The topic of Crowdfunding definitely grips the attention of the audience. First, we told you about the rise and fall of the ICO era. Then the STO model started to take over. And now there’s a brand-new player in the game that many startups are willing to consider.
So, without further ado, may we present you the IEO – initial exchange offering – a new and improved type of ICO.
What’s the Catch
Unlike with the ICO, the IEO suggests that an exchange will manage the token sale on behalf of the project and sell the tokens on their platform. Obviously, in order to get listed, the project has to pay a certain fee, which covers both listing and a percentage of the actual sales. Once the IEO is finished, crypto projects can get their funds, which totally eliminates smart contracts from the whole process.
Investors-to-be are required to set up accounts on the exchange, pass the KYC/AML procedures (if the exchange has ones, however, they usually all do), top up the exchange wallet with IEO cryptocurrency (depends on a particular project) and use it to purchase the tokens.
One of the IEO pioneers was Binance with their Launchpad. BitTorrent used it as a platform for their token sale and they were fully sold out during the first 15 minutes. Now if you think that’s impressive, you’re in for a bigger surprise. The crowdsale for Fetch.AI finished in 22 seconds!
Remarkable numbers inspired many other exchanges to join the hype. Bittrex, Okex, BITMAX, Kraken, Huobi, Kucoin, and many other platforms couldn’t miss the opportunity to strike it rich.
Pros and Cons
With the ICO, projects have to look for listings themselves and spend a significant amount of time and money on promotions.
With the IEO, the exchange will list and market your token themselves. Exchanges take a lot of weight off of the project team’s shoulders and make the laborious crowdfunding process a lot easier.
Also, IEOs seem to have more credibility. How so?
First of all, people tend to trust big companies more. Secondly, exchanges clearly value their reputation and thoroughly vet the applicants before they accept them. Thus, no scam can get in. Besides, they have already figured out the best ways to conduct the KYC/AML processes, so IEO project can forget about this uneasy matter as well. KYC is not exactly the most popular practice, but everyone’s used to going through it when dealing with major exchanges.
Moreover, all transactions are executed within the exchange and that definitely contributes to security and reliability.
However, all the goodness comes with a hefty price, and very often startups are simply not able to afford it.
What To Expect
Some say it’s just another bubble and that only these first campaigns will run smoothly. Reasonably, it is still too early to say if this alternative fundraising model will go better than an ICO. It goes beyond the smart contract system and adds a new layer of trust. At the moment, it’s not for everyone: your project has to be really solid and have a certain budget for running an IEO campaign. However, considering the pricing of a very good marketing campaign, in some cases, it might be worth it.