What is an IEO?
IEO or an Initial Exchange Offering is a method of raising funds for a startup administered by an exchange. To break it down, it is quite similar to an IPO (Initial Public Offering) of shares in the stock market. Like an IPO, there is a company involved, an exchange that scrutinizes the authenticity of the company/project, and the necessity for raising funds. In an IEO, tokens are raised through a cryptocurrency exchange. IEO covers a global market with fewer constraints and timeframes. Binance, the largest cryptocurrency exchange organized the first-ever IEO in December 2017. Investment in cryptocurrencies is gaining importance these days, owing to the fact that it provides huge returns on investments.
Initially, the public offering of tokens was made through ICOs or Initial Coin Offering. It is similar to an IEO, but the only difference is the platform through which they are conducted. ICOs are essentially organized by the developers or the holding company on their own platform, whereas IEOs are conducted on a cryptocurrency exchange. ITOs (Initial Token Offering) and STO ( Security Token Offering) also came up as alternatives to ICOs. However, IEOs have earned greater popularity than any other alternative. This is mainly because of the drawbacks that eventually led to the unpopularity of ICOs. This was mainly because of the increasing fraudulent practices that discouraged investments.
The biggest ICO scam, Pincoin, and iFan stole $660 million, with an estimated 32,000 investors falling prey to the money-making plot from Modern Tech. Pertaining to this factor, a lot of alternatives like ITO, STO, and IEO have been launched to avoid the same. However, IEO has proven to be the best alternative as the exchange guarantees basic standards of security.
Benefits of an IEO
Now naturally, there has got to be a reason why an IEO holds the upper hand when it comes to raising funds through cryptocurrencies. A lot of these benefits revolve around the platform on which it is conducted i.e. the exchange. To elaborate a little more about these benefits, take a look at the following points:
- More secure: IEOs are conducted on a third party exchange and not the holding company, which builds up the trust amongst investors. The platforms already have an established payment structure that is more reliable and trustworthy. The investors do not have to worry about the security of their funds, the exchange takes care of it for them. Since IEOs are conducted on a credible exchange, the probability of a scam/fraud is negligible.
- Investors get a wider set of alternatives: Since the exchange offers the platform to more projects and startups, the investors have a wider set of options that they can research on and invest accordingly. Being informed about the alternatives and then investing boosts the confidence of the investors.
- KYC/AML: The exchange already completes KYC ( Know your customer) of the investors, so the investors do not have to go through the trouble of repeating the same set of actions every time they want to invest. This also provides assurance and saves time for the providers of the tokens.
- Heavy Scrutiny: Registering for an IEO is much more difficult than registering for an ICO. To register for an IEO, you first have to go through the rigid process of the exchange registration. This ensures investors the credibility of the project/startup that they are investing in. The tedious registration process of the exchange ensures the listing of authentic companies. This adds to the advantages of an IEo, because ICOs are organized by the holding company on their platform which makes the investors doubtful about its reliability.
- Engages a larger investor base: The exchange has a built-up reputation which gauges more investors. Since a larger number of investors are listed on the exchange, it benefits the startups as they can raise more funds due to this increased investor base. The ICOs have to do rigorous advertising to make people aware of the investment opportunity, on the other hand reaching a larger audience becomes easier for an IEO, as exchanges have an established user base.
- Bridges the gap between investors and issuers: The investor makes the payment to an escrow account first to get the payment verified and process it when the purchased token is delivered to the investor’s account. It ensures that the token is added to the investor’s account if the payment has been made. In other words, it works as a depository.
How to launch an IEO?
- The Preparation Stage
The preparation stage will naturally start with the development of an idea. This idea should be structured as per the market requirements and demand. You need to check the economical, financial, and social feasibility of the idea.
To do this and put your idea to life, it is best to have a team of experts, who know blockchain space and crowdfunding mechanisms, to evaluate and develop the various aspects of the execution. You should have a road map depicting the stages and growth of your startup in the future and minimize the risks associated with it.
Understand the stake of your competitors in the industry. Your project should look legitimate, and unlike an ICO, you should have an MVP ( Minimum Viable Product) or some progress under development to get listed on the exchange.
- Selection of the Exchange and Drafting the Whitepaper
Before getting yourself listed on the exchange, you need to draft a whitepaper meeting the aforementioned requirements. This process is very crucial as the exchanges approve your request depending on the clarity and scope of the whitepaper. This also helps the investors to make an informed decision.
The next step is to select the right cryptocurrency exchange for IEO. There are a number of exchanges that you can choose from according to your requirements and feasibility. Make sure to read the exchange specific terms and conditions before making a decision. Some of the popular and trusted cryptocurrency exchanges are
- Binance Launchpad
- KuCoin Spotlight
- Huobi Prime
- Bitmax Launchpad
- Bittrex IEO
- OK Jumpstart.
Choose the exchange for your IEO wisely after researching well about these exchanges.
- Registering and Getting Approved on the Exchange.
Registering on an exchange: After you have successfully decided which exchange is most suitable for you, you have to fill the application of the exchange which is generally 8-10 pages long. This form is available on the page of the exchange. This evidently is a complex job, and it is recommended to hire a SAG IPL for the job. Once you have carefully filled the form, you can submit it to get reviewed by the exchange.
Review of your application After you submit your application, it becomes available to the exchange team for scrutiny and verification.they will review your application based on a lot of factors like product development, market readiness, token readiness for sale, the authenticity of the project, etc. In order to avoid rejection, make sure you provide transparency and comply with the guidelines provided by the exchange.
Listing Payment ‘There is no such thing as free lunch’, it goes without saying that the exchanges charge upfront and recurring fees (as applicable) to list your project or startup on its platform. An exchange will usually also help you decide the offering price of your token to attract more investors. Once this structure has been established, your project is ready to be listed on the exchange.
After completing the tedious and rigorous procedure of getting listed, create an appropriate hard cap to encourage reliability and trust amongst investors. Once it is listed on the platform, there has to be strong marketing and promotion to draw attention to your token. You need to offer higher returns to convince the investors, why is it worth investing in your token.
Some key points to make IEO finer
- Having a prototype or an MVP always works in favor of your product as investors rest assured of the development of your product. In the absence of a prototype, you should at least be able to provide some progress report about your project to get better funding. This builds trust among investors.
- Remember when we talked about the importance of the whitepaper, it is a crucial document that helps the investors to make an informed decision and it also works as an ambassador of your product.
- Market your product well. This you can do by Social Media Marketing, Blog Writing, SEO, Press Release, and Commenting on related forums. However, don’t make it purely promotional but informative.
- Be careful about setting your caps in order to maximize your profits and enhance investor’s interest.
- Have a reputable team at your disposal. The qualification, experience, and reputation of the team directly influence the confidence of investors. Along with technical and business expertise, it is always an advantage to have legal experts within the core team of a project so that investors know that professional opinions will be present in case of any legal troubles.
The market for cryptocurrency is increasing as investors are becoming more and more aware of the investment opportunities. Owing to lesser restrictions and time constraints, this is the fastest-growing market, offering its services around the globe. BitTorrent launched its IEO on the Binance Exchange Platform and reached the cap in less than 15minutes. One of the IEO projects, Fetch.AI could sell their tokens during IEO within only 22 seconds. This indicates the plausible potential of the industry. Cryptocurrency exchanges can bring a revolution in the financial markets.