The Emergence of Crypto IEO: Could 2020 Be the Hottest Fundraising?

Beginner’s Guide / 17.04.2020

In just over a year since it became popular, IEO (Initial Exchange Offering) managed to replace ICOs (Initial Coin Offerings) as the fundraising system of choice for a majority of blockchain enterprises. 

In simple terms, IEOs are a token sale that operates through a partner exchange. It’s identical to an ICO in almost every way except that investors who can participate in the sale are typically limited to users on the associated exchange.

The IEO process kicks off with an agreement between a cryptocurrency project and an exchange. Because of the popularity of IEOs, exchanges usually require potential partners to complete (and pass) an application process before partnering with them.

Often, the cryptocurrency exchange already has the infrastructure in place to collect KYC/AML information, facilitate the sale, and distribute the tokens once it’s complete. So, for token teams, conducting an IEO is simple as providing some information to the exchange with which you choose to partner.

Why Are IEOs Better Than ICOs?

One of the biggest advantages is there’s a reduced risk of investment funds being siphoned from a hacked website. One example of this happening to an ICO is the Etherparty hack, whereby hackers discreetly modified the Ethereum address displayed on the ICO website to reroute incoming investments to a Hacker’s Ethereum address.

The barrier to entry to launch an IEO is also significantly higher than an ICO, which is beneficial to investors. Trusted exchanges will (in theory) only list reputable projects after they perform extensive due diligence. 

Compare this to ICOs, many of which copy and paste existing whitepapers, create fake founder LinkedIn profiles, and then advertise to unsuspecting investors using Google Adwords.

In this sense, IEOs are a much better alternative to ICOs. Investors have a much easier time both accessing the fundraising opportunity as well as funding the investment. This is provided in a safe (but unregulated) environment as provided by the exchange. 

IEOs on Binance Were Best performers for 2019

Binance Launchpad is arguably the best token launch platform on the market. It is backed by one of the top crypto exchanges in the world and is led by a class act Changpeng Zhao. The Launchpad is powered by leading tech (capable of processing over 140,000 orders per second) and high-level partnerships, which bring an abundance of investors to every token sale. Hence, liquidity is rarely a problem with Binance.

Binance Launchpad, which launched in 2017 just to become mainstream in 2019, has had many successful IEOs, including Matic Network (MATIC), BitTorrent (BTT), Celer Network (CELR), Fetch AI (FET), Bread (BRD), and others.

In fact, Binance’s Launchpad has attracted so many investors it had to introduce a “lottery method” to give everyone equal opportunity to invest. In most cases, investors must purchase BNB (Binance’s native token) to participate. 

Besides, the platform supports all sorts of languages and devices, making it easier to invest in IEOs regardless of where you are. 

Other Top IEO Platforms For Investors

Cryptocurrency market statistics reveal that around 65 IEOs have been launched in the past six months, with over 40 of them having reached their soft cap or even hard cap successfully. About 15 IEOs will be launched in the next three months. 

Notably, half of them are conducted by projects that have already completed their IEOs. All told, 245 projects conducted an IEO and managed to collect $3.4 billion over the past three years.

The evolution of raising money in the crypto industry has undoubtedly come in the form of Initial Exchange Offerings, and in the list below, we’re sharing the best performing IEOs that are giving Binance Launchpad a run for its money. 

1. Gate.io Startup

Gate.io Startup offers an initial exchange offering platform that also offers an opportunity to purchase blockchain assets at a discount. As a result, its offerings come with three distinct labels:

  • Initial exchange offering (red label) – This offering is largely used for crowdfunding and launching of fresh and innovative crypto and blockchain projects into existence.
  • Non-initial exchange offering (blue label) – Used for crowdfunding existing blockchain and cryptocurrency projects that would like to exchange some of their coins for extra funding.
  • Discount deals (orange label) – Gate.io startup also offers you an opportunity to purchase major crypto-assets like BTC, ETH, and others with 20% or so.

As of 2020, the startup has already launched over 40 offerings, and all the projects seem to raise substantial amounts of either USDT or Gate.io’s native Gatechain (GT) tokens. 

In terms of raised capital, it’s most successful offering was the initial sale of Crypto Neo-value Neutral System’s tokens (CNNS). The offering raised 3124% of its goal and got 112,484,289 USDT in total – a substantial sum for a new crypto project.

In April 2020, Gate.io’s IEOs still have net positive average profitability, thus making the platform a great option for IEO investors.

2. OK Jumpstart by OKEx

This is another excellent platform for blockchain projects, which basically offers a high-quality liquid market, top-notch tech, and excellent exposure along with token listing opportunities in one of the most respected crypto exchanges around the globe.

OKEx introduced a subscription plus allotment approach to avoid oversubscription. This way, there’s a brief 30-minute subscription window before an IEO, which closes if the max limit is reached. 

The average return on investment (ROI) on the OK Jumpstart platform has plummeted to approximately -20% as of April of this year, but this can be attributed mainly to the adverse price action resulting from the March 12th market crash. The average all-time high ROI on OKEx’s IEOs is more than 570%.

All in all, the platform checks all the required marks to be one of the top IEO platforms – a reputable, easy to use high liquidity exchange, powered by top technology and credible team.

3. Bittrex

This is a long-established and popular cryptocurrency exchange with sturdy security measures, infrastructure, and liquid markets. Although the exchange had some troubles before launching its first IEO for RAID project, Bittrex IEO made the headlines with VeriBlock token sale, which lasted 10 seconds.

Bittrex doesn’t have an exchange token, so its token sales raise funds with Bitcoin (BTC). That makes its IEOs more accessible to everyone. However, it hasn’t introduced any “fair distribution” procedure either, which means you have to be extra fast to make your IEO purchase count.

Currently, the Bittrex IEO platform is negative in terms of profitability. Despite that, the platform remains a competitive IEO platform with many hot projects on it.

New Entrants Help IEO Market Expand

As changing trends make the process of fundraising more difficult to undertake successfully, exchanges have leveraged their role as the primary beneficiary of crypto’s bull markets to use their capital and extensive reach to upgrade the fundraising model. 

IEOs issue tokens directly to a captive audience (exchange members) using their own user wallets and list the token on the exchange itself for instant liquidity. 

The IEO concept was first pioneered by Binance’s Launchpad, which offered a more cost-effective platform for blockchain projects. In the time since, several other major exchanges have launched their own IEO platforms, including Bittrex and Huobi.

The latest entrant to the IEO market, BitForex, is swiftly catching up with some fascinating IEOs already lined up. BitForex exchange’s Turbo platform has previously launched 4 IEOs and is set to release its 5th one with events marketplace Evedo.

Some IEOs Have Been Disappointing for Investors

IEOs were supposed to be the darling of 2019, offering blockchain projects a more streamline fundraising method and faster liquidity, while providing investors with a convenient way to invest in early-stage tokens.

However, according to a recently published report from crypto exchange BitMEX, a notable number of 2019’s major IEOs have performed very poorly since being listed.

Except for Matic Network (MATIC), which has now gone through two major pump and dump cycles, all of the IEO tokens analyzed in the report are deep in the red from their first traded price. 

According to BitMEX, unless IEO investors unloaded their positions once trading began (which we can assume many did), then they have likely lost money. Of the 12 IEOs analyzed in the report, only 4 of the tokens are currently trading above their offering price.

What Are The Advantages of IEOs?

Here are the main advantages of IEOs.

For investors:

  • Lower risk: When investors participate in an IEO, they can be sure that the crypto exchange launching the sale is guaranteed to list the token, which that isn’t the case with an ICO. 
  • Trust: Assuming that exchanges do due diligence prior to launching an IEO, investors can trust that a project has been scrutinized. They must still do their own due diligence, however. 
  • Greater security: Top exchanges like Binance typically offer superior security precautions to those offered by smaller projects. 

For Projects:

  • Increased visibility: IEO Projects that ma to get their tokens listed on renowned exchanges like OKEx often enjoy more publicity and visibility along with instant access to a large pool of potential investors. 
  • Reduced operating costs: As IEOs are facilitated by a well-known crypto exchange, blockchain or crypto projects do not need to handle any KYC and AML processes, which saves them money. 

For Exchanges:

  • Increased customer base: Facilitating an IEO usually helps crypto exchanges attract new customers and expand their user base. 
  • Increased revenues: Exchanges usually make profits on deposit and withdrawal charges when investors participate in IEOs.  

Bottomline

Without a doubt, IEOs have managed to surpass the objective of being the paramount platform for token sales and fundraising via crowd sales. They have mitigated risks and dire consequences associated with ICOs, and therefore, have acquired genuine credibility in the cryptocurrency market.

Despite some cases of poor performance on the open market, IEOs have proven to be an easy and low-risk way for projects to raise capital without offering up a large portion of the total token supply, with the typical IEO bringing in around $3-8 million.

In conclusion, what is currently more important than the actual project being listed is where the project is listed. In most cases, reputable exchanges such as Binance and Huobi do due diligence prior to launching an IEO, so investors can trust that a project has been scrutinized and is likely to be a success. 

Many anticipate that once regulated security tokens increase in popularity, then IEOs may be an enticing option to list security tokens on regulated exchanges. This would be similar to how stock exchanges currently operate.

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Wayne is a Blockchain enthusiast and expert in crypto trading. Currently, he covers trendy issues on digital currencies.