What is an initial exchange offering (IEO) and differences with an ICO
An Initial Exchange Offering, also commonly referred to as IEO, means that the fundraising will be conducted on a well-known cryptocurrency exchange platform where users can purchase issued tokens with funds available from their exchange wallet.
This new system provides a different type of exchange where the platform acts as a middleman between projects and contributors. This is because IEO participants have to create an account on the exchange platform where the IEO is conducted, the contributors then fund their exchange wallet with coins and use those funds to buy the fundraising company’s tokens.
HOW AN IEO WORKS AND HOW TO PARTICIPATE
The purpose and functionality of an IEO are likened to that of a middleman in a business cycle, but this time, it pertains to projects. When a project is interested in fundraising, an IEO offers an intermediate user base to contributors, by way of listing the token on its platform. As the symbol is conducted on the exchange platform, the issuers are expected to pay both the listing fees and a certain percentage of the tokens sold during the IEO. The tokens of the crypto startups are then exchanged on the exchanges platforms, and the proceed (coins) are listed as soon as the IEO is over.
To participate, all that a user needs to do is to find an IEO of choice, and then look out for exchanges hosting the crowdsale. When this is done, the next step is to create an account on the crypto exchange platform, complete all the required KYC and AML verification, then fund the account with the acceptable crowdsale coin. That would be all as the last step requires you wait for the IEO to start buying your tokens.
Benefits of IEO for projects and investors
Basically, listing on an exchange is a form of publicity and a marketing strategy, which directly benefits the project. A token issuer relies on the exchange’s userbase to fund their project just as the goal of an exchange is to bring your project to life. A renowned exchange attracts enormous investors whom these projects are made visible to. It provides great advantages by saving cost and pushing the project to enter the market fast.
To the investor, he is going to be certain that the project is worth investing in because the exchange is stalking its reputation behind the project by listing on its platform, thereby offering a higher degree of trust behind the project.
Thirdly, the KYC/AML verification process is done by the crypto exchange on their customers during account creation as well as the check of the tokenomics, the transparency of the project documentation, the capabilities of the team and the added value of the project. The new strategy is intended to eliminate scam in the fundraising process, which has been the major challenge faced by investors in the ICO system. In IEO, the security of the transaction is assured by contributing to cryptocurrency exchanges, thus lowering the chances of investors losing their funds and token issuers as well are secured through the crowd sale security as the exchange is managing the IEO contract.
Finally, by listing the project tokens on exchanges makes it convenient hosting on IEO platform, thereby making the process less challenging for all parties involved.
Also, the IEO system brings more control to proceedings which is essential to guarantee an improvement over the Initial Coin Offerings (ICOs). The new IEOs offer the following;
- Improved transparency;
- High(er) level of security for users;
- A sense of reliability;
- Fair and beneficial practice to newbies.
DIFFERENCE BETWEEN INITIAL EXCHANGE OFFERING (IEO) AND INITIAL COIN OFFERING (ICO)
Though IEOs happens to be a secure and efficient alternative to ICOs, the cost implication associated with token sales for startups can be high. In some instantly, listing charges can be as high as 15 to 20BTC, and the exchanges can insist on 10percent share from the tokens of the fundraising companies.
The question of the actual difference between IEO and ICO is primarily on the following key points
- Initial Exchange Offering (IEO) serves the purpose of an intermediary to the decentralized fundraising system. This gives investors strong confidence and security of investment while participating. But this is not the case with Initial Coin Offering (ICO), thus making it the den of scam.
- While the IEOs are quick to trade, but ICO is not as quick and immediate to trade which accounts for why ICO Crypto trades see this delay as the worst part of Initial Coin Offering.
- ICOs can attract the investment directly, while IEO has the capacity to induce the market to participate in the fundraising process, which makes it a much more promising field for startups.
- As to how the token is generated, ICO mints their tokens once the funding gets completed, but can be moths (of years) later. But in the case of IEOs, projects generate tokens and then send tokens to the exchange platform for fundraising purposes.
Conclusively, IEO benefits are enormous and have increased the level of trust in cryptocurrency projects. With these increasing benefits, we can say that IEO is an improved alternative for ICO, and therefore holds a great future for the crypto industry.
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