What is Initial exchange offering (IEO) ? An Initial Exchange Offering, as its name suggests, is conducted on the platform of a cryptocurrency exchange. Contrary to Initial Coin Offering (ICO), IEO is administered by a crypto exchange on behalf of the startup that seeks to raise funds with its newly issued tokens. As the token sale is conducted on the exchange’s platform, token issuers have to pay a listing fee along with a percentage of the tokens sold during the IEO. In return, the tokens of the crypto startups are sold on the exchange’s platforms and their coins are listed after the IEO is over.
As the cryptocurrency exchange takes a percentage of the tokens sold by the startup the exchange is incentivized to help with the token issuer’s marketing operations. IEO participants do not send contributions to a smart contract such as governs an ICO. Instead, they have to create an account on the exchange’s platform where the IEO is conducted. The contributors then fund their exchange wallets with coins and use those funds to buy the fundraising company’s tokens.
Many people in the crypto space call Initial Exchange Offerings the next step in ICOs evolution. Since ICOs are unregulated and most of them turned out to be scams. STOs were supposed to be a fix. However, most STOs remain constrained by slow and expensive processes and stifling regulations. IEOs are the middle ground that addresses issues on both sides. When the IEO commences the participant can purchase the token directly from the exchange.
Given that there have been so many ICOs why should a team seek to conduct their fundraising differently? There are several advantages afforded by conducting an IEO including:
Tapping on the existing user base of the exchange to obtain contributions for the IEO.
Preventing a “Gas War” between sale participants, assuming the exchange is not decentralized (to date there have been no IEOs conducted on decentralized exchanges).
Making it significantly more difficult to scam contributors who know that they can only purchase the token from the exchange.
Functioning as a vote of confidence from the exchange and sponsor, which has to conduct its own due diligence on the developer’s project.
Listing on the exchange where the IEO has been carried out is a natural next step.
Generally, the steps to participate in an IEO begin with checking if the project you are intending to crowdfund is indeed conducting an IEO.