Is IEO Just an Advanced ICO?
A little of ICO history
Just two years ago ICO as a fundraising model was the hottest discussed topic in the crypto community. Even those who were not very well educated on the matter still wanted to take part in at least some ICO with hope to get quick and easy money. As a result, a lot of ICO investors were defrauded and lost a big deal of their savings.
A lot of scam projects appeared which did not bring an obvious value but were based on a multi-level-marketing model, so a lot of them still gained a success. Since the first Initial Coin Offering in 2013 by Mastercoin, there have been hundreds of other ICOs. But in 2018 the success of ICO as a fundraising model has considerably dwindled.
According to the Wall Street Journal,new companies fund-raising by means of introductory coin contributions got just $118 million in the primary quarter of 2019. A year ago at the same period of time startups raised 6,9 billion dollars. This is data taken from research site Token data.
IEO – An Evolution of Fundraising Model for Blockchain Projects?
At present we may see many predictions that Initial Exchange Offering is a new trend, the fundraising scheme of the future. In a case with IEO, you collect money not from random people all around the globe, using Ethereum smart contracts.
An Initial Exchange Offering (IEO) relies on having an exchange (or a number of exchanges) functioning as the counterparty, which provides KYC at once, and the token is already listed on the exchange. Anyone, who has a KYC-verified account on an exchange, can take part in an IEO.
Compared to ICOs, a risk is transferred from the investors to the exchanges. Furthermore, crypto trades have a bigger client base and will do finish due steadiness before doing any IEO. But if you still sell utility tokens it is the same as if you were conducting an ICO.
And we remember what happened to the ICO hype in the past. Utility token combines features of a commodity and a currency at the same time, and a bit of security, which promises you to bring dividends in the future.
If we are talking about utility tokens – their status is still rather vague, because regulators are trying to distinguish properly when a token should be considered as a security, and when the utility.
Mostly, if it is used as an investment instrument for some project, then, probably, it is security. As Jay Clayton stated before, that every ICO is actually a security. The same may happen with IEO, but we’ll get back to it later.
To make a clearer distinction between ICO and IEO, let’s have a look at the visual chart:
Now More about the IEO History.
In fact, the IEO saga has begun much earlier than we would expect – in December 2017, to be exact. Binance, the world’s largest crypto asset exchange in daily volume, launched a Launchpad, a platform for token sale holding. The first token sales were Bread (6 million dollars) and Gifto (3,4 million dollars).
In January this year, Binance announced that it will relaunch the platform for token sales. So Launchpad has already hosted a BitTorrent token sale (7,2 million dollars), and then conducted Fetch.AI (FET) and Celer Network (CELR).
In case with BitTorrent, there were held two parallel sessions: the participants could purchase BTT tokens for the cryptocurrency TRON and also for BNB tokens. Less than one thousand investors could participate in the crowdsale. Later the CEO of Binance Zhangpeng Zhao tweeted that it took 18 minutes to complete it.
Soon afterward other big crypto exchanges followed suit, such as OKEX, Bittrex International, ProBit, KuCoin, Huobi, Bitmax, Bitforex, etc.
OKEx, which is a Malta-based world-leading digital asset exchange, announced its first token sale of Blockcloud (BLOC) on its token sales platform, OK Jumpstart in March this year. At the same period of time the cryptoexchange Bittrex International also launched an analog to Binance launchpad.
But Not Everything Is So Simple With IEO…
Let’s go back to BNB token. If an investor wants to participate in the Launchpad platform tokensale, he or she needs to purchase BNB tokens.
When a user has no further intention to participate in IEO and he or she change tokens back, then the rate of cryptocurrency will decline significantly.
Another pitfall may occur, when specific tokens of some cryptoexchange will be recognised as securities – what will the trading platforms do then with their tokens?
Will be the hype around IEO as fleeting it was around ICO? It is hard to answer this question correctly for the time being. But there are already some issues which make the perspectives of IEO development rather questionable.
DisclaimerThe writer’s views are expressed as a personal opinion and are for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.
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