What Is an Initial Exchange Offering (IEO)?

An initial exchange offering (IEO) refers to a fundraising event organized and executed on an exchange platform. In the blockchain ecosystem, when a new token or decentralized protocol is on the verge of a public launch, the team will set up fundraising that will be conducted on a significant exchange platform like Gate.io. In an initial exchange offering (IEO) run by the fundraising team, users and blockchain enthusiasts will signify interest and purchase tokens with their funds directly from their exchange wallets.

An initial exchange offering (IEO) is conducted to enable as many people as possible to purchase the token and become holders of the new token directly from their wallets. Cryptocurrency startups use the Initial exchange offering (IEO) to raise capital through a trading platform. An initial exchange offering was introduced to correct the anomalies that have characterized Initial Coin Offering (ICO).

What Is an Initial Exchange Offering (IEO)?

Initial exchange offerings are capital and fundraising events organized for users and crypto enthusiasts to send their funds directly from their wallets and become holders of the newly launched token. The entire buying and payment occur on an exchange wallet in an initial exchange offering. As a user or enthusiast, you only need to have an account on the exchange wallet and a substantial amount. When the IEO goes live, you will pay directly on the wallet and receive the amount in your wallet.

Crypto startups and blockchain protocol developers use the initial exchange offering to raise funds that will help support the project and build its community. An initial exchange offering gives a crypto startup the leverage to reach their immediate user base and reduce the external marketing funnels for fundraising. Most times, when a crypto startup seeks the partnership of a reputable exchange platform to help them conduct their fundraising on its platform, it is the users of such exchange platform that constitute the significant percentage of holders of the token.

In 2017, the initial coin offering became a high-risk and unfavorable arrangement for fundraising. As much as people wanted to participate in token capital funding and blockchain project releases, the initial coin offering posed many risks. Users could accidentally send funds to the wrong wallet or have some fundraisers absconding with the raised funds. At this point, it became expedient for the cryptocurrency ecosystem to find other viable and less-risky solutions to fund their businesses. At the end of 2017, China banned ICOs, which led to the fast development and acceptance of Initial exchange offerings.

An initial exchange offering is conducted on a reputable crypto exchange platform on behalf of the company or developer launching the new tokens. In a formal arrangement, the startups agree to pay a fee to the exchange platform and get a certain proportion of the tokens sold. Once the agreement is finalized, the crypto tokens are listed on the exchange platform. So whoever checks the exchange platform will see the new token and decide to invest, sending their required amount to the platform hosting the IEO directly. The larger the users of such an exchange platform, the more the investors and holders of the newly launched product.

How Does an Initial Exchange Offering Work?

An initial exchange offering (IEO) is conducted on behalf of a crypto startup or developer by a regulated cryptocurrency exchange. Since IEO’s launch into the cryptocurrency ecosystem, it has become a popular fundraising and crowdfunding arrangement. An initial exchange offering is a partnership between a crypto trading platform and the project’s developer.

• White Paper Drafting: The developer of the token or startup will compile the white paper draft containing how the tokens will be funded, the backing sources, and the payment platforms where users can make transfers and transactions using the newly launched token. The white paper will detail how the funding that supports the cryptocurrency will be obtained, and its expected value when it becomes publicly available.

• Project Submission: The following procedure is for the token or blockchain developer to register with the exchange platform that will conduct the initial exchange offering. The project submission signals the interest of the developers to sell the tokens via that platform.

• Vetting process: Once the exchange receives the whitepaper, they verify that the project and developer are creditworthy. The vetting includes tokenomics assessment, team background check, and the projected trajectory of the token.

• Contract agreement: Once every detail and metric are verified, the exchange will approve the IEO as a legal contract. The developer will be required to pay a proportion of their utility tokens and a listing fee before the token becomes available on the exchange platform.

Pros of an Initial Exchange Offering

Some of the notable advantages of an Initial exchange offering are:

• Ease of participation: It is easier to participate and become a token holder in an initial exchange offering. You do not need to manage on-chain transactions with different wallets on different blockchains.

• Boost of investor’s confidence: An initial exchange offering ensures that the exchange platform and the token developer vets the token’s legal regulations and viability. Investors are confident of such an IEO project and are sure it is devoid of irregularities.

• Mutual benefit: In an IEO, the project initiator benefits from the marketing expertise of the exchange while the exchange benefits from the funds and percentage of sales from the token.

Cons of an Initial Exchange Offering

The shortcomings of the initial exchange offering include:

• Listing fees: Developers of the crypto token or blockchain protocol will have to pay listing fees to the trading platform. The exchange platform may charge the issuing company and investors a higher token listing fee.

• Less value: There have been situations where the tokens issued in an IEO are less valuable than portrayed during the launch phase.

Conclusion

Initial Exchange offerings have proven less risky than other crypto fundraising activities.

The ease of participation, whereby you can participate in the purchase directly via your wallet, makes the IEO better compared to ICO.

If you are looking forward to investing in a token or project, you should participate in an IEO on a trusted and reliable exchange platform.