In recent years, ICO scams and heightened levels of investor wariness have made it difficult for new blockchain projects to raise funds. During this time, alternative fundraising solutions were explored, leading many analysts and investors to speculate how projects will adapt and innovate to continue driving investments.
One of the methods that came out of it was a new take on the ICO model: the IEO, aka an ‘initial exchange offering’.
But how has it done so far? Has its short history proven itself to be a viable route for projects looking to court investors?
According to CoinSchedule, IEOs have already raised over USD 1.2B for projects since the start of 2019. That’s not a number that you can sniff at!
But numbers don’t tell the full story. Here are our reasons why we believe that IEOs will continue to be a popular fundraising strategy for the foreseeable future:
IEOs reduce investment risk
IEOs have a distinct advantage in the area of trust. They are more trustworthy for investors.
This trustworthiness comes from exchanges screening every project looking to launch an IEO on their platform. Exchanges hosting an IEO are incentivized to ensure that the project they’re endorsing is legitimate and trustworthy.
This means that any project looking to launch an IEO on an exchange must make itself transparent for that exchange. As all projects launching IEOs will have met their host exchange’s legal, technical, and team requirements, any IEO will stand out from the sea of ICOs as a more credible investment.
This impression of quality only gets stronger with projects launching IEOs on larger and more well-reputed cryptocurrency exchanges, such as Binance.
More cost-effective advertising for projects
When an IEO’s tokens are traded on an exchange, the host exchange receives a fee. This incentivizes the exchange itself to help projects market their IEOs, resulting in a situation where crypto startups can advertise their projects to a massive but highly targeted audience on a cost-effective basis. Depending on the nature of the agreement, the listing fees can be reduced (in some cases, even eliminated).
Investors also benefit from this arrangement. Since exchanges receive a fee when the tokens are traded, exchanges are then incentivized to approve quality projects that will maintain investor interest and speculation in the long-term.
More participation on launch day (and long after)
IEOs are not open to the general public. To participate in an IEO, Investors must be registered on the host exchange. Additionally, the token is first available to pre-existing clients of the exchange that have undergone a KYC process. This positions an active audience to invest in and trade these tokens right when the IEO officially launches.
The importance of this is simple: a token that is actively being traded draws the attention of more investors. Popular investments attract investors long after the IEO is finished. Smoothening out the process to participate means that the IEO will be better positioned to make ripples in the community on launch day. A good first impression may make or break a cryptocurrency.
Additionally, due to the nature of IEOs, tokens issued in IEOs are also more likely to be listed on the exchange far quicker than ICOs, as usually listing is a part of the deal flow and agreement with the exchange. This eliminates the layer of smaller investor participation within the crowd-sale and gives IEOs access to a new set of clients.
IEOs provide an increased level of trust for cryptocurrency projects in the industry. By raising the standards to an industry that’s viewed as lawless and “scammy” to outsiders, they benefit the ecosystem as a whole.
As the cryptocurrency space receives more attention from serious investors, projects have become more willing to embrace IEOs for fundraising. With an increase in deal flow for IEOs over the past few months, it looks like the IEO is here to stay.
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