Have you ever wondered how a startup can obtain money in the crypto world or how to invest in promising projects with your TRASTRA wallet? Initially, crypto projects used Initial Coin Offerings to raise funding. This method reached its peak in 2017, when companies managed to raise $4.9 billion.
However, in the last few years, the interest in ICOs started to fade, primarily due to their unreliability for investors. According to a study released in 2018, 80% of ICOs turned out to be fraudulent. The market needed an alternative solution, and that’s why the IEOs have emerged.
In this article, we will explore what is an IEO, the features of this method of raising funds, and its pros and cons.
IEO stands for Initial Exchange Offering. What makes it different from an ICO is the participation of a partnering exchange. A crypto project doesn’t offer its coins directly to investors. All the transactions are going through the exchange, which evaluates the startup and conducts due diligence.
The key feature of an IEO is the ease of participation, especially for investors. The exchanges work as a trusted middleman who does all the checking and creates a user-friendly interface for the offering process. In the meantime, crypto projects gain visibility and access to a large client base – the entire crypto exchange audience. Therefore, there is no need to spend money on marketing.
IEOs on exchange platforms
The first IEO was held in 2019 on Binance. It was the offering of BitTorrent Token (BTT). It took just 15 minutes to sell all the tokens, and the project raised over $7 million.
IEOs are not carried out on the crypto exchanges themselves but on specialized platforms controlled by the exchanges.
For example, Binance has developed the Launchpad platform for this purpose. Among the major crypto exchanges that support IEOs are:
According to statistics, in 2019, startups were able to raise $1.7 billion through IEOs. In addition to BitTorrent, Veriblock ($7 million) and Harmony ($18 million) also showed excellent results.
Advantages and disadvantages of an IEO
After finding out what is an Initial Exchange Offering, one should also explore its advantages and disadvantages. Like any other method of raising investments, IEO has its pros and cons, both for projects and potential investors.
Advantages of an IEO
The main advantage of IEOs for startups is that they get access to a large audience. The placement often ends successfully within a few seconds after the start. Investors also receive a number of benefits:
- Selected projects. Exchanges conduct their own checks of the projects, which reduces the risks of fraud a little.
- Simple mechanism of participation. All you need is to open an account on the exchange, replenish it with your TRASTRA wallet, and buy tokens when the IEO opens.
- Purchase during the crowd sale. IEO participants are the first to buy tokens before they become available to the rest of the crypto community. That’s a chance to get tokens at a bargain price.
Disadvantages of an IEO
Of course, an IEO is not an ideal investment tool and has drawbacks. The main ones are:
- Listing fee. Projects that want to hold an IEO on a particular exchange must pay for the placement.
- Risks of fraud still exist. Sometimes, exchanges may not pay enough attention to the verification of the project.
- Pump and Dump. An IEO does not provide protection against a fraudulent scheme in which the price of a token can be artificially inflated and then brought down to zero.
What will happen with IEOs in 2022?
What is IEO today? It is a good viable approach to crypto crowdfunding that partially replaced ICOs. This method is convenient for retail investors, as it allows them to invest in interesting projects in a few clicks and without an investor license. Startups benefit from the fact that by placing a project on the exchange, they get a loyal audience interested in crypto projects. Also, this approach to crowdfunding reduces marketing costs as the placement usually takes place on well-known platforms.
However, IEOs have become less popular among traders in recent years. They peaked in 2019, but lately their popularity began to subside. At the time of this writing, there have been only 17 ongoing IEOs in total, many of them with questionable ratings.
Currently, IEOs are gradually replaced by another type of initial offering of digital assets – Security Token Offerings. It is a more reliable way to gain profit as they are subject to legal regulations in various countries. Plus, STOs are only available to licensed investors. The IEO remains the solution for retail investors and newbies looking to make a profit in the short term. However, this crowdfunding method is unlikely to develop significantly in 2022 and beyond.
IEO – Initial Exchange Offering – is one of the methods of raising funds in the crypto world. During an IEO a company places its offering on crypto exchanges. Exchanges independently conduct verification of chosen projects, which reduces the risk of fraud to some extent. To start investing in IEO you need to register on a special section of the exchange, have enough coins in your TRASTRA wallet, wait for the IEO launch, and buy tokens.
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What happens in an IEO?
IEO consists of several steps. First, a blockchain project creates a whitepaper and presents it to the chosen crypto exchange. Then the exchange conducts several checks, and if the project looks prospective, the exchange lists it after signing a contractual agreement. Finally, on the specified date, the sale of tokens starts on the exchange.
What is the difference between ICO and IEO?
The key difference is that through an ICO projects raise funds literally without any control and proper verification. At the same time, an IEO implies the presence of a cryptocurrency exchange as an intermediary. Companies wishing to launch an IEO must pass a credibility check conducted by the exchange.
How can I participate in IEO?
You need to open an account on the exchange, pass the AML/KYC verification, and replenish your account with necessary cryptocurrencies. Next, wait for the launch of the IEO you are interested in and buy tokens. But make sure that you understand well what’s an IEO and its possible risks.