Over the last several months, IEOs or simply put Initial Exchange Offerings have come onto the fundraising scene, and they have significant improvements over traditional ICOs. This innovation has allowed crypto startups to conduct their fundraising without any fear of the law or authorities.
From this article, you’ll find out:
- What an IEO is and what this new trend means for the cryptocurrency industry.
- Differences between an ICO and an IEO and which fundraising technique may suit you better than the other.
- Examples of Initial Exchange Coins and how you too can start an IEO and raise funds for your project.
What Is An IEO?
An Initial Exchange Offering (IEO) is a new fundraising trend that’s conducted on the platform of either single or multiple cryptocurrency exchanges. It’s based on the same concept of an ICO but with several subtle differences. Just like an ICO, it allows investors to get newly issued tokens while raising funds for a promising cryptocurrency project. Since the IEO is administered on an exchange, however, it’s said to cut down on a startup’s security, marketing, and organizational expenses. Moreover, investors also tend to feel safer, knowing that the exchange vetted the project.
Before an Initial Exchange Offering event, developers create or mint the tokens and send them to the exchange. During the IEO, the exchange acts as an intermediary between investors and the crypto startup and manages everything. It sells the tokens to individual contributors who purchase the tokens in a transaction for fundraising capital. Depending on the agreement between the developers and the startup, certain conditions can be set in an IEO such as the token’s fixed price. For all these services, the exchange charges a fee which can be a percentage of the amount collected, marketing expenses, a flat fee, or more.
Differences Between An ICO And An IEO?
Initial Coin Offerings were a significant boom in 2017 and early 2018. Part of ICO fame can be attributed to the fact that it allowed ordinary investors to invest in blockchain projects without any restrictions. Unfortunately, increased regulation in the sector has led to ICOs losing steam (though this does have some benefits considering the scams and failed projects that were proliferating via ICOs). Initial Exchange Offerings have picked up where ICOs left off. They have become extremely popular in the cryptocurrency landscape. Although both ICOs and IEOs have the same aim, to raise funds for startups, there are several notable differences between the two fundraising techniques. They include:
- Unlike IEOs, ICOs are not monitored by any third parties. Therefore, anyone with a whitepaper and a website can convince investors to place funds in their company. However, with an IEO, the exchange acts as an intermediary and monitors the whole process while vetting each company that wants to launch an IEO.
- In an ICO, tokens are minted or generated once the fundraising is complete. However, with an IEO, developers mint the tokens beforehand and send them to the exchange in question. Therefore, IEO tokens are immediately tradable.
- Unlike ICOs, IEOs offer investors complete protection from scammers. An exchange is not likely to put its reputation at risk by allowing a questionable project to launch an IEO on its platform. Therefore, participants can largely trust the exchange and not worry about the project’s authenticity.
- ICOs are associated with anonymity, which allows fraudsters to utilize the platform to scam investors. However, with an IEO, the startup team needs to go through a due diligence procedure where information about the team, company, and employees is disclosed, making it challenging to scam investors.
How To Start An IEO (Initial Exchange Offering)
An IEO is a guaranteed way to raise investment for a project without the hassles of long marketing campaigns. Before attracting any investments, a project needs to prepare itself for success. The following steps should make the launch smooth and successful. They include:
Having A Minimum Viable Product
In this day and age, investors are reluctant in investing, especially if a pitch is just made up of an idea or concepts. Having an MVP or a product prototype goes a long way in building investor confidence and securing funding for the project.
Providing Extensive Documentation
Before launching the IEO, a project needs to ensure that it provides proper documentation that helps potential investors make informed decisions. Special attention should be given to tokenomics, the team, partners, and the financial model of the project while writing the whitepaper.
Establishing A Clear Funding Goal
The project needs to establish a clear funding goal in regards to the number of tokens in the IEO sale. A clear funding goal assures contributors that the project’s goals are tangible and pragmatic. Furthermore, it shows that developers aren’t just trying to raise as much money as possible.
Building And Working With An Effective Team
It’s crucial to build the best team with all the right talent before launching an IEO. The team’s experience, qualifications, and reputation have a direct effect on investors’ confidence. Therefore, it’s best not to compromise the best talent for cheap labor.
Even though the exchange(s) in play will take care of your marketing efforts. It’s equally important that a project markets its IEO to increase the reach of potential investors and buyers. Moreover, marketing helps others learn more about the brand and gather more information about the project.
Examples Of Initial Exchange Offering Coins
Some of the IEO coins in existence include:
Initial Exchange Offerings (IEOs) have gained popularity quickly as a new fundraising method. And as evidence suggests, speculative demand from investors is still at an all-time high. For those looking to invest in new digital assets, IEO coins can be an excellent opportunity to do so. However, you need to ensure that you know what you are investing in. Make sure that you conduct your due diligent research on the said IEOs. Furthermore, never invest more than you can afford to lose.