Initial Exchange Offer (IEO): What is and what differs from initial currency (ICO) offers?

By Hannah Pérez

Know the advantages and unfortunate Tokens very similar to the ICOs that are being popular.

***

The most recent issuance of issuance of Token In the cryptographic ecosystem they are the Initial Exchange offers (IEO). And while some ensure pejoratively that they are the new form of ico, the trend is popular.

Some of the main exchange platforms such as Okex, Binance, Bitrex, Bitmax, Huobi and Kucoin They have already done their own IEO successfully. And the most recent case is that of Bitfinex

How everything started: the ICO

While it is true that both Initial coin offers (ICO) and IEO are two forms of Crowdfunding Cryptographic, they are not necessarily the same and have the same implications.

In 2017, when the cryptographic market was in its historic peak and caught the attention of the people, the ICOs had their great boom. Unfortunately it lasted little and were soon qualified as scam and as the first forms “institutionalized”Cryptographic fraud.

Another of the reasons for the ICO decline, in addition to the aggressive market fall, was the regulation that issued the US Securities Commission. A measure that other countries also imitated in their attempts by regulation of the new emerging market.

But beyond the many fraud and direct robberies to investors, behind many other ICOs there were also good projectsand more importantly, the concept as such was an innovation that revolutionized the industry.

In the past, investment in a Startup It was limited only to large investors who had a solid and sufficient capital network to participate in the Risk Capital financing rounds. In addition, having an interchangeable part of a business meant participating in the Initial Public Offer (IPO)which is an initial sale for an company in the stock market.

But while IPO are limited to certified investors, ICOs innovated in the way anyone can participate in a kind of combination between IPO and a risk capital financing round.

Initial Exchange offer

Basically, the objective of an ICO and an IEO is the same: offer Tokens to a large group of investors. An initial offer of exchange or exchange, as the name implies, It is carried out on the platform of a cryptocurrency exchange.

The difference, which is also the advantage of the IEO, is that the launch of the Tokens It is administered by an exchange that already exists, instead of the organization that creates the Token. The exchange maintains and sells the Token In the name of the project team, and this small change has significant effects throughout the process.

Compared to ICO, the risk is transferred from investors to the bags and this innovative collection pattern can mitigate the risks of PhishingDdos and other malicious attacks.

The exchange: an intermediary

One of the main differences between ICO and IEO can be considered as a principle against the nature of Bitcoin and Blockchain: Decentralization. In the case of the history and experience of the ICO, and now comparatively with the IEO, an intermediary actor could be the best option for collection systems.

The ICO format does not have any control over who can start an offer or participate in it. There are no guardians. IEO reinforce the intermediary and the central authority in the form of exchange. One of the advantages of this role of “authority” that assume the exchanges that IEO house is that they have different requirements.

Native tokens

One of these requirements involves buying or using their own Tokens of platform to participate in the IEO. When creating this condition, exchanges create demand for their Tokens internal, which increases its value. This requirement can also increase the volumes of operations of an exchange, attracting users and raising confidence in the market.

For example, The exchange Binance requires participants to use the Token native of Binance (BNB) and Huobi It requires that participants maintain the Token of Huobi For a certain time.

Security and trust

But IEOs have another benefit: the safety of the actors who participate. Unlike an ICO, participating in an IEO implies that users govern themselves for the security control controls of the identity registration; or the well -known protocol “Know your client”(KYC). This creates a safer investment environment.

In addition, the database of the users of an exchange is wide and will not want to lose their customers, so they are dedicated to reviewing the project before carrying out the offer. The emitters of Tokens They must still go through a prolonged negotiation process with exchanges to sign an agreement that describes the terms of the IEO. In this sense, IEO can eliminate scams and doubtful projects when raising funds.

At the level of legality and stability, IEO also have their advantage. Well developed exchanges can offer legal advice and clarity, since they normally work under structured regulations corresponding to the legality of the country where they operate.

At the financial level, exchanges are the main service of the cryptographic industry to generate income more constantly. And the projects that wish to carry out an offer, can benefit from their unique perspective to legitimately manage a business Blockchain.

Commissions

Another difference with ICOs are the commissions or rates of the IEO. In an ICO process, commissions either the investor or the creation equipment of Tokenssince the projects are sold directly in a network Blockchainthrough an intelligent contract but without intermediaries. The only ICO rates are standard transaction rates to the network.

With the IEO, the exchange performs many functions, including, serving as an intermediary, facilitator, manager, marketer and all these services are paid in the form of commissions or rates to the project and their interested parties.

Mutual marketing

Exchanges have an existing community and promotional resources that IEO projects can take advantage of. The association can bring advertising benefits for both. The project has the ease of entering a broad ecosystem and an accredited audience.

The exchange platform also leads to a space where great accredited investors are approaching, which in another case would not have been interested in the project. Also, the Exchange They also receive interest and increase their users from people interested in the project and who want to invest in the offer.

Finally, the objective of most projects that launch the Tokens In an IEO is that after launching the offer of coins, its Token is included in at least one important exchange. Inclusion in an exchange provides credibility to a project, as well as liquidity, and can potentially increase the value of the Token.

Disadvantages

However, already despite all the benefits that an accredited platform may have to launch a collection project, It does not mean that IEOs are exempt from fraud, scams or losses for investors.

IEO are one of the many ways that exist for the issuance of Tokens which were created from the ICO. Similar to ICO and IEO, there are also other modalities such as Security Token Offer (STO), the initial bifurcation offer (IFO) and the Initial launch offer (IAO).

In Changpeng Zhao’s opinion, the founder of Binancethere is a fundamental problem with IEO: a high percentage of currencies are maintained by a small number of people.

After quoting in a bag, if the price goes up, then a small number of people would have obtained much more benefits than the rest. If the price drops, that means that the small number of shareholders is selling a lot (potentially obtaining profits or Stop -los).

Hence all new investors are in a loss situation. In any case, a small number of people benefit at the expense of a large number of private investors. Another problem with the high concentration of coins in the hands of a few, is that it is quite easy to control or manipulate the price of the currency.

Circulation control

To avoid this, exchanges can take measures such as controlling that the circulation supply is small and distributed uniformly. Or even that the exchange establishes a fixed price for the token.

In the extreme case that projects did not even make a private sale, all coins are held by the project team. An IEO is a way that the project team sells its coins at variable prices.

The IEO projects themselves have also learned not to have so extreme or unpublished financing rounds. Each IEO is limited to a specific and limited supply, which increases demand.

The most restricted financing model feeds these young projects with the resources they need without all investors or the value of the underlying assets, which should also be a sign that the industry is maturing.

In conclusion, it can be said that ICO’s frenzy has calmed down, and that IEOs are emerging as a new fund collection method for projects Blockchain, With an additional layer of trust and security. However, this does not exclude them from being fraudulent projects, especially, in the case of such a large industry, with so many IEO born every day.

In addition, we must not forget that this possible migration from ICO to IEO can respond to the regulation and restriction of ICO. A scenario that would lead IEO to an outcome very similar to his sister ICO in 2017. This is added The lack of a regulatory framework in most countrieswhich still generates uncertainties about this fundraising practice.

Sources: Blokt, Dailyhodl, LinkedIn

Hannah Estefanía Pérez / version Diariobitcoin

Image created with Canva

WARNING: Diariobitcoin offers informative and educational content on various topics, including cryptocurrencies, AI, technology and regulations. We do not provide financial advice. Cryptactive investments are high risk and may not be adequate for all. Investigate, consult an expert and verify the applicable legislation before investing. I could lose all its capital.