Initial Exchange Offerings: Everything You Need to Know

11 June 2019

Following several fraudulent Initial Coin Offerings (ICOs), there is an innovative transition currently sweeping through the crypto market sphere. The crypto fundraising industry has recently been introduced to the Security Token Offerings (STOs), and the most recent fundraising option is the Initial Exchange Offering (IEO), and it looks like a very welcomed solution.

What Is an Initial Exchange Offering?

Initial Exchange Offering is an improved version of the Initial Coin Offerings. The basic concept of offering tokens for project fundraising still exists for investors to enter into the crypto ecosystem. The slight difference between an IEO and an ICO is that the IEO functions through the platform backed by a cryptocurrency exchange.

Simply put, IEOs are being administered by the cryptocurrency exchanges themselves. You could also view it as a fundraiser procedure where the project developers create their unique tokens. This created token is then sent over to Cryptocurrency exchanges to sell to crypto buyers and sellers and other crypto enthusiasts alike.

Unlike regular ICOs, project investors do not have to send their smart contracts to the project directors directly. Instead, they send their crypto through the cryptocurrency exchange to the project developers. To participate in an Initial Exchange Offering, Project investors will need to know which exchange supports the project, and the cryptocurrencies accepted as a means of payment.

As compared to ICOs, where the price and blueprints are solely controlled by the project developers themselves, the Initial Exchange Offering is a safer form of the ICOs. Here, the exchanges themselves are in charge of the regulation of price to avoid any form of price manipulation. They are also there to ensure the security of investment and boost the confidence of both the investors and the project developers.

Characteristics of Initial Exchange Offerings

Listed below are some of the characteristics possessed by Initial Exchange Offerings. They include:

  • Token Sales

The sales of the generated token are handled by the concerned crypto exchange platforms. Once listed on the exchange, the crypto exchange administrator is in control of the trading associated with the trade. At the end of the trading, the funds raised will be given to the project developers.

  • Marketing and Advertising

Usually, the cryptocurrency exchange involved are the ones concerned with the marketing and advertising of the token. This makes the token more visible to a wide range of traders and investors alike.

  • Transactions

The transaction is usually between the traders and the cryptocurrency exchange. The funds raised through the sales of the token are then given to the project developers.

  • Trust

The due diligence involved in the transaction and verification is done by the cryptocurrency exchanges themselves. This is usually carried out before the listing on the cryptocurrency exchange platform for trading.

  • Security

Funds are much secured since the transaction is carried out on the cryptocurrency exchanges.

  • Fees

There are no additional fees for the traders. The cryptocurrency exchange charges the project developers’ commissions for the listing of their token on their exchange platform.

Advantages of Initial Exchange Offerings

Initial Exchange offering is trusted to offer the project developers, the cryptocurrency, and the traders several benefits:

  1. Developers take advantage of the large user base of their preferred cryptocurrency exchange. This would enable them to raise funds faster and create awareness for the product being developed. By banking on the popularity of the cryptocurrency exchange, they are almost sure of a successful offering.
  2. The Initial Exchange Offering eliminates any possibilities of fraudulent activities. This is due to the extra security check from the cryptocurrency exchange. Knowing full well the consequences involved in backing a baseless project, the exchange carries out all the necessary checks involved. Crypto traders and crypto enthusiasts are rest-assured of a fraudulent-free Initial Exchange Offering.
  3. Transactions are fostered between the traders and the project developers by the exchange. This is beneficial to all parties as there is less tedious work to be carried out. The cryptocurrency has a working exchange; the traders just need to get on the exchange and acquire the token. The project developers then get the funds after the offering is made.
  4. Token credibility is indirectly being vouched for by the cryptocurrency exchange. The traders can be well assured and at rest, because the cryptocurrency exchange has done all the necessary vouching and security checks on the authenticity of the token being put up for an exchange.

Benefits to the Cryptocurrency Exchange

The cryptocurrency exchanges also benefit from this initial offering. Some of their benefits include:

  • Commission on Hosting

At a pre-agreed price, the exchange benefits by charging the project developers some fees on hosting on their platform. This is an extra way of generating money on their platform.

  • New Users

Due to some promising initial offering, the cryptocurrency exchange involved can be almost certain of a rise in the number of users on their platform. Interested traders and crypto enthusiast who are interested in the offering will be forced to sign up and trade on the platform.

  • Marketing Operation

To get the very best value for their token, the cryptocurrency exchange, together with the product developers, have to run a marketing campaign. Although most times, this is more beneficial to the product developers, the cryptocurrency exchange also benefits in terms of more exposure.

Limitations of Initial Exchange Offerings

As revolutionary and promising as the Initial Exchange Offering is, it still has some limitations. Part of these limitations includes:

  • Legal Framework for Regulations

Most countries still do not have a legal framework for the regulation of the cryptocurrency sphere of the market. Some countries have totally banned the activities of cryptocurrency, while others have some policies to checkmate the activities. These policies vary as the cryptocurrency market is still taking shape.

  • Manipulation of KYC Qualification

There have been reports of people manipulating KYC to get involved in Initial Exchange Offering. This is obviously against the whole idea of a decentralized and transparent plan of the blockchain.

Wrapping It Up

The IEO is poised to create a win-win scenario for the crypto traders and crypto enthusiasts, the cryptocurrency exchange, and the project developers. It is, however, important to state that this project is still in its infant stage, and it would still require a lot of work to get it to a more stable state.

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