An initial exchange offering (IEO) allows companies to sell tokens to investors to raise capital. This makes them similar to initial coin offerings (ICOs), but there are a few key differences. It is a new approach to crypto-the bank that is attracting the attention of ICO investors from all over the world.
IEOs can provide many benefits compared to ICO. They offer greater security for users, greater transparency, create a fairer system that can benefit newcomers, and give users the feeling that it is a trustworthy banking system.
Difference between IEO and ICO
In many ways, ICOs and IEOs are similar. Both allow companies to sell tokens to investors who are willing to fund projects. In this case, the counterpart of ICO is the developer, but for IEOs, startups can handle the fundraising process themselves. They do this by relying on one or multiple exchanges to complete the campaigns.
With ICOs, it’s up to the developer to make sure all smart contracts are correct, everything goes according to plan, and security is tight. But with initial exchange offerings, all of these obligations can be handled by the exchange, making it seamless for the developer involved. Both crowdfunding options are not perfect, each has its own flaws. However, many say that IEOs are the best option.
Benefits of participating in an IEO
One of the most beneficial concepts of IEOs is that they offer a more streamlined process for developers and startups. ICOs can often be difficult to manage and can become very complex tasks. With IEOs, developers are protected from many of the problems that ICOs face. Allowing an exchange to be in charge ensures that the token sale is done in a timely and secure manner.
Scams are not always preventable, but when an IEO is used, the potential for scams is reduced. With exchanges, security is at its highest and smart contracts cannot be compromised, meaning a developer will know their money is safe.
IEOs have also proven to be a fairer system for clients. They provide a variety of options for newcomers and allow merchants more freedom and transparency. Newcomers can also easily test the waters of these exchanges to allow them to see the best option out there for them.
Projects and startups that issue IEOs also have a higher credibility factor due to the exchange that supports them. Exchanges help developers have confidence to make sure everything runs smoothly. Having this kind of trust lets developers know that scams will not be allowed.
What are the benefits to the exchanges involved?
We have covered the benefits that IEOs provide to consumers, but why do exchanges engage in this type of crowdfunding? Exchanges benefit from exposure by joining forces with these projects. The project’s marketing team will also market the exchange, which in turn will attract more customers to the exchange.
These additional clients will increase the volume on the exchange due to the trading fees involved. The exchange will then receive money deposits from investors and new users, turning some into regular customers.
Finally, exchanges make money by listing new tokens and helping projects. Although all exchanges will have different types of requirements, everyone will benefit. Some exchanges ask for a listing fee, trading fees, or a percentage of the proceeds from the sale of the tokens.
Disadvantages of Initial Exchange Offers
As good and useful as IEOs have proven to be, there are still some downsides to this crowdfunding option. One of which is the issue of two participants owning the majority of a token’s circulation. This can happen due to the limited exposure of one or several exchanges, which means that people who do not have an account on these exchanges are excluded from the sale. This makes the token sale smaller than it could potentially be.
When IEOs end, that’s when token trading begins. But due to the nature of IEOs, people who want to invest must wait for the price to drop. This then destroys the price of the coin and all the profits of the smaller investors.
Another disadvantage of initial exchange offerings is that the issued tokens must bear the cost of all fees. Token issuers also have to pay all marketing costs of the token.
Final Thoughts and the Future of IEOs
Initial exchange offerings have shown the potential to help restore the negative image of ICOs. But there is still no perfect crowdfunding mechanism. However, due to the advantages IEOs have over ICOs, they may be able to restart the industry. Prepare to see more IEOs in the future.
Disclaimer: The views and opinions expressed by the author should not be considered financial advice. We do not give advice on financial products.