- By Pierre-Alexandre
March 19th, 2019
Initial coin offering (ICO) has been the dominant means of raising funds for crypto and blockchain projects over the past few years. However, other methods have emerged such as the security token offering (STO), with initial exchange offering (IEO) being the most recent one.
What is an initial exchange offering?
Initial Exchange Offering (IEO) is a fundraising procedure where developers would create tokens for their projects and send it to cryptocurrency exchanges to sell to crypto traders. IEOs are usually an agreement between the developers and the cryptocurrency exchanges, with some of the conditions prevalent in ICOs also found in this fundraising model.
In the case of IEOs, project investors don’t have to send crypto to a smart contract created by the developers. Instead, they would send the Ether to the project account from their cryptocurrency exchange accounts. To participate in an IEO, investors would need to know the exchanges that are supported by the project and the cryptocurrencies that would be accepted as a means of payment.
The initial exchange offering method is considered as a safer alternative to ICOs as the crypto exchanges would ensure higher security level and curb the issue of price manipulation.
Advantages of initial exchange offerings
Initial exchange offering currently offers several benefits to project developers compared to the popular ICO fundraising model.
- In the first place, IEO allows developers to take advantage of the existing user base of a crypto exchange. By leveraging the power of exchanges, IEOs make it easier for more people to participate in the crowdfunding process.
- The IEO process largely eliminates scam in the crypto fundraising sector. By making contributions via cryptocurrency exchanges, investors stand a lower chance of losing their funds to scammers.
- By hosting IEOs on their platforms, crypto exchanges are indirectly vouching for the credibility and prospect of a project. Exchanges will have to carry out research on an IEO project before they host it on their platforms.
- Listing a project token on exchanges would be more comfortable after hosting an IEO, making the process less tedious for all parties involved.
Benefits for exchanges
The cryptocurrency exchanges also benefit from hosting projects on their platforms. They would be able to charge IEO or listing fees when organizing such projects, which is an extra way of generating income.
Exchanges would also record more users signing up on their platforms. If an IEO is to be hosted on a crypto exchange, interested participants who don’t have an account with the hosting exchange would need to get one before they can partake in the process. This would increase the number of users on the exchanges. The cryptocurrency exchanges could also run a joint marketing operation with the IEO team, giving them more experience in the field.
Lis of exchanges operating IEOs
While not explicitly termed IEOs, some cryptocurrency exchanges have introduced token launch platforms. The world’s largest crypto exchange, Binance, leads the way in this aspect with its Launchpad program.
Binance Launchpad is the first of its kind in the crypto space, and it has been around since 2017 when the exchange hosted the Gifto ETH and BNB session. The primary idea behind Binance’s Launchpad program is to allow its users to participate in ICOs and receive tokens directly to their exchange wallet accounts.
The Launchpad has so far benefited Binance, project developers, and contributors. The process creates an exclusive use of the Binance coin (BNB) as investors can only use the token to participate in the listed projects. The developers would also be able to reach a broader audience, as Binance is currently the exchange with the highest number of users in the world.
In addition to the Gifto, Binance Launchpad has hosted other projects including bread, BitTorrent for both BNB and TRX, and Fetch.AI. They have today launched the Celer token.
Another crypto exchange, Bitmax recently introduced its Launchpad program. The first ICO on Bitmax Launchpad is for DOS (a decentralized oracle service network). The token launch started on March 10, 2019, with DOS aiming to improve blockchain usability with the help of real-world data and computation power.
DOS Network (DOS) will have a final fundraising round on Bitmax.— ICO Analytics (@ICO_Analytics) March 9, 2019
Hardcap: $1.56M USD
% for sale in total: 15%
Private sale/IEO allocations: 14.5%/0.5%
Raised during private sale: $1.5M USD
Private sale/IEO prices: $0.01/$0.012
Date of sale: 10:00 p.m. EST, Mar 10th, 2019 pic.twitter.com/C4LCstVpWp
Bittrex announced on Monday, March 11, that it would be launching its first IEO on Saturday, March 15. According to the official announcement, Bittrex would have host the RAID token launch on its platform, giving its users the ability to purchase the coins at a set price directly from the developers on the exchange.
History in the making! We are excited to announce that Bittrex International will host its first Initial Exchange Offering (IEO) on March 15, 2019 at 10am KST. Learn more: https://t.co/TZFxyqs8Dm pic.twitter.com/KnZfpjjTbo— Bittrex International (@BittrexIntl) March 11, 2019
Unfortunately the exchange has cancelled the IEO:
Trust and integrity are the most valuable assets of Bittrex International. As a result of significant, last-minute changes with RAID, we have cancelled the IEO offering of the RAID token. We apologize for the inconvenience. We will provide a more complete statement shortly.— Bittrex International (@BittrexIntl) March 14, 2019
OKEx is another crypto exchange set to launch its first IEO soon. The Malta-based crypto exchange announced that the program would be called OK Jumpstart, and would enable developers to sell their tokens on the platform to finance their projects.
OKEx mentioned that it hopes to bring extra security to the funding process and help developers reach more investors. Andy Cheung, Head of Operations of OKEx pointed out that the IEO model would have considerable benefits to both the exchange and project developers, especially startups looking to raise funds to execute their ideas.
KuCoin cryptocurrency exchange is set to launch its IEO platform called KuCoin Spotlight. The CEO of the exchange, Michael Gan, is optimistic that KuCoin Spotlight will help reveal the hidden gem in the blockchain space and allow their users to invest in such projects directly.
A new program of us, we name it Spotlight, is coming soon, and we believe it will be a launch platform for hidden gems in blockchain that have real potential and value. pic.twitter.com/SuQRN3WQRu— Michael Gan (@gan_chun) March 11, 2019
Huobi has followed the footsteps of the above-mentioned crypto exchanges by announcing the impending launch of Huobi Prime, its IEO platform. However, Huobi Prime will differ from the others as it will serve as a selective token listing platform based on their native coin, the Huobi Token.
The crypto exchange has not provided further details on Huobi Prime, but it is working to offer the high-quality crypto projects an innovative, fast, and compliant coin listing service.
EXMO has announced today a first Initial Exchange Offering with Paytomat
EXMO And @paytomat Announce The First Initial Exchange Offering!— EXMO (@Exmo_Com) March 19, 2019
EXMO and the decentralized system for cryptocurrency payments Paytomat announce the first Initial Exchange Offering (IEO) of the PTI token. The tokensale will be held April 1, 2019.
Read: https://t.co/KzfhgDfOZY pic.twitter.com/trRWlNpAlQ
This growing list of IEO could signal an end to the previous era of ICO, and become the new way for crypto projects to raise funds; offering a safe playing field between investors and crypto project developers.
Illustration: Binance Launchpad