What is IEO?
IEO is the abbreviation for the English expression Initial Exchange Offering (a close translation is the initial exchange offer), which means launching a startup on the exchange platform. This is one way to avoid investing in fraudulent and futile projects. There is no guarantee that tokens will be profitable, but IEO exchanges control more reliably than ICOs .
Important : In order to determine the prospects of investments, a deep qualitative analysis is necessary, for which exchange players often simply do not have enough time.
In these conditions, there is a need for an intermediary who will undertake the verification of startups and clarify the risks. Cryptocurrency exchanges naturally, as originally included in the process, took over these functions. They have the ability to conduct audits, assess prospects and provide expert analysis of projects.
Thus, IEO is a tool for temporarily transferring start-up token management to the exchange where the trade starts. The intermediary collects funds on behalf of the token issuer . When the process is completed, the coins are listed on the exchange platform.
What advantages does an IEO Initial Exchange Offering have?
The success of a project will always depend on many factors: team, idea, growth capacity ... but what is clear is that when planning a first round of financing this 2018 the idea of an ICO is something that seems far-fetched due to the lack of regulation in this regard.
The IEOs are still ICOs that are somehow protected by an exchange. This allows you to get several things that an ICO would not get. Let's see the differences between a conventional ICO and an IEO so that it is better understood:
Public to which the IEO is destined : If in an ICO any person who had the possibility to buy the ICO tokens could participate in the offer, the IEOs are intended only for the clients of a specific exchange. For example, if an IEO is supervised by Binance, only the clients of this exchange can obtain the tokens of that IEO . Nowhere else or exchange will it be possible to acquire them. Now, this system guarantees us that an intermediary (it seems incredible that in a world of decentralization in the end we have to end an intermediation) will have the funds deposited and that the entity that has launched the offer will not leave with the Money from the first investors.
Destination of the funds : As we have said before, the destination of the investment is not a smart contract of which we do not know the actual operation but an account in an exchange, which should be trusted.
Responsibility of the funds : In this sense the financing manager is the exchange itself, which gives it absolute control over it and credibility.
Evaluation of the project : Knowing if a project has a chance of becoming something real (no longer successful) is a complex task for someone who knows little about the sector in which the project wants to develop. In a blockchain technology project , in addition to the market conditions, many technical aspects are involved, so that the decision to invest always becomes an adventure for many. In the Initial Exchange Offerings it is the exchange itself that somehow gives its seal of quality to the projects it presents.
Identification of the investor : Although large amounts of data are not requested and there is no initial screening of investors according to their investment capacity or previous experience in investments, the IEOs for the sole fact of having to be registered in an exchange to be able to participate already oblige lose anonymity In ICOs, this was not the case since only the wallet address from which the funds came from was known to investors.
Dissemination of the project : One of the advantages of this type of launching through the exchange is that part of the initial marketing is already done by the exchange itself through its channels and to its customers. In the case of ICO's, the project had to start from the utmost ignorance and had to reach potential investors by their own means. Now the Initial Exchange Offerings allow to alleviate the workload of the project in this sense since the diffusion of the exchange allows the idea of the project and its offer to reach the market in a much faster way.
Liquidity : In this sense, once the project is launched, the liquide is usually much higher, since from the first day the project tokens can be traded in an exchange of a certain volume. Normally the exchanges that are considering this type of solutions already have a medium or medium high volume. This allows the liquidity of the token to be almost immediate.
Transparency : in the same way the project and its evolution are maintained with a transparency that they did not have before. The fact that the exchange is played the image in each launch makes this type of project from a transparency perspective never seen before.
Security and protection: Obviously this is perhaps one of the most important points. An example is in the recent canceled Raiden IEO by the Bittrex exchange. The exchange detected a possible anomaly related to an agreement that Raiden had with a partner and canceled the exit to exchange to protect its users. This allows that in cases like this one in which the project has some gap, users can recover their funds without any problem.
IEO Disadvantages
Despite its appeal, IEO has several drawbacks. Startups must go through a complicated project submission procedure. In each exchange the project requirements may vary. You must also understand that nothing happens for free. The market, at a minimum, transfers marketing costs to developers, who often exceed thousands of dollars and, at most, can request a percentage of all funds raised. IEO projects go through a complex verification process. For this trading platform, it must remain in the staff of highly qualified specialists and analysts, which is associated with high salary costs. Investors may also face some difficulties. In particular, the site will definitely have to go through the KYC procedure ("Know your customer"), according to the rules of which exchanges request a documentary identification. The predominant number of exchanges is centralized, so that, during the period of participation in the auction, the investor entrusts his money to the administration of the exchange, which is often associated with risks. The main drawback is the flip side of the included listing - high fees, especially for new projects. Inclusion of a token in the list of currencies traded on the exchange can cost up to 20 MTC . Moreover, there is a commission from the funds received from investors up to 10%.
Risks for the cryptocurrency exchange itself, if analyst forecasts are wrong. In this case, not only financial losses are likely, but also damage to the reputation of the exchange.
Decreased anonymity for investors. When working under the KYC scheme , registration and verification of an account is required .
