One of the lines delivered by Snoop Dogg in the movie “Starsky and Hutch” says, “Why to go to the starting line when you can go straight to the finish?” Although it may feel a bit too cinematic, it does hold good in some of the most practical applications of life, and especially in the realm of crypto investments. For a long time, crypto investments were confined to initial coin offerings or ICOs as they are commonly abbreviated. Although they have democratized the entire realm of investments for crypto projects, they did have a downside. In essence, the highly unregulated nature of ICOs meant that the possibility of frauds and scams was extremely high. Security token offerings do exist, but they are a bit too rigid, and they require a lot of paperwork, including, but not limited to, the validation of the asset and working out the tokenomics. Is there a possibility of an investment option that is as open as an ICO but still, controlled and moderately regulated, so scams do not damage the reputation of the fundraising process?
The answer lies in Initial Exchange Offerings or IEOs.
How do ICOs work?
Let us digress a bit to look at the way ICOs work. All that a company launching an ICO needs is a white paper, tokens — their utility and distribution, crowdsale dates, project’s funding goals, and so on. It does cost a considerable chunk of money to market your ICO in the right areas and among the right investors.
Once the side of the token is complete, users can employ those tokens for the utility they provide – it may be to access the premium section of the product or for some quantity of the finished product. However, it does not translate into anything tangible outside the ecosystem.
The ICO issuers had to approach exchanges to request them to list their tokens for trading purposes. The exchanges might opt to do it for a considerable sum of money or even ignore the token completely. Thus, the ‘utility ‘ of the token does not move outside the product/project’s ecosystem.
What makes IEOs different?
The greatest challenge in the ICO system is in the uncertainty of whether or not the exchanges would accept the token. In the IEO, the token is offered on behalf of the project or the entrepreneur by the exchange itself! It means that the uncertainty associated with the acceptance of the token by a crypto exchange is eliminated – the exchange has already endorsed it even before it goes out on the sale.
Most IEOs are listed on secondary exchanges. Reputed exchanges like Binance have ‘Launchpad,’ an exclusive platform for IEOs. The fact that IEOs is backed by names like Binance talks a lot about how promising and advantageous IEOs are.
The advantages brought about by IEOs:
- IEOs are conducted by third-party exchanges that take the responsibility of trust and liability.
- IEOs are regulated, and this considerably reduces the possibility of fraud.
- IEOs are open to all the users of the exchange. It might not essentially mean that it is not open to the public – it only means that a person has to be a member of the exchange before they participate in an IEO.
- IEOs and exchanges use an escrow system for verification. The payment has to be sent first, but it will not reach the exchange. The payment is first verified before it is taken, and then the token is issued to the person who pays. Therefore, there is no possibility of payment fraud, as well.
- There is a considerable chunk of money spent on ICO marketing. For IEOs, it might not be eliminated entirely. However, there is an assurance that your marketing will only yield fruitful efforts as the members of the exchange have already completed their basic KYC/AML.
The advantages don’t stand only for the companies that issue IEOs. Even for the users, there is quite some hope for lesser fraud.
- Since the reputation of the exchange is at stake, the exchanges take care to perform meticulous scrutiny on the company that offers the IEO. Therefore exchange users or investors can be assured that they are not investing in any fraudulent company.
- The presence of the exchange might go against the basic principle of decentralization, having no centralized entities. However, since the exchange is quite likely to be decentralized, this virtual centralization only acts to remove the doubts regarding manipulation. It is issued by a third party and not by the holding company.
- The greatest advantage for both the users and the token issuers is that as soon as the sale is over, the token is listed on the exchange. Maybe the token might not have as much value as a reputed crypto coin. However, it is still down to compete with other tokens.
- IEOs do not take as much time as their predecessors to collect funds. It gets listed on a reputed exchange that already has a set of experienced users, there have been instances when projects have hit funding goals in a matter of a few minutes when basic funds through an IEO.
- This quick collection of funds might present a problem – it could serve as revenue for entrepreneurs playing with their funds, increasing the possibilities of fraud. In an IEO, all the fund collected is not immediately given to the entrepreneur but in phases. The provision of funds depends on the project roadmap. This discourages any malicious intent.
With all these advantages, it is not a thing of wonder that crypto companies would like to launch their own IEO. There have been success-stories that speak volumes about IEOs and their success – BitTorrent raised $7.2 million in 15 minutes through their IEO. If you thought that was fast, VeriBlock raised $7.2 million in just 10 seconds of its launch!
How to launch your IEO?
The launching of IEO is almost as simple as launching an ICO, but it gets cumbersome in a few places, which we will address later. For launching an IEO, you will need:
- A realistic business model that outlines the profit and loss possibilities
- Use of cutting-edge technology to ensure that the blockchain and the tokens stay stable
- A minimum viable product that will demonstrate the functionalities of what you intend to create
- The utility value of the token has to be clearly defined and how it fits in your ecosystem should be displayed
- A strong team that is well-versed in addressing the current market needs and backing the project
- A reasonable hard cap that is marginally challenging but not too difficult to achieve
- A website that details the purpose of your project from the marketing perspective
All of this information should be presented in a white paper, and it functions as an essential document of your IEO.
All the above-said processes are under the control of the company, but it is essential to shape your IEO in a way that a reputed exchange like Binance will accept.
Registering your IEO
Each exchange will have its own application form. These forms are quite likely to be lengthy and cumbersome, and it might require quite a lot of detail. Although the requirements are lavish, all these things are needed because this alone can help validate your project, and that is where the reputation of the exchange also lies.
Once the submission is made, an expert team from the exchange will review your project based on factors like the development stage, the token readiness, the scope, the team, and the possibilities of you, your project, and your token finding success.
Once the verification is complete, they will list your token on the exchange. The exchange will charge an upfront fee for listing the token or coin on their platform, and there is also a possibility that they might work on recurring profits and commissions. However, considering the fact that you are going to gain potential customers right from the first day, it might not seem like a huge expense but rather a meaningful investment.
IEOs are quite likely to be the fine point of crypto fundraising – they avoid unnecessary interventions from regulatory bodies like the SEC, but at the same time, they also ensure considerable safety for your token and the investors.
If you would like to create your IEO, you can get in touch with IEO development companies. They will understand your requirements and craft your IEOs in such a way that it is quite likely to be accepted by reputed exchanges.
I’m a business strategist and a passionate blogger who writes about cryptocurrencies and blockchain technology. I’m a big crypto enthusiast and I love learning new business opportunities and discussing them with fellow businessmen in the cryptosphere. I’m also a blockchain expert with ample research experience and I can give you suitable solutions for your blockchain based business.