Moving from ICO to IEO: a natural evolution or old wine in a new bottle?

IEO (Initial Exchange Offering) is a new development stage of crypto currency investments and financing for startup projects. MasterCoin (Omni) was the first to get funding via IEO back in 2013. But why are we talking about IEOs now? The answer is quite simple: based on Satis Group LLC’s research data, 80% of ICOs were identified as fraud projects in 2017. According to TokenData’s 2018 statistics, 81% of ICOs were fraudulent, 6% failed, 5% were extinct and only 8% were implemented with success. Fraud was one of the key causes of ICO disintegration and the IEO’s growing popularity.

Why is IEO safer?

The major difference between ICO and IEO is that the latter has a third party involved – a crypto currency exchange serving as intermediary between the issuer and investors. It is the trading platform that commits to verify blockchain startups via the due diligence process. Prior to permitting an IEO, the exchange checks the records and estimates the project’s prospects of success.

Major IEO advantages

Apart from enhanced security, IEO makes one happy with its token selling speed enabled by the investors’ confidence in the exchange that is in charge of the project’s comprehensive due diligence and associated reputational risks. As a result, many IEOs are completed in a record-
breaking time ranging from 20 seconds to one day. Besides, what is even more valuable for the investors, the tokens purchased via IEO can be disposed of at once after the sale is closed, while with the ICO one had to wait one to six months after the sale. And this rapidity of making the trading lists boosts the ROI, benefiting all market participants.

IEO stages

The IEO process involves a number of stages. First, the future investors willing to finance a potential project undergo a KYC procedure for identification purposes. After that, they set up a dedicated account with the exchange. If a token gets the attention of multiple investors, one may select the most appealing investors to further promote the project, also granting those investors a purchase discount. In the next stage, the token sale participants transfer any crypto currency prescribed in the
project conditions as payment for the token, with the equivalent token quantity credited to the relevant investor account.

IEO: a fly in the ointment

Looking at the IEO’s investment appeal and reliability, there is no denying that it is better than the ICO. However, one should not assume that the IEO technology means a guaranteed return on investment or protection against fraudsters.

It is essential to understand that cryptocurrency exchangers may fall victim to hacker attacks. Moreover, not only startups but even reputable exchanges sometimes go bankrupt, causing severe implications. There are still talks about the bankruptcy of Tokyo exchange MT.Gox which has not been able to repay the debts owed to its customers since 2014. Besides, although due diligence procedures help eliminate evidently weak projects, this would not impede advanced fraud. There are even successful fraudulent schemes in the IPO domain where the verification and project requirements are more stringent.

Wrapping up

According to analysts, the IEO is a natural development of the ICO. The former’s major goal is to deal with any weaknesses, restore investor trust and repeat, or possibly surpass the ICO’s success, popularity and returns.

The SBSB team will be happy to offer you a comprehensive range of services to support the implementation of your crypto currency project. Our specialists are highly experienced in obtaining payment licenses for cryptocurrency-related operations, enabling yet another option — to create one’s own crypto exchanger or crypto currency exchange. Just sign up for the first consultation — it’s free!