Explainer: Initial exchange offerings flourish in crypto market


NEW YORK (Reuters) – Initial exchange offerings (IEOs) are currently the most popular fundraising trend in the cryptocurrency industry, which has seen bitcoin surge more than 150% in 2019. As the name suggests, the initial exchange offers are made on cryptocurrencies. trading platforms and exchanges.

FILE PHOTO: Bitcoin (virtual currency) coins are seen in an illustration picture taken at La Maison du Bitcoin in Paris, France, May 27, 2015. REUTERS/Benoit Tessier

Binance was the first major crypto exchange to join the IEO wave, with the introduction of Binance Launchpad this year. There have been a handful of IEOs before, but on much smaller exchanges.

In January, the Binance platform held the sale of the BitTorrent (BTT) digital currency or token, raising $7 million in just the first 14 minutes of opening the sale. San Francisco-based BitTorrent is a software company that specializes in peer-to-peer file sharing.


Bitcoin is the original cryptocurrency created in 2008. It is a form of electronic currency, independent of traditional banks, that allows users to send money directly from one computer to another even on the other side of the world.

Bitcoin’s popularity fueled the creation of more than 2,000 cryptocurrencies and spurred the launch of an entire global industry on blockchain, a distributed ledger technology that powers it.

Cryptocurrencies are also traded on digital currency exchanges, which are all online, many of them available on mobile phone apps. People buy cryptocurrencies from these exchanges simply by signing up from their websites.

Bitcoin traded Thursday at $9,400 on the BitStamp exchange.

People buy cryptocurrencies mainly for speculation because they have gone up so much in price in the last three years. Some, like developers, buy specific coins to gain access to certain networks that are relevant to them.

Since 2008, the biggest financial names have entered the cryptocurrency space, from IBM to Goldman Sachs and most recently Facebook, which released the plan for its own cryptocurrency on Tuesday.

But cryptocurrencies are risky. Because they are virtual currencies, they can be hacked or disappear forever if you lose the keys to the online wallets used to store them. And without a clear regulatory body overseeing the digital currency industry, it would be difficult to get your funds back once you lose them.


IEOs are a byproduct of initial coin offerings (ICOs), which took off in 2016. ICOs are also a way to raise capital, bypassing banks and venture capital firms.

But IEOs take place on cryptocurrency exchanges that, for a fee, effectively act as middlemen, performing functions such as due diligence on a project, “know your customer” screening, trading, and selling tokens to customers. .

ICOs, on the other hand, are carried out by startups themselves, who bear the costs of offering tokens and sell these coins on their websites. They have raised nearly $29 billion for crypto businesses since 2016, but have slowed dramatically this year amid a regulatory crackdown on fraudulent and illegal offerings led by the US Securities and Exchange Commission.

The limit on the number of tokens that can be purchased at IEOs, usually capped at $20,000, has improved the appeal of these offerings to retail investors and prevented them from being monopolized by larger investors.

Investors who want to participate in IEOs just need to go to the exchange’s website.

“An IEO is like Goldman Sachs crashing into Nasdaq,” said Steven Nerayoff, CEO of investment and consulting firm Alchemist, suggesting that exchanges like Nasdaq have taken on investment banking functions, such as vetting IEOs and marketing them to clients. .

“It’s a new breed of fundraising that could potentially change what’s happening in finance… but the regulations need to be worked out.”


However, startups conducting IEOs are raising millions of dollars quickly, sometimes in seconds, reminiscent of a trend seen at the peak of ICOs in early 2017.

For example, Veriblock, a blockchain project that leverages the bitcoin network, raised $7 million in April through an IEO on the Bittrex exchange in 10 seconds.

Blockhain, which underpins bitcoin and most cryptocurrencies, is a digital database of information that can be shared publicly within a large decentralized network.

IEOs have raised $1.5 billion so far this year, according to cryptocurrency tracker CoinSchedule, compared to just $836 million raised from ICOs since January. Cryptocurrency exchange operators interviewed by Reuters said that hundreds of startups are lining up to do IEOs, more than they could handle.

(To see a graphic on ‘Initial Exchange Offerings Are Hot’, click tmsnrt.rs/2X9sHjE)

American file-sharing firm BitTorrent, which conducted an IEO on Binance Launchpad, has officially launched IEOs on Binance, the world’s largest cryptocurrency exchange by volume.

“IEOs are useful for projects like ours because we don’t have time to deliver,” said Justin Sun, founder and CEO of TRON, a blockchain-based company focused on building a decentralized internet. TRON bought BitTorrent for $120 million in 2018.


IEOs generally mean more revenue for exchanges. Exchanges that will host an IEO will usually go through the process of vetting a project for a fee. They also receive fees when the token starts trading on their exchange.

Market watchers said the IEOs came at a time when crypto exchanges struggled as digital currencies tanked and crypto buyers dwindled. The IEOs gave them some kind of lifeline.

However, for some exchanges, IEOs mean more users for their trading platform and some of them are willing to go through the process of selecting a project even without a listing fee.

By doing IEOs, we attract communities to trade on Beaxy,” said Artak Hamazaspyan, CEO of digital asset exchange Beaxy Digital, which has opened its trading platform to IEOs. “If I list a project and it’s not listed anywhere else, I get all these communities to join us.”

Information from Gertrude Chavez-Dreyfuss; Edited by Jennifer Ablan and Nick Zieminski