Welcome to Hard Fork Basics, a collection of tips, tricks, guides, and advice to keep you up to date in the world of cryptocurrencies and blockchain.
people have been calling security token offerings (STO) like the following initial coin offering (ICO), but there is a growing push for a new kind of blockchain-based fundraising. say hello to the initial exchange offering (IEO).
In this basic Hard Fork article, we will take a look at what an IEO is and how it is similar to and different from an ICO. let’s do it
Defining the IEO?
An IEO is still technically a form of ICO, but the main difference lies in where the coin or token is offered. As you might guess from its name, an IEO offers tokens through a partner exchange, rather than directly to investors.
In a public ICO almost anyone can participate, but in an IEO only members of that particular exchange can buy the tokens. That said, there is little to stop you from joining an exchange if you are interested in a specific coin to be launched, so there are really no roadblocks for the average retail investor.
In some cases, it might be easier to buy an IEO than an ICO. Rather than having to go through the specific steps of each individual ICO, simply follow the standard procedure for buying and storing tokens from that particular exchange. In many ways, it standardizes the bid-on-bid process, as the exchange sets the terms of purchase.
Is it safer?
Conducting an initial coin offering through an exchange may sound a bit safer because it addresses a key issue that has afflicted many ICOs; the option to sell the tokens at a later date.
Coins were often sold through an ICO with only promises that they would then be made available on exchanges. In some cases, the tokens offered through an ICO were never shows up on exchanges.
By buying tokens through an IEO, you buy with the knowledge that the exchange has done its due diligence and is launching a coin that it believes has a future. After all, it is in an exchange’s best interest not to burn out its customer base by issuing dubious tokens.
That said, you should always be careful about the exchange you are buying on and the potential motivation you might have for listing on an IEO. Particularly, as some exchanges have been accused of accepting money to list certain tokens in the past.
Additionally, you may be required to undergo know-your-customer (KYC) and anti-money laundering (AML) checks, depending on the exchange you sign up with. Which, if implemented well, should add an extra layer of investor protection and make it harder for illicit investors to get involved.
Sounds simple enough, but here’s a quick summary.
- Initial exchange offerings are quite similar to old school ICOs, but the tokens/coins are offered through an exchange, rather than directly to investors.
- Exchanges must do due diligence and partner with the offeror before listing the token.
- The tokens and coins must be immediately tradeable on the exchange after the IEO.
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