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After the ICO bubble burst in late 2018, projects scrambled to find new ways to raise money. Then cutting short security token offering, the markets settled on a ‘new’ concept: the initial exchange offering. Is this new model really an improvement over the original?
Although the ICO market grew rapidly to billions of dollars in funds raised through 2017, the final months of 2018 saw funding dry up. Only $74 million was raised in December, less than some indie projects had raised just a few months earlier.
The IEO: an ICO by another name?
Unlike ICOs, exchange offerings are launched in collaboration with a cryptocurrency exchange. In theory, exchanges should evaluate the projects they list, allowing only “legitimate” projects on their platforms.
Most IEOs apparently sell utility tokens that are very similar to those offered in previous ICOs. Although the regulatory landscape is Complicatedthe main US regulator has clearly stated that most Sale of ICO tokens They are securities issues.
This poses a considerable degree of risk to both IEO issuers and taxpayers. Invest in a project only to see it enter a death match against the SEC not a particularly exciting prospect.
At a fundamental level, the formulas remain the same: give the project money, get tokens. However, exchanges provide a valuable service to token issuers. In addition to providing an out-of-the-box platform, they solve one of the crucial problems for any crowdfunding initiative : finding interested people.
How did the IEO come about?
One of the reasons for the decline of ICOs was the inability to market them. Facebook, Google, Bing, Reddit, Twitter and other digital marketing platforms banned ICOs in the first half of 2018.
Digital ads provided a reliable and measurable means of reaching outsiders. Without them, ICOs were left competing for a shrinking pool of existing cryptocurrency enthusiasts.
Exchanges, on the other hand, can offer a large base of hardcore crypto traders who are galvanized into action through cross-promotional activities. Although it makes marketing much simpler, it doesn’t mean that projects can completely ignore their own campaigns.
Projects getting their token listed were also a major problem for ICOs. By placing an exchange offer, you are guaranteed to be available to trade on at least that platform.
For users, the benefits seem to be clear. The due diligence carried out by exchanges should, at a minimum, discourage outright fraud, although there is little guarantee that a good investment is actually being made. In fact, investment returns have generally been lackluster so far, at least in part due to some questionable choices made by some IEO platforms.
Some exchanges are more diligent than others
While the extra layer of brokerage should help, the quality of the projects still falls on a wide spectrum.
Binance, which started the IEO phenomenon with the Selling BitTorrentcares about researching and examining all important aspects of a project.
For example, TROY’s upcoming IEO features a detailed report from Binance Research that specifically focuses on investability. It covers the key value proposition, token launch schedules, partnerships, teams, development activity on GitHub, and much more. The exchange has only done nine IEOs so far, a testament to its selectivity. Due to this and other factors, Binance is doing better than its competitors in terms of Return of investment.
But other IEO platforms are less successful. Both Accept jump start and first huobi They tend to price the tokens well below the market rate on listing, which increases the hype and sell rate of their offerings.
That may not be enough, as OK Jumpstart tokens show. Power Chain X, the latest IEO on the platform, is still above asking price at the time of writing. However, older vendors such as Eminer, Pledgecamp, and Blockcloud lost more than 90 percent of their value within months of their IEOs. This is not standard behavior and probably indicates deep-seated problems in these projects.
Unlike Binance, these platforms only offer minimal information about the allocation of tokens. Project discovery is left to the individual user.
Most of the well-known exchanges offering IEO platforms had at most a dozen token sales, suggesting that there is at least some degree of filtering. Tokinex it only had three, but thanks to the LEO sale, Bitfinex is responsible for about two-thirds of the roughly $1.5 billion raised in IEO.
But then there are platforms like LATOKEN. The exchange features dozens of past and future IEOs.
Some of the past and present token sales include: Stellar Gold, whose White paper – in broken English – features standard blockchain gibberish and invokes Satoshi’s vision (not the technology); ASTRcoin, a project that is supposed to secure asteroid mining claims; Rasputin’s party mansion; and gleeca Bitcoin fork project that uses a poorly synthesized voice for its intro video.
The platform has its own rating system, but it is one where projects like Gleec and ASTRcoin received full marks. Although some of them may be legitimate, Latoken’s IEOs bear an uncanny resemblance to the ICOs of yesteryear. Compared to the other platforms, Latoken has completed more than 140 IEOs since its launch in 2017, a point of pride for the team.
The Latoken team provided feedback to crypto report about some aspects of their exchange. They pointed out that the rating system is not an indication of the investment quality of the project, but rather the result of basic background checks:
“Following our mission to connect taxpayers and entrepreneurs, we made the Verification Score on LATOKEN IEO Launchpad so investors looking at IEOs can save time verifying basic information, including token issuer, team background, previous rounds of fundraising, notable advisers. and associations.”
Latoken CEO Valentin Preobrazhenskiy also explained that the exchange does not see itself as an investment advisor, thus providing no additional filters beyond basic guarantees of legitimacy. The platform does not charge a fee for the IEO listing, but instead takes a percentage of the funds raised. However, it charges for listing the token on the actual trading platform, which is a required option.
Contributing to token sales was, and still is, a risky proposition. Although some exchanges have adopted the role of guardians of their contributors, others only provide limited guarantees. The line between an ICO and an IEO can often be quite blurred.
This article was updated with comments from Latoken.
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