The IEO model, a fairly new way to raise funds for cryptocurrency projects, has spread a new wave of interest among the community and investors looking for promising projects and hoping for the chance to purchase their coins and tokens safely and effectively.
IEO stands for Initial Exchange Offering. At the core of this model is the use of the exchange as a reliable intermediary in token sales. Trading platforms are interested in listing fair and promising projects that investors need. Exchanges have the necessary means to analyse the technical and financial aspects of projects, whilst users, in turn, trust the platforms with well-earned reputations.
The IEO procedure
The first step of IEO is to request a token to be listed on a specific trading platform. If the submitted project meets the inspection requirements, the exchange acts as a token sales partner and the token is put on sale there. At the same time, the offer of tokens is limited, so those interested must hurry to participate in good time.
The second key element is the investor, who analyses the upcoming token sale and decides whether to take part in it. To do this, he or she should register on the exchange and additionally, in some cases, pass the verification process. After topping up the balance of his or her account on the exchange, the user can take part in the advertised IEO, purchasing tokens first-hand.
Most trading platforms that have their own tokens and implement new IEO projects provide benefits to the holders of exchange tokens. The more exchange tokens the user can exchange for a new product, the higher his or her chances to advance in the token sale queue become so that he or she can buy even more new tokens.
The key distinguishing feature from the already familiar ICO model is the ability to list immediately on the platform, a process which used to include a wait of several months. 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, is a distinct advantage. The costs of promoting a project are also significantly reduced, since this is not only of interest to its organisers, but also the trading platform.
The process of releasing a project onto the exchange is simplified by arranging the listing after the end of the campaign which significantly increases the liquidity of tokens.
Benefits for trading platforms:
Exchanges have the opportunity to attract new users by offering exclusive projects.
The increase of profit from fees associated with the growth of trade turnover.
The appeal to investors:
Obtaining an assessment of the actual financial and technical state of a project from the exchange.
High levels of security during transactions and the reliability of projects offered.
Convenient participation in token sales. By being a client of one trading platform, the user is able to invest in projects from different organisers.
The IEO model has also some deficiencies:
1. Exchanges may experience negative consequences if the project they have selected fails.
1.1. To analyse cryptocurrency projects, the exchange must have qualified personnel whose services are expensive. If the project fails, the exchange suffers serious financial losses.
1.2. A trading platform may suffer damage to its reputation.
2. Participants may also face problems.
2.1. Users have to trust their funds to the intermediary, which can be dangerous if trading platforms are hacked.
2.2. Though the possibility of making a profit is greater, this fund-raising model does not fully guarantee a project's success.
What does the future hold for Initial Exchange Offering?
Experts have no clear vision for the future development of initial exchange offering. Some believe that this model is temporary, others are confident that it is superior to ICO in every way. We can say for certain that such a modified token sale mechanism has given initial token offering a new life and has a number of key advantages that give prospects to the development of this area of the cryptocurrency market.