Initial exchange offerings, or IEOs, are a relatively recent development in the world of digital assets. An IEO is often used as a way to raise funds with the help of a reputable exchange or trading platform.
What exactly is an Initial Exchange Offering?
As the name suggests, an initial exchange offering is a way of raising funds by enlisting the help of an exchange. Some people may draw parallels between an Initial Coin Offering and an Initial Exchange Offering, but there are a few key differences we will discuss later on. Leveraging the concept of an IEO has many benefits for the team conducting the crowd sale, as well as the trading platform involved in this matter.
A Brief History of IEOs
Following the clear shortcomings of the ICO business model, the time had come to introduce a more legitimate approach to fundraising in the cryptocurrency and blockchain industry. Instead of allowing rams to raise capital themselves, projects and business ideas would be vetted first and foremost by exchanges looking to facilitate the fundraising effort.
As such, any exchange in the world is – in theory – capable of helping out with the IEO business model. The concept first gained traction thanks to Binance’s Launchpad, which is widely considered to be the first major IEO platform in the industry. Ever since then, numerous other exchanges have jumped on the bandwagon, resulting in several dozen Initial Exchange Offerings being conducted over the past year and a half.
As can be seen on the chart above, all of the major cryptocurrency exchanges and trading platforms have embraced the IEO model. Some have proven to be more prominent than others, with success rates differing greatly from one project to the next. It is not a foolproof investment option, yet there is good money to be made through IEOs as an early trader.
What is the Difference between an IEO and an IPO
The two fundraising methods have virtually no similarities to speak of. With an Initial Exchange Offering, investors obtain a project’s native currency or token at a lower price. Anyone in the world can participate in an IEO, assuming the participating exchange is available in one’s region. There may be mandatory Know-Your-Customer procedures to go through, but there is no requirement for being an accredited investor or anything along those lines.
Initial Public Offerings, or IPOs, on the other hand, are a lot more difficult to get involved in. Partaking in an IPO often requires regulatory approval, as well as being labeled as an accredited investor. This makes these offerings only useful to wealthy individuals and other companies. At the same time, being able to obtain equity in a company can be more viable than pursuing a new token that may or may not have any long-term value. Different investment options cater to different kinds of individuals.
How is an IEO different from an ICO
Other than offering a coin or token in exchange for an investment, an IEO and ICO have little else in common. During the ICO craze of 2017. any company in the world could organize fundraising in exchange for their tokens. That approach backfired on a lot of investors, as very few projects created in 2017 are still alive and viable in 2020. With no one vetting the business model or prowess of the teams, it was a virtual Wild West.
To organize an IEO, there are a few different requirements to be met. First of all, teams need to find an exchange willing to help them facilitate fundraising. Secondly, the project and its team will be reviewed by the exchange to ensure there is a legitimate business model. If that is not the case, the IEO will not be organized.
Assuming all of the above poses no problems, the IEO sale will then be limited to users of that exchange. For example, a Binance Launchpad IEO is open only to Binance users. It doesn’t matter if they are new users or veterans, as long as their account meets the requirements, one can contribute funds. Once the investment round is over, the token in question will be listed almost immediately on the exchange to begin trading and generate liquidity.
How is an IEO Different from an STO
The big difference between an Initial Exchange Offering and a Security Token Offering is the lack of regulatory requirements. No one needs to obtain a specific license to raise capital with the help of an exchange. However, the exchange exploring this business model may be required to obtain regulatory approval for this purpose. That depends on the jurisdiction the company is active in at the time.
For STOs, companies are effectively selling equity to investors, but without most constraints that make IPOs inaccessible to a lot of people. An STO is, like an IEO, designed to cater to as many investors as possible. However, those who buy into an STO expect the underlying company to perform well, as company performance affects the STO token’s price. With an IEO, it is still primarily about speculation, as the issued tokens do not represent shares in the team’s success.
How are IEOs Regulated?
There will likely be [more] IEO regulation in the coming years. For the time being, there are still no official guidelines in most countries, simply because the model is different from what has been attempted before. In the United States, the SEC is carefully monitoring IEO activity, but for the time being, there is no official “approval” required.
The same applies to nearly all regions around the world. It is possible for an exchange facilitating an Initial Exchange offering to make rounds inaccessible to participants in specific countries if need be. Until proper regulatory guidelines are established, the business model remains a “grey zone”, so to speak.
What are the benefits of an IEO
For the end-user – or the trader – the main benefit of an IEO is how it is easy to participate in. All they need is an account of the participating exchange platform and funds in their wallet waiting to be traded. Everything can be done through the exchange’s website without having to switch between web pages or wallets. It can also help persuade people knowing that an exchange is putting its reputation on the line to support these IEO projects.
Projects looking to raise funds can also explore some benefits. The IEO model virtually guarantees an immediate user base looking at their product and contributing funds. Secondly, there will be a guaranteed trading market for the token being sold, creating liquidity from day one. This helps cut down on external marketing, among other things.
Levolution marries the latest blockchain technology with a groundbreaking token offering platform. Overall, our mission is to aid blockchain startup companies in breaking through various barriers to entry. Relying on social incubation and the team’s core internal competencies, the Levolution platform aims to help companies attack these barriers almost effortlessly. This is done by sourcing innovative strategies from community members and token offering participants.
Through the Levolution platform, we will help those who want to leverage the value of token offerings, regardless of their experience. Levolution helps you build, develop, market, launch, and optimize your token offering project. Yes, every single step can be done on our platform.
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