The IEO model is a new way to raise funds for cryptocurrency projects. It has spread a new wave of interest amongst the community and investors who are looking for promising coins and tokens, wanting to buy them guaranteed.
IEO stands for Initial Exchange Offering. The essence of this model is to conduct a token sale on a crypto exchange, a reliable intermediary. The exchange is interested in listing fair and promising projects that investors need. It has the necessary resources to analyse the technical and financial aspects of projects, whilst users, in turn, trust the exchanges with reputations.
The IEO procedure
The first stage of organising an IEO is a request to list a token on a trading platform. If the applying project meets the inspection requirements, the crypto exchange acts as a partner in conducting the token sale and subsequent token trading. At the same time, the token offering is limited, so those interested must hurry in order to have time to participate.
The key figure is the investor, who analyses the upcoming token sale and decides whether to participate in it. To do this, they need to register on the cryptocurrency exchange and, in some cases, pass the KYC verification process. After topping up the balance of his/her account, the user can take part in the announced IEO, purchasing tokens first-hand.
Many platforms that have their own tokens and conduct IEOs of other projects practise providing benefits to holders of native tokens. The more native tokens the user has prepared to exchange for the ones being launched, the higher their chances of allocation, that is, proportional accrual during distribution.
The distinguishing feature from the already familiar ICO model is the instant listing on the platform. Previously, it had to wait several months, but now early investors can earn faster.
The main pros and cons of IEO
Benefits for organisers:
- Access to a broad base of customers, users of the exchange.
- Reducing the costs of promoting a project, since this is not only of interest to its organisers, but also the platform.
- Simplification of a project’s entry onto the exchange by arranging the listing after the end of the campaign, which significantly increases the liquidity of a token.
Benefits for trading platforms:
- Attracting new users by offering exclusive cryptocurrencies.
- Increasing profit from fees associated with the growth of trade turnover.
The appeal to investors:
- Obtaining an assessment of the actual financial and technical states of a project.
- High levels of security during transactions and the reliability of projects offered.
- Convenience of participation in token sales. As a user of one platform, a participant can invest in projects of different organisers.
Disadvantages of the IEO model
Crypto exchanges may experience negative consequences if the project they have selected fails:
- To analyse cryptocurrencies, the exchange must have qualified personnel, which is usually expensive.
- An exchange will suffer financial losses if the project fails.
An exchange may suffer damage to its reputation.
Participants may also face inconveniences:
- Users have to trust their funds to the intermediary, which can be dangerous if an exchange is hacked.
- Although this fundraising model increases the possibility of making a profit, it doesn’t guarantee a project’s success.
What is the future of IEOs?
Experts have no clear vision for the future development of initial exchange offerings. Some believe that this model is temporary, while others are confident that it is completely superior to ICO. One thing is certain: this modernised holding of token sales has given initial token offerings a new life and has brought a number of benefits that give prospects of the development for this segment of the cryptocurrency market.