Initial Exchange Offerings (IEOs) have replaced ICOs (Initial Exchange Offerings) when it comes to bringing new coins into the cryptocurrency markets. At the moment, most would consider IEOs the best way for a token to enter the market — an IEO launch is a more secure, more efficient way for cryptocurrency projects to get listed on a cryptocurrency exchange. Not to mention, the returns on coins/tokens launched via initial exchange offering have been astronomical.

What are the initial exchange offerings?

An initial exchange offering is a token offering that takes place exclusively through a cryptocurrency exchange. The exchange acts as the counterparty — so in this case, the seller of the coins/tokens.

An IEO is considered a more secure way to get listed on a cryptocurrency exchange compared to ICOs. The exchanges that act as the counterparties are typically well-known companies that are leaders in the cryptocurrency-exchange space. That being said, they have reputations to uphold, and therefore rigorously vet the projects that will potentially be listed on their exchange before underwriting the coin/token sales. And because the exchanges have their reputation at risk, the projects they hold IEO’s for will most likely be credible projects that do not lead to fraud.

For instance, Bittrex actually canceled the RAID IEO that they were supposed to host because RAID terminated a partnership that appeared to be a crucial part of their business plan; this just goes to show, exchanges carefully analyze projects before deciding whether to act as the counterparty in the offering. Several exchanges host initial exchange offerings, but a few of the most popular IEO hosts are Binance, Bittrex, Bitmax, Huobi, Kucoin, and OKEx.

Cryptocurrency projects typically find the IEO model more appealing than an ICO because it removes a lot of legal — and marketing — pressure from their company. The cryptocurrency exchange hosting the IEO is responsible for AML and KYC of the investor; that being said, the projects are guaranteed to only have accredited investors participating in their token sales which removes a lot of the legal compliance pressure from the company launching the token.

And because the exchanges who host IEO’s are typically well-known cryptocurrency exchanges, the company launching a coin/token does not need to market their coin/token as much as they would need to if they were holding an initial coin offering through their companies website rather than a prestigious exchange.

The success of IEO’s

Projects that get listed on the market via IEO typically see high rates of return. One reason for this may be because when a prestigious exchange launches an IEO, it can be thought of as the exchange giving that project a stamp of approval. These exchanges hosting IEO’s are industry leaders with their reputation at risk, so they hold the projects they list to high standards and rigorously vet the projects before deciding whether or not they will be the counterparty in the token sale and list the coin afterward.

That being said, it is not unusual for IEOs to raise millions of dollars in a matter of minutes. BitTorrent, one of the very first IEO’s to hit the market — January 2019 — launched via Binance and raised 7 million in under 15 minutes in their token offering. Fetch.AI — the second project to launch via IEO on Binance — raised 6 million in just 22 seconds. And during the month of April, Blockcloud saw a 10x ROI on their IEO launched via OKEx.

The difference between IEOs and ICOs

A few of the most significant differences are that:

In an IEO, the exchange underwriting the token is responsible for the token sale and token distribution process. Compared to in an ICO, where the company launching the token conducts the sale themselves through a smart contract and is responsible for collecting funds, as well as distributing the tokens sold.

In an IEO, the project whose token is entering the market is guaranteed to be listed on the exchange underwriting the token after the IEO has ended. This differs from an ICO because, in an ICO, there is no guarantee that the token will be listed on an exchange after it’s token sale has ended. It will be the cryptocurrency companies responsibility to communicate with exchanges and get their token listed after they have completed their token sale via ICO.

And finally, the project/investor screening process is a major difference between the ICO and IEO models. In an IEO, the exchange is responsible for vetting the project to make sure it is credible and not fraudulent, as well as making sure all the investors interested in participating in the token offering comply with AML and KYC. Opposed to the ICO model, where the project doing a token offering is typically not vetted, and can — and has in the past — lead to cases of fraud. In addition, in the ICO model, it is up to the company launching the token to make sure their investors are accredited investors and that the token sale is compliant with state and federal laws.

A popular trend for the short term

Initial Exchange offerings are currently the most popular method for cryptocurrency projects to get listed on the market. Although a relatively new concept, IEO’s have come to replace ICO’s — especially since the legality of ICO’ became uncertain in many jurisdictions around the world. Nonetheless, IEO’s are simply the better fundraising method; the IEO model has proven to be more secure and more efficient than the ICO model — not to mention, when a prestigious exchange gives an unreleased project their stamp of approval and agrees to host the token offering, it gives the unreleased token a lot of investor attention. That being said, for — at the very least — the short term, we expect initial exchange offerings to be an interesting development and a popular trend in the blockchain and cryptocurrency space that will continue to grab the attention of both retail and institutional investors.

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