IEO stands for Initial Exchange Offering and is a fundraising method for crypto projects, similar to an ICO, but with one crucial difference, as it is hosted and managed directly by a cryptocurrency exchange.
Unlike an ICO, where the project itself is in charge of selling the tokens directly to the public, in the case of an IEO, a reputable cryptocurrency exchange acts as a middleman and a launchpad for the new token.
How does an IEO work?
- Project selection: A project wishing to launch an IEO applies to one or more cryptocurrency exchanges. The exchange conducts a rigorous due diligence process (vetting and evaluation) of the project, team, technology, business plan and overall viability. Only projects that meet the scholarship’s strict criteria are accepted.
- Partnership and preparation: After acceptance, the project enters into an agreement with the bursary, which will take care of several aspects of the token sale, including KYC (Know Your Customer) and AML (Anti-Money Laundering) compliance.
- Selling tokens: The actual selling of tokens takes place directly on the exchange platform. Exchange users can buy new tokens using the cryptocurrencies they already hold in their exchange accounts.
- Immediate listing: One of the biggest advantages of IEOs is that immediately after the sale is finalized, tokens are usually listed directly on the same exchange, providing instant liquidity for investors.
Advantages of IEOs
IEOs have gained popularity as an evolution of ICOs, especially after the ICO market was plagued by numerous scams and lack of regulation.
Advantages for projects:
- Credibility and trust: association with a respected exchange gives the project a much higher level of trust and legitimacy in the eyes of investors.
- Access to a large user base: The project benefits from the exchange’s existing user base, significantly reducing the marketing efforts and costs required to attract investors.
- Immediate liquidity: Tokens are listed quickly, which is a major advantage for projects.
- Technical and operational support: The exchange takes over many of the technical and operational tasks related to token sales.
Advantages for investors:
- Increased security: The exchange’s due diligence process reduces the risk of investing in fraudulent projects (though it does not eliminate it completely).
- Simplicity: The participation process is usually simpler as it is done through a familiar platform.
- Guaranteed Liquidity: The fact that tokens are immediately listed on the exchange provides a quick way to sell or buy tokens after the IEO.
Disadvantages of IEO
- High project costs: Exchanges often charge substantial fees and a percentage of the funds raised to host an IEO.
- Less control: Projects have less control over the exact terms of the sale.
- Concentration of power: Reliance on centralized grants can be seen as a weakness by advocates of decentralization.
IEOs represent a stage in the evolution of fundraising methods in the crypto space, offering a balance between decentralized innovation and the need for some form of control and trust provided by a reputable intermediary.
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