An Initial Exchange Offering (IEO) is carried out on a crypto exchange platform, rather than the issuer's platform as regular initial offerings. Although both IEOs and ICOs are crowdfunding techniques, token issuers are responsible for Initial Coin Offerings while IEOs are typically managed by an exchange platform on behalf of the startup who wants to raise money. Because the token sale is performed on the exchange, token issuers need to pay the fees for listing alongside a percentage of sold tokens at the time of the IEO.
In the win-win process, the tokens can be sold on the exchange platforms and then listed when the IEO is concluded. To assist the token issuer in marketing, the exchanges are incentivized to gain a percentage of the startup's sold tokens. Unlike in an ICO, the contributions of IEO partakers are not sent to the smart contracts. Here, users will have to create an account on the digital assets exchange where the token sale is performed.
In late 2017, the Chinese authorities placed a ban on crypto startups operating in the country. One of the implications of that ban was that the companies were compelled to look for alternative fundraising techniques to finance their projects. Moving on, crypto projects began exploring new trends, among which is the Initial Exchange Offering. The new approach allowed the startups to raise money without falling into the trap net of the established Chinese laws.
A good number of cryptocurrencies exchange platforms have begun adopting IEOs. One of the first exchanges to allow such and the listing was Binance, which launched Binance Launchpad to the effect. One of the first token sales on the platform was done by BitTorrent, whose IEO made it $7.2 million in 15 minutes. Selling all tokens within such a timeframe and making such money is one thing every crypto startup dreams of. Fetc.AI was the second to list on Binance Launchpad and executed a crowdsale hard cap that landed it $6 million in 22 seconds.
Key Difference Between IEOs and ICOs
In the crypto sector, Initial Coin Offering (ICO) is the best-known way of listing a blockchain-based token on a platform. The marketing budget for this offering is substantially high and needs more resources to grab the attention of the public. In an IEO, however, there is a considerably lower marketing budget because the exchange is responsible for marketing the startup's tokens.
As long as it is legal, anyone can launch an ICO - the screening is unnecessary. But an exchange platform has to screen a startup for an IEO before letting it raise money on its platform. The exchange platform in an Initial Exchange Offering typically acts as a liaison between the issuer and the contributors. This is different from an ICO where project developers fill in as the middlemen of the crowdsale.
You can also compare an IEO to a STO. We wrote a comprehensive blog on STO some weeks ago.
How It Works
There are four major steps to an Initial Exchange Offering, namely preparing, pre-IEO, IEO, and post-IEO. In the preparation process, the startup is supposed to come up with a feasible idea by familiarizing itself with the market requirements. Here, they also understand whether they have a sufficient budget to proceed. When a startup plans for a project based on understanding and experience, they will be able to raise more funds. The project needs to be legitimate enough before it can be listed on an exchange platform. Having been prepared, the startup gets a team of partners and advisors whose intel and support will enable it to get more investments.
In the pre-IEO stage, the crypto startup chooses the exchange platform it wants to work with. The company gets familiar with their listing approach and selection criteria in order for everything to be ready in advance. After this, the startup begins to draft a whitepaper, which contains a proposal for potential investors. In this document, the company explains its project's objective, market analysis, development strategy, tokenomics, and roadmap. The token is launched on the exchange platform, but it is warranted that a project has a marketing website where users can learn regarding the brand and understand the offering.
At the end of the pre-IEO process, the startup has started developing its tokens. While this goes on, the business make sure that a maximum funding requirement is considered and in place. They need to decide on an ideal hard cap for funding in order to make sure that the target is realistic and tangible. Following the successful minting of the tokens, the digital assets are considered for listing on the desire exchange platform. Peradventure the startup meets the selection criteria and fulfills due diligence; the tokens are then listed on the exchange, and doors are flung wide open to investors.
When the token sale has been concluded, and the tokens are listed on the crypto exchange, the startup then begins to market the project and reach out to its target audience to scale. The project can be promoted by marketing strategies such as Press Release, SEO, content marketing, social media marketing, etc.
Token-issuing startups can benefit from the IEO launching, for one, because they have the vast customer base of an exchange platform at their disposal. With such numbers, the project will be able to get more contributions. Being that exchange platforms have an ordered legal structure, they can protect crypto startups from suffering regulatory repercussions of listing their tokens. For those early-sate companies on the lookout for legal resources, it will save money and a lot of time. Speaking of time, we have already mentioned that exchanges can close a token sale in just a few minutes. In some cases, it is a matter of seconds. The speed of an Initial Exchange Offering is way better than what any other platform or network can offer for crowdfunding.
Now that you have read about how an IEO works, don't you think you should talk to our IEO experts at Blockchain Assets Group to see how we can make it work for you too?