We have been hearing that Initial Exchange Offering (IEO) is the next trend in blockchain-based crowdfunding. Several exchanges in the crypto world have started Offering IEO services. Exchanges like Binance, IDAX, LA Token have successfully completed first IEO projects and have been very successful in attracting investors to the exchange.
But how does it differ from ICO?
Initial Exchange Offering is an agreement between fundraising companies and exchanges after minting tokens by listing them on the exchanges directly. In ICOs, the listing of tokens in the crypto-exchanges takes place as a separate process. The token issuers have to pay a listing fee and commission on token sale to the exchanges.
All companies/startups, in every stage of fundraising, can opt for Initial Exchange Offering services. There is a growing trend of companies preferring Initial Exchange Offering over Initial Coin Offering because of its shorter time to raise funds with the help of Exchanges. The main challenge for the entrepreneur is the selection of the crypto-exchanges.
Benefits of Initial Exchange Offering
Fundraising Environment
The fundraising of IEOs is conducted in the exchanges whereas, in ICOs, it’s conducted in token issuers platform. Once the tokens are created, the startup can approach the exchanges to list their tokens to raise funds. The exchanges will charge a listing fee and commission on token sales.
Leveraging User Base
The main benefit of employing IEOs is the wide user base of the exchanges trading tokens. Every popular exchange has millions of users, those who are involved in active trading of cryptocurrencies. If a company wants to get funded quickly but has no popularity among the investors, then IEO is the best means of raising funds.
KYC/AML
Problems with verifying investors? No worries! In IEOs, AML/KYC will be done by the exchanges. So there is no need of wasting time in employing legal companies to oversee the verification process. Generally, KYC/AML will be done by the token issuers which makes the crowdfunding process tedious.
Reliability of Token Issuers
The exchanges thoroughly check the credibility of token issuers before launching them on their platform. This creates a win-win situation for both the entrepreneur and investors. Investors have trust in the project party as it is verified by the exchange and the entrepreneur can utilize this mileage for their fundraising process.
Smart Contracts
Smart Contracts in IEOs will be managed by the exchanges itself, unlike the token issuers who manage smart contracts in ICO. The exchanges will manage the token sale event, track the available tokens in circulation, demand-supply, daily trends, etc. This reduces the burden of the project party to concentrate better on other activities.
Token Listing
Generally, token issuers will raise funds through their platform and list in the exchanges. The token issuer needs to comply with more regulations before approaching the exchanges and this leads to opportunity cost. In IEO, the process starts with the listing of tokens in the exchange and raising funds.
Summing-up
Raising funds for a startup at its initial stage is a challenging aspect as it decides the company’s existence. Initial Exchange Offering is a gift for every budding startup aspirant to build their dream through effortless fundraising.
