A long time ago, at the height of the cryptocurrency bull market in December 2017, Binance did something that may have changed the crowdfunding landscape forever. They launched the first initial exchange offering (IEO).
It seemed insignificant at the time, given the intense focus of the media and traders on Bitcoin futures and ETFs, in addition to the parabolic price increases occurring throughout the market. But now that the dust has settled, it turns out that this little event had a ripple effect throughout the industry.
What happened was that Binance supported something similar to an initial coin offering, but they did it through their platform affiliated with the exchange. this platform, Binance Launchpadit was used to facilitate a crowdfunding campaign for a project called the GIFTO protocol.
The campaign was a great success, with PRESENT easily hitting its $30 million hard cap on day one and earning $6 million directly from Binance investors. Then, just a few days later, Bread launched the second unofficial IEO on Binance and raised $32 million in total, also with $6 million raised directly through Binance.
After those two successes, hopefully IEOs have taken off immediately. In reality, however, the idea was mostly an afterthought throughout 2018. With the regulatory landscape for ICOs changing and the market falling by more than 90%, the time for experimentation would have to wait.
But something more important happened in 2018, and that is that Binance became the largest cryptocurrency exchange in the world, making a staggering profit of $446 million. As a result, the industry took notice when Binance announced that it would hold a new token sale on Binance Launchpad every month of 2019.
Until now, Binance list of IEOs has three successful projects that ran their token sale through Binance Launchpad in 2019, and all three were significant success stories: First was BitTorrent, which hit its hard cap of $7.2 million almost immediately. Then came Fetch.AI, which also successfully hit its $6 million hard cap right away.
More recently it was Red Celer, who raised their maximum cap of $4 million in just 17 minutes. However, Binance struggled to handle massive user interest in the sale, with technical difficulties preventing some 35,000 people from being able to purchase CELR tokens before the hard cap was reached.
Why are IEOs doing so well?
Crowdfunding isn’t as easy for cryptocurrency projects in 2019 as it was at the peak of 2017. But you certainly wouldn’t know from looking at recent IEOs, which sold out in minutes.
We are starting to see IEOs grow in popularity similar to ICOs in 2017, and projects that can manage to qualify for an IEO are likely to raise money quickly and easily, by the looks of it now. However, there are more stringent requirements for IEOs than for ICOs, as we will see later in this article.
Before we get to that, however, we must first answer the question: Why are IEOs doing so well so far? There are a few reasons we can point out here.
One is that having a token sale through an exchange makes it much easier for people to participate. While ICO investors would have to go through an inconvenient KYC process and do their own research on the details of the sale, exchanges can streamline the entire process and make it easy for anyone eligible to participate.
On top of that, exchanges can also provide a strong vote of confidence for any project they support: As Binance CEO Changpeng Zhao has stated, Binance has a rigorous evaluation process to select the projects that an IEO will pursue. That dramatically reduces the risk that a project doing an IEO is a scam or incompetently managed, making it a safer investment option.
Perhaps most importantly of all, IEOs have the advantage of granting immediate liquidity to any coin or token they support, as they are likely to be listed on the exchange.
In the past, gaining support from exchanges has been perhaps the most important thing for project teams to accomplish before and after their crowdfunding campaigns. Without stock listings, investors quickly become restless and concerned about the state of their holdings. By having the guarantee of liquidity on a major exchange even before the IEO begins, investors can feel more confident about buying based on the other important factors they take into consideration.
More Exchanges Join the IEO Train
After seeing the success of Binance Launchpad, it was only a matter of time before other exchanges got in on the action. In fact, many other exchanges have announced their plans to host IEOs starting in 2019.
OKex recently Announced that they would launch ‘OK Jumpstart’, an IEO compliant platform that they have already finished developing.
Bittrex has also gotten involved, with its first IEO initially scheduled for March 15. However, the IEO was canceled the day before due to significant changes in the business status of the project in question, RAID. Still, we know for a fact that Bittrex is looking for more IEO opportunities.
March 2019 has been an action packed month for all of these exchanges as none of them want to be left behind by missing out on this opportunity to bring additional value to their users by allowing them to raise funds for their pet projects and the great cryptocurrency ecosystem. With all of them competing to support the best projects, this is as exciting a time as ever for young cryptocurrency projects looking to launch token sales.
How cryptocurrency projects can qualify for IEO
For any young project in the blockchain industry, IEOs offer an attractive alternative to traditional ICOs. After all, going public soon after an ICO concludes is a very important and difficult step for any project, so why not take care of that beforehand? Add to that the fact that exchanges want to see their IEOs succeed and can help with marketing and other essential steps in the process, and it’s clear that IEOs have some major benefits over ICOs.
I decided to publish this article to summarize some of the critical points that projects should consider before trying to partner with an exchange. After studying all the early IEO success stories and having conversations with many of the exchanges that are launching IEO platforms to understand what they are looking for, I have converged on the following factors that will be critical for any project hoping to collaborate with an exchange. to perform an IEO:
Solid business model: The reality is that many ICOs do not have business crowdfunding from knowledgeable and insightful investors. If exchanges don’t see a clear path to a project’s success, including a strong product/market, they won’t want to partner with it and deal with future pushback from their users when the project performs poorly.
Development in progress or you already have a working product: Looking at Binance IEOs, one of the things that stands out is that the projects had already made substantial progress on their products. For example, BitTorrent was already being used by more than 100 million people before its IEO, while Bread had a well-designed and functional application with existing users before them. You don’t need to be that far along as others like Celer only had one MVP at the time of sale and Fetch was still 9-12 months away from launching on Mainnet. But some noteworthy development work should have already started before approaching a trade.
Proper documentation and token economy: It is essential for any project seeking investors to have a clean website and detailed documentation (e.g. white papers, economic analyzes of tokens, etc.) on how the project can succeed and why the associated token will rise in value.
A large and active community: It goes without saying, but no exchange is likely to back an IEO project if the project has failed to generate substantial public interest and engagement.
The benefit of hosting IEOs for exchanges is that you can attract new users to your platforms, as was the case with the large BREAD and BitTorrent communities joining Binance. Celer and Fetch also had 10,000 and 30,000 users in their communities, which should be enough to attract trades.
Renowned team and advisors: Projects with a poorly qualified founding team and no real team to speak of will be immediately discarded by trades. Also, keep in mind that the more technically complex a project is, the more critical it is to have an experienced and proven development team. Also, having a few advisors can increase your chances as they show that industry experts see your project as promising.
PR and social networks: Strong public relations starts with getting your project seen by as many investors and marketers as possible. PR publishing in major crypto and fintech publications can also be a good investment and help you get exposure to new audiences. In total, you want to have more than 50 posts leading up to your token sale.
utility tab: Security token offerings are a growing trend in their own right, but they are much more complicated legally than utility tokens, and major exchanges do not yet support trading of security tokens. If you want to have an IEO, the only way to do that right now is to have a utility token.
In addition to the above keys, it is also essential to have an independent legal advisor to ensure that there will be no problems with regulations in the future. As it seems now, we recommend setting a hard cap particularly for IEOs of around $6-7 million, as going much higher than that significantly hampers your chances of being considered by an exchange.
Still, we want to warn you not to depend on being accepted by the exchange if you plan to crowdfund. Even if you meet the requirements outlined above, there is always a subjective factor involved in these decisions that you cannot control.
As the saying goes: “Hope for the best, but prepare for the worst.” Whether or not you partner with an exchange or IEO, it is important to continue to work on community engagement as well as exchange listings and the other activities you would focus on as a traditional ICO.
* The article was written by Artur Boytsov, Vice President of Marketing and Business Development at priority tab