An Initial Exchange Offering (IEO) is an event hosted by cryptocurrency exchanges for the purposes of fundraising start-ups related to the blockchain and cryptocurrency fields.
The goal of an IECO is much like that of an ICO (Initial Coin Offering), which raises fundings by allowing investors to purchase the newly-released coin. However, with ICOs being decentralized and unregulated in terms of distribution methods, there is a high risk that scams or security threats can take place.
Hence, IEOs were born.
Under the administration and supervision of cryptocurrency exchanges, fundraising projects can be filtered through beforehand. Afterward, the exchange would announce or advertise the IEO token sales on their platform.
Therefore, it is mandatory for the exchanges initiating IEOs to provide a sense of security assurance for those participating in the event as small mistakes could lead the exchange to become untrustworthy in the eyes of investors. In summary, it is because of this main factor that IEOs are considered safer and more trustworthy to participate than other fundraising methods.
By starting IEOs, numerous parties involved can benefit from the event, this includes the start-up company, exchange platform initiating the Initial Exchange Offering and investors.
Start-up companies are able to acquire the needed funding to start the development of their project, while also receiving commercial advertisements from the cryptocurrency exchanges they partner with as well.
The following upside is the partnered exchange is able to secure profit through transactions and interest fees from token sales. Additionally, these crypto exchanges also acquire an extended reach to new users that have registered for participation in the IEO.
Lastly, investors also gain benefits through the purchase of tokens at a reasonably inexpensive price, which can potentially grow and reward them in the long run, while also guaranteeing security in terms of trustworthiness.
Though the support of a well-known crypto exchange can guarantee fewer risks to both the start-up company and the investors, an IEO still attains a range of downsides, nonetheless.
1. High transaction or additional fees are still potentially included, though the price of the coin is tagged to be inexpensive.
2. As IEOs are processed through exchanges, KYC and AML procedures are also required to be followed, further resulting in the filtering of potential buyers of the released token. In short, this means a great number of unqualified investors would not be able to buy their desired tokens in time or at all.
3. Tokens offered in IEOs risk being made temporarily viral for the purpose of hyping the coin and its price up for additional sales, plausibly even leading to Pump-and-dump occasions.
4. Though considered safe, projects offered by crypto exchanges can still fail at certain points in time, meaning they are not 100% secure.
How to participate in an IEO
It is integral for an investor that is interested in participating in an IEO to study the project and which exchange platform it will take place on to systematically register and finish their KYC or AML processing in time before the coin launch. Lastly, it is advised that investors look into what currencies are able to be used to purchase the tokens. After the point of discovery, they may collect their funds in preparation for the upcoming IEO.