Most Cryptocurrency networks have a high dependence on the level of funding that they get from the public. Before 2017 almost every Cryptocurrency would float an Initial Coin Offering (ICO). But since then, the landscape seems to have changed focus from ICOs to IEOs (Initial Exchange Offerings)
So what is an Initial Exchange Offering?
An IEO is an arrangement where investors aim to raise capital while playing within the rules. IEOs ensure that they carry out due diligence and honor all commitments as paced on the paperwork. The IEO offers more legitimacy into the system of raising funds.
How is an IEO different from the ICO that we know about?
Both aim to create or raise funds for startups. Most of the already existing and credible platforms do offer IEOs services. Among them are Coinbene, LBANK, and Binance. The IEO therefore rides on the value created within the platform for credibility as they target to raise the funds. Here, you can find a list of most of the IEOs.
Both ICOs and IEOs have one common purpose; to raise funds for a startup. They fall within those that accept fiat for crypto as well as crypto for fiat.
Legitimacy in startups
Almost every party that has interested in Cryptocurrencies or tokens will give you some blanket advice; do your background checks. Over the 2017-18 calendar years, there has been a crazy roll out of products based on the Blockchain. It started with Bitcoin, Ether and almost everything else followed. The branching off from Cryptocurrency to tokens has had huge rollouts.
You can get a token from almost every industry; Food, dentists. Supply chains entertainment, among others.
A huge percentage of start-ups fail
The online world has an easier route for startups. Scammers can easily hide behind the screen of a landing page and call for funds, floating a very bright and promising concept. Unfortunately, that may only work in paper only. When funds have been raised, the group behind it goes underground and what remains is a flashy memory of a white paper or a promising road-map.
That is the main reason why financial regulators are busy scrutinizing most digital assets. In several occasions, the outcry has ended up in total bans of Cryptocurrency or token transactions in some countries.
A good example was China and South Korea. The truth is there are bad actors within and more than often, end up killing the journey to the big dream.
Initial Exchange Offering IEO as a Means of Survival
Entrepreneurs have always been exploring the means of survival and in the cases where ICOs are banned by financial regulatory authorities, IEOs have proved handy. The injection of legitimacy through an established trading platform weeds out most of the scammers. Again, while adherence to law clears the doubt it creates a level of certainty and that encourages more subscriptions and in good cases, raises higher capital through the subscriptions.
The actual distinctions between IEOs and ICOs
There are significant differences between both, and they account as to why the IEOs is gaining in popularity.
- In an Initial Exchange Offering IEO, there exists an intermediary.
The intermediary is not in the form of a Bank or central authority as we perceive within fiat currency. The intermediary party reduces the levels of scams or fraudulent trading by enforcing due diligence and background checks of all transacting parties. Issuers of a token and the platform are therefore indemnified from the loophole in ICOs where peer- to peer screening does not exist.
- Smart Contract Management.
The interactions for the IEO have a ready and already existing platform to undertake the smart contract work. In most ICOs, the bootstrapping emerge with a minimal injection of human resources committed for system security. It’s no wonder that most successful ICOs have gone down due to hackers who exploit the security systems in place. Trading platforms, beyond the expertise in code security, have teams monitoring the activities are therefore better placed to deploy smart standards with best practices. Platforms involved in Initial Exchange Offerings are better able to deploy Know your Customer and Anti-money laundering mechanisms with neutrality.
More distinctions of ICOs and IEOs
- Drastic Reduction of Visibility Efforts
Every new team struggles with marketing specifically to do with visibility. In fact, a core team behind an ICO may fail to underscore the need for in-house marketing teams. How about taking advantage of existing teams? That creates great sense especially when a platform has an advantage of well-networked key players. Even part-time commitments may not beat what an established platform can on similar time durations of efforts in marketing.
- Security and Efficiency of the Token sales
With an intermediary involved, the listing gets more mileage in terms of security and efficiency. It’s no wonder IEOs are scoring more in revenue capital as opposed to ICOs. That comes from the confidence levels within the key actors, among them being the investors. And the same applies to investors within the ordinary economy where shares are floated for IPOs.
- With an ICO, the project team calls for and conducts the fundraising while for an Initial Exchange offering IEO, the fundraising is done by an existing exchange platform.
Therefore, IEOs offer coins or tokens via platforms and not directly to investors (as is the case for ICOs). The intermediary has the duty to undertake due diligence before allowing an IEO. It’s the opposites for an ICO, where the investors have the duty and responsibility to undertake due diligence.
Initial Exchange Offerings IEOs are a more legitimate avenue to start of any sale of tokens. That is not a means to rule out the power behind an ICO. In the wake of everyone raising issues to do with Legitimacy, IEOs offers a better fix. With an IEO, there comes:
- Better trust, with an intermediary locking out potential scammers.
- Security of the entire system with better and established teams.
- Greater reach in terms of publicizing the offers via already established and credible platforms that have stood out the tests of time.
- Ease of listings, where platforms have ready mechanisms for launching, executing and fundraising for startups.
Initial exchange offerings IEOs can be taken as evolutions of ICOS, with just a better model of risk management.