You have probably heard about ICOs, which new projects seek to attract investors in exchange for a certain number of digital tokens, thus obtaining the “initial economic boost” that these innovative projects need to more than repay the initial investment of these people who believe in the future of blockchain technology.
Seen in a certain way, this seems like an act of pure romanticism. Although it is very romantic, it is even more business-like since as the platform grows, the value of these tokens increases, and profits multiply. ICOs offer a digital money-making machine that attracts investors hypnotized by blockchain technology’s promises, realities, and myths.
However, 2023 was a bad year for ICOs, as an average of over 50% of all ICOs conducted this year turned out to be scams or complete failures. This led many to wonder: Where is this trend headed? Is it a good idea to use this fundraising mechanism given the facts in the crypto community?
But the market is evolving and a new trend is emerging: IEOs (Initial Exchange Offerings).
What are Initial Exchange Offerings (IEO)?
An IEO is very similar to an ICO, as IEOs allow companies or startups to sell tokens to investors who wish to fund the project, thereby obtaining the necessary funding for the developers of the new platform to kick-start their promising project.
In contrast to the ICO mechanism, the counterparty is the developer, while in the case of IEOs, startups can carry out the fundraising process based on one exchange or multiple exchanges to complete the campaign.
The inclusion of exchanges is what makes IEOs a safer bet than ICOs, as the reputation of exchanges is at stake and they can face lawsuits that can take their business down the drain.
This provides the assurance that IEOs are not an outright scam and that the developers of the new platform simply disappear once they have the funds in their accounts – it’s a three-way model where investors, developers, and exchanges all win.
During an IEO, investors are required to send money directly to the exchange’s wallet or smart contract which will then send the tokens to users. The exchange is therefore responsible for managing the smart contract (responsible for the automation process) that accepts money in exchange for tokens.
Advantages and disadvantages Of IEOs
Pros
Among the main advantages of an IEO is that it provides a more agile process for developers or company representatives who want to launch their first ICO. Carrying out a successful ICO can be a very difficult and complex task, because a very large marketing infrastructure is needed to reach a large mass of people and thus attract users and investors.
This is where exchanges make the job easier, since their work in the crypto world has placed them in an important position to carry out this task in a faster, more timely and safer way, allowing developers and start-ups to protect themselves from malicious actions such as scams.
Another great advantage of IEOs is the fact that most exchanges require AML/KYC checks from their users. Therefore, developers are no longer required to perform their own AML/KYC checks and can be sure that the funds do not come from money laundering or other illegal activities.
Once again, IEOs are seen to be highly beneficial for both the project developers and the exchange. Additionally, for most investors, purchasing tokens from a reputable exchange can mean a lot, especially given the prevalence of fraud in the ICO world.
For exchanges, this usually means more exposure and a better relationship with token buyers as they conduct their various operations.
Another great advantage of IEOs is their successful completion rate. Most IEOs reach their fundraising goals quickly, and this usually results in substantial profits as well as new and potentially exclusive markets resulting in increased liquidity.
Cons of IEOs
However, IEOs are not perfect, and one of the main disadvantages of IEOs is represented by the fact that token issuers must bear the cost of the profits appreciated by the exchange, plus token issuers also have to bear all marketing costs for the token.
Conclusion
While ICOs have faced significant scrutiny due to their association with scams and failures, they still serve as an essential fundraising tool in the crypto world.
However, IEOs are a good opportunity to invest in projects and many exchange users see them as an easy way to increase their income, since with their user account on the exchanges they are able to participate in these IEOs and transfer balance between their accounts in other cryptocurrencies to the IEO wallets.
