Virtually everyone interested in cryptocurrencies must have heard of such a thing as ICO. The acronym stands for Initial Coin Offering — a method to raise money implying that first investors buy cryptocurrency from the creators, and then the currency gets listed and placed on an exchange. However, this system demonstrated its shortcomings with the course of time: lots of frauds at the back of ICOs resulted in tons of dead-born coins stayed on accounts with no future of being sold or returned.
IEO vs ICO
IEO, or Initial Exchange Offering, is different as in this case it is cryptocurrency exchange that plays the lead. The exchange administration picks projects that would be customer-attractive and filters out suspicious coins. Usually, exchanges have somewhat of customer bases, so IEO candidates have to do less to find investors. Carrying out the IEO, the exchange gets the opportunity to issue unique coins and tokens that competing platforms would never have.
Besides, centralized exchanges collect user data: under the framework of the KYC (know your customer) initiative, a user provides some details to the exchange — e.g. ID scans. In case of any problem with the IEO, it can be proven that it had been a certain user who purchased the new cryptocurrency rather that it had been just a transfer to the coin creator’s wallet. Thanks to this identity protection, users can safely buy new exchange-trusted altcoins for their precious bitcoins.
Any thing has a flip side, and this method is no exception. Firstly, exchange officers concerned with selecting projects need to be eminently competent and able to forecast risks. Secondly, ordinary people making moderate investments usually prefer to not disclose their personal data, and this is what high rollers can make advantage of. Thirdly, participating in the IEO leads to high costs suffered by coin/token developers.
Despite all the drawbacks, both initial offering forms are likely to remain, with IEO as a more protected option with more strict requirements concerning customers and companies, and ICO as a riskier but easier way to stock up with some crypto.