You’ve probably come across Initial Coin offerings or ICOs, and Initial Exchange offerings or IEOs if you’ve been a part of the cryptosphere. With the crypto sphere expanding, we’re being introduced to many startups and upcoming crypto projects that need to raise capital, establish their project, and attract developers and contributors.
While there are many ways to raise capital for your projects, such as being funded by venture capital or pre-mining; however, they aren’t as effective. Raising funds from venture capitals is very time-consuming, and pre-mining can hurt the public’s perception of the project. So what’s the best way to raise capital for your project?
This is where ICOs and IEOs come in. In this article, we’ll discuss how IEOs and ICOs are very effective in raising capital for cryptocurrency projects and blockchain solutions.
What are ICOs?
ICOs, short for Initial Coin Offering, is the process of offering new cryptocurrencies for raising capital. Investors invest in tokens in anticipation of the price rising. Consequently, token issuers can raise capital for their project by selling those tokens. Simply put, ICOs are a form of crowdfunding by creating new crypto tokens.
ICOs were introduced in 2013, when Mastercoin, a digital currency, and communications protocol layer, raised almost $600,000 in funding through their first ICO. Mastercoin used the funding to create a Bitcoin exchange and transaction platform. With the introduction of ICOs by Mastercoin, many other projects, startups, and exchanges followed suit, and with that came the era of ICOs, where every other day, you would come across an ICO.
What are IEOs?
IEO, short for Initial Exchange offering, similar to ICOs, is fundraising for start-ups by offering cryptocurrencies to people. However, as the name suggests, IEOs revolve around cryptocurrency exchanges for raising funds. In addition, IEOs are maintained on trading platforms of cryptocurrency.
Similar to ICOs, Investors invest in offered tokens before they’re introduced to the market. However, note that IEOs are accessible to registered members for the exchange; only members associated with an IEO can contribute to the project.
IEOs vs. ICOs: The Key Differences
Now that we know what IEOs and ICOs are let’s dive into the key differences between the two critical concepts.
IEOs are custodial.
Unlike ICOs, where projects and startups offer their coins by themselves, IEOs are managed by third parties. In an IEO, a cryptocurrency exchange acts as an intermediary or a middleman between token issuers and users.
The exchange platform verifies the details and offerings of an IEO project and ensures to support projects whose goals are sustainable, achievable, feasible, and towards market demand. In an IEO, an exchange puts its neck on the line for these projects, so, understandably, they have to implement all the standard checking procedures.
After all quality assurance checks, these tokens are listed on the cryptocurrency exchange platform. Investors, usually the users of that exchange, buy tokens via funding their wallets on the exchange platform.
IEOs are Transparent
Since cryptocurrency exchanges are putting their neck on the line for these projects, it ensures start-ups complete standard due diligence procedures before they can verify and list the token. These procedures often require start-ups to state every detail about their projects, such as project members, company information, and identity verification via KYC processes.
This makes it difficult for malicious users to exploit fundraising methods.
Contrarily, Token issuers in ICOs are not required to disclose their company’s details or their team identities. They can create websites, publish whitepapers, and launch their ICO platforms to sell tokens to investors.
Comparing the two, you can see the problems inherent in ICOs. Anyone can launch an ICO and raise capital. And there’s enough evidence to this claim that ICOs are often exploited by malicious users, fraudsters, and scammers.
IEOs advocates for Centralization
As mentioned, Cryptocurrency exchange power ICO processors, and token sales take place on their platforms. To put it into perspective, with more users, exchanges can simply hold more IEOs and raise more funds.
Besides, investors tend to trust reputed exchanges. However, this can also push us towards centralized markets. With an increasing number of IEOs through leading exchanges, we can expect a monopoly.
IEOs can be beneficial for both exchanges, investors, and token issuers. IEO projects can generate a steady income through listing fees, commission charges on transactions, and a percentage from token sales for exchanges. Moreover, since IEOs are a hot commodity nowadays, they can attract many new users to the platform.
Similarly, token issuers get to benefit from being advocated by a reputed cryptocurrency exchange. With verification and assurance from notable cryptocurrency exchanges, start-ups can relax knowing that people will eventually trust their project.
Since more people will trust the project, token issuers can benefit from faster token sales. Moreover, they wouldn’t have to worry about marketing processes since cryptocurrency exchanges will attract customers.
Lastly, investors don’t have to go through the hassles of searching ethical coin offerings and fundraising events since they can rely on notable cryptocurrency exchanges to have done their due diligence and verified the project before listing an IEO.
It’s not hard to tell that IEOs are much safer, faster, and more reliable than ICOs. IEOs are emerging as the new crowdfunding process for the cryptocurrency industry as they replace ICOs.
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