to provide this service, but as compared to the most reputed exchanges, these exchanges often compromise on the quality of the services that they provide. Hence it is advised to do your research before joining any of the exchanges.
- As we are dealing with the world of online trading, we should always keep in mind that there is a situation in trading where the prices can fall as well, resulting in great losses. As some traders are interested in playing bigger games and they invest more money in this field, there is always a risk of prices going high very rapidly at the moment, and then coming down with the same pace or even higher, which will eventually result in loss of your money this is exactly the case with tokens as well. That is why traders who are buying tokens need to be cautious about these things, and exchange is the best platform that can give you guidance, for that matter.
The verification process of exchange in IEO
As we have discussed earlier that IEO is comparatively a much safer and more secured method to do fundraising. In this section, we are going to have a look at how the verification process works for the exchanges and how they verify a developer and the authenticity of a token before listing them on their platform.
If you have been working in the field of crypto trading, you should know that there are plenty of scams activities happening around you. In order to keep IEO safe from the radars of scammers and fraudsters, exchanges take some mandatory measures to ensure security. Exchange is going to perform multilevel checks before starting selling any developer’s coins. These measures are also necessary in order to maintain the reputation of Initial Exchange Offerings. The exchange is going to examine a number of factors before allowing developers to list their tokens on their platform. The exchange is going to start by appointing a team behind this work, the work that will be to ensure that the verifications are being fulfilled by the developer, and if it is done properly, then they will create a space for their business.
The points that we have discussed till now are for the developer’s side of verification, but in the business of offerings, the verification of investors is a major part to ensure the safety and reputation of Initial Exchange Offerings as well. For that matter, the exchange takes KYC and AML measures which are usually known as “Know Your Customer” and “Anti-Money Laundering” policies. These policies are kept standard by many financial regulatory authorities to reduce any risks of scams in the business. Other than these measures, the exchange is also going to provide a transparent platform for the investors so that they can see the progression in achieving the goals and targets of developers.
Limitations of initial Exchange Offerings
As one of the most reputed and popular offering methods, IEO still has some limitations. However, these limitations are overlooked by the traders, and still, they prefer using this method as the benefits of this method overtakes the limitations. But the whole point of this article is to tell you everything about Initial Exchange Offerings so here are some of the limitations that IEO has:
- Legal framework for regulations by countries
With the increasing popularity and benefits of cryptocurrency, there are still some countries where crypto trading is banned by the government. At the same time, some of the countries have policies to avoid the activities of crypto trading.
- KYC manipulation
KYC is the policy regulated by financial regulatory authorities in order to avoid scam activities in the business. But there have been reports of some users who manipulate KYC to get involved in Initial Exchange Offerings. This is, however, against the idea of making these offerings decentralised and giving control to the exchanges. The transparency plan of the blockchain is compromised by manipulating KYC.
Conclusion
After many fraudulent activities reported in Initial Coin Offerings, the market took precautionary measures and introduced a new method known as Initial Exchange Offerings. The whole point of introducing this method was to ensure the security and transparency between developers and traders. As in previous methods, the trading was happening between traders and developers, so there were many scams and frauds that started to happen as well. But after the introduction of the Initial Exchange Offering to the market, the control of the trade was given to the exchanges. Now traders know that these exchanges are a legitimate source of trading as they were working in this field for a very long time, frequent dealings and trades already had a trust between traders and exchanges, and it benefited the offerings as well. As the developers have access to the exchanges, traders started to show interest in investing in such offerings because they knew it was an authentic source and legitimate token. So it turned out to be beneficial for both traders and developers as well. As the developers were provided with the platform to advertise their offerings and on the other hand, traders were satisfied due to the legitimacy of exchange.
But scams are something that can’t be prevented easily, so scammers are constantly trying to scam people through this method, but it is less likely to get scammed by this method, as the exchanges are keeping a close eye on that. In order to safeguard the reputation of IEO, exchanges are working very passionately. Now it is up to the trader’s choice and understanding about this field. It is advised to do your complete research before joining any of the exchanges and always check the legitimacy of the offerings that you are investing in.