Settle Portfolio

Modular portfolio management supporting Digital Asset and Crypto Derivatives.
Open App
IEO is the new ICO: What is an Initial Exchange Offering?

IEO is the new ICO: What is an Initial Exchange Offering?

IEO - Initial Exchange Offering

What’s an IEO?

First off, it’s not a typo. An IEO (Initial Exchange Offering) is a new fundraising mechanism in the blockchain space. Increasingly, when a development team wants to raise money for a new coin, token, or project, it will partner with a centralized exchange for its token launch. The team mints new tokens and sends them to its partner exchange. And then, the exchange lists the token for purchase by traders or investors. If this all sounds familiar, that’s because the IEO is pretty much a rehashed version of the ICO (Initial Coin Offering).

Binance popularized the IEO format with its Launchpad service, and the concept quickly caught on with other exchanges. The IEO makes it easy for exchanges to create and maintain hype for new token sales while capturing a larger percentage of the profits.

What’s the difference between an IEO and an ICO?

In general, IEOs simplify the process of conducting and participating in ICOs for users and project teams. But this simplicity comes at the cost of putting the power in the hands of a central authority, the exchange.

Taking advantage of centralized exchange infrastructure

Exchanges have the infrastructure in place to handle processes like KYC (Know Your Customer) verification and on- and off-ramps for fiat currency. Projects looking to raise funds can rely on the exchange to collect the necessary user information. Having this info lets exchanges enforce restrictions on who can participate and the amount each investor can buy during the token sale.

Piggybacking off the exchange’s users, reputation, and marketing

Most exchanges involved in IEOs already have an existing customer base for token-selling teams to tap into. The exchange has an incentive to promote the IEO to its customers so it can maximize its fees from the sale. What’s more, new and existing users may choose to participate in the IEO because they trust the exchange and its reputation.

Instant trading

With ICOs, immediate liquidity wasn’t always a guarantee. Sometimes weeks or even months would pass before the new tokens were listed on prominent exchanges. In contrast, exchanges that conduct IEOs often have the ability (and motivation) to provide liquidity to traders immediately after the sale because they earn fees on every trade.

IEOs, like ICOs, are still subject to regulation

IEOs may seem like a clever way for exchanges to attract more customers and collect more fees. However, they may go down as more of a marketing gimmick than a viable long-term strategy for exchanges that aim to offer services worldwide.

ICOs reached maximum hype back in 2017, but the trend quickly died down. Heading into 2018, the bear market set in, and regulatory bodies started scrutinizing token sales they considered to be improper security offerings. In response, many projects holding ICOs began to exclude citizens from certain jurisdictions (like the US) from participating. Continued regulatory uncertainty has led to similar restrictions from IEO platforms such as Binance’s Launchpad.

The SEC is not a fan of IEOs

Valerie Szczepanik, Senior Advisor for Digital Assets and Innovation at the SEC (and colloquially referred to as the SEC’s “Crypto Czar”), spoke about the matter during Consensus 2019. She said that exchanges conducting IEOs were “probably engaging in broker-dealer activity.”

If the SEC formally adopts that position, exchanges that hold IEOs would likely need to register with the SEC in order to include US investors. Otherwise, in Ms. Szczepanik’s words, “they will find themselves in trouble.”

Now what?

IEOs may present a novel way to conduct a token sale, but the buzz around this new approach hasn’t yet matched the 2017 ICO frenzy. Whether that happens remains a question, but we aren’t holding our breath, at least in jurisdictions like the US. If IEOs sound like your thing, you might want to sign up for a Binance account to learn more.

Far be it from us to dispense investment advice, but if you’re looking to get into the crypto markets while minimizing regulatory uncertainty, you might consider looking into some projects with proven track records. And once you’ve done your own research and targeted some worthy tokens, you should check out DEX.AG to make sure you get the best price.