What is an IEO? IEOs vs ICOs?
Let's figure out the most talked-about term in the crypto space recently: Initial Exchange Offering (IEO) and what benefits it offers compared to ICO.
What is an IEO?
As the name implies, IEO (Initial Exchange Offering) is conducted on a cryptocurrency exchange instead of the issuer’s platform (as in ICO). Although both IEOs and ICOs are crowdfunded, token issuers are responsible for ICOs while IEO is managed by an exchange platform on behalf of the startup seeking to raise funds.
While ICO allows contributors to buy the token for sale by sending funds to a smart contract, IEO requires contributors to create an account on the exchange platform where the token sale for IEO is performed.
Since the token sale is issued on the crypto exchange platform, token issuers need to pay the fees for listing along with a percentage of sold tokens at the time of IEO.
In return, the new tokens can be sold on the exchange and listed once the IEO is over.
As IEO involves the centralized authority in the form of an exchange, the exchange platform ensures to eliminate scams projects which will put its reputation at risk. An example of this scenario is the RAID IEO case. Bittrex canceled the RAID IEO project just a few hours before the token sale. The reason for the cancellation is the termination of RAID’s partnership with a company that was about to raise $6 million for them.
In order to conduct an IEO, the project team must meet and comply with the exchange’s requirements in order to launch the token sale. Contributors are, therefore, protected by the exchange.
With the concept of raising funds via exchange platforms, IEOs can bring trust among both the investors and the startup company looking to raise funds.
As the exchange is managing the IEO’s smart contract, token issuers do not have to worry about the crowdsale security. Users can buy the issued tokens directly from the exchange after completing the KYC procedures.
Exchanges usually set an individual buying cap due to the hype of the newly issued tokens. Besides, the token issuer has to reach agreements with the exchange on terms, such as fees, issuance price, and issuance volume, etc.
As a part of the deal, after the crowdsale is over, the exchange where the IEO is conducted will list the coin of the startup on its platform.
Getting listed on a popular exchange can bring liquidity and credibility to the project and increase the value of the token.
The fact that IEOs seem like a more secure and efficient alternative to ICOs, the costs associated with token sales can be high for startups. Listing fees can be up to 20 BTC, while exchanges can even take a 10% cut from the tokens of the fundraising companies.
The speed of IEO exchange platforms is far better than any other platform or network for crowdfunding since it is supported by a large customer base of the exchange.
Here is a comparison table highlighted primary differences between ICO and IEO:
How to participate in an IEO?
As IEO is recently, relatively a hot topic among the crypto community, it is not that hard to find one that you like. You can even go to the Bitcointalk forum to ask for suggestions. After choosing the IEO you want to participate in, you need to find which exchanges are hosting the crowdsale.
The next step is to register an account on the cryptocurrency exchange and complete the KYC and AML verification process.
Next, check out the cryptocurrencies you can use to contribute to the IEO, and fund your account with a coin that is accepted in the crowdsale. When it's all done, all you need to do is wait until the IEO launches to buy your tokens.